Discount smokes

The evolution of duty-free shopping in America could be told through Ed and Janus Holder and Tommy Jeans.

Ed Holder started in the duty-free business more than 25 years ago with three employees and a pushcart full of liquor, tobacco and perfume. As international traffic surged, so did his company. Now, with his nephew Janus at the helm, EJE Travel Retail owns four duty-free stores at Newark Liberty International Airport and employs more than 70 people.

If the Holders represent the growth of the duty-free store business, then Tommy Jeans -- the Tommy Hilfiger cologne -- exemplifies the way companies like Estée Lauder now use it to showcase new products and build brands.

When Tommy Jeans first appeared in stores, it was sold exclusively at duty-free shops in airports and on cruise ships in an effort to start a buzz among consumers with time to kill and money to spend. Estée Lauder will repeat the experiment later this year when it unveils a perfume that will be available only at duty-free shops for the first 12 months.

"Travel retail is perceived by this company as an excellent way to project the image of a brand," said Olivier Bottrie, senior vice president and general manager of Estée Lauder's Travel Retailing Worldwide. "Travel retail is also a place where people try new brands."

Duty-free shopping has come a long way from the days of cramped, dusty stores full of smokes, booze and tacky perfume bottles. The shops are slicker, and the products have sleeker packaging -- all to present a more sophisticated image.

And as Bottrie pointed out, duty free even has a classier name: travel retail.

Today, duty-free shopping is a $20 billion business, Bottrie said. Although he would not say how much of Estée Lauder's $5.12 billion in sales comes from travel retail, he said "it is an important business to this company."

And to the airports. At Newark Airport, duty free accounted for 12 percent of the $160.4 million in concession sales last year, said Bill Cahill, spokesman for the Port Authority of New York and New Jersey, which owns the airport.

But more than 50 years after it was first offered at Ireland's Shannon Airport, duty-free shopping remains a foreign concept to most Americans.

Essentially, the term "duty free" means just that --merchandise that is free of taxes or duties in the country where it is sold. The concept is more lucrative -- and popular -- in other countries, were duties and tariffs are high.

According to U.S. Customs and Border Patrol, only international travelers with boarding passes can enter a duty-free store in the United States. Because items bought at duty-free shops are meant for personal consumption outside the country, the shops package purchases and deliver them to travelers after they have boarded their planes.

If Americans bring duty-free items back home, the products are to be included in their U.S. Customs assessment. In most cases, Americans can bring back $800 worth of goods without paying duties.

While duty free doesn't promise the absolute cheapest prices on a vial of Chanel No. 5 perfume or a bottle of Chivas Regal, bargains can be had.

"If you are buying in a duty-free store, you are assured (the product) is the real thing, and the price is going to be better," said Lois Pasternak, the editor and publisher of Travel Markets Insider, a trade magazine that covers the travel-retail business in America.

"I'm not going to say it's the lowest," she said. "But generally, the price is guaranteed to be 15 (percent) to 20 percent less than in the regular stores."

In the United States, many travelers assume prices in duty-free stores aren't that great. Then there is the paperwork involved in declaring the items to customs officials.

"I don't see Americans doing duty free," said Leslie Gurland, a 41-year-old West Caldwell resident who travels to Israel twice a year for business. "Who wants to schlep stuff on the plane? When I travel, I'm bringing my laptop and my magazines."

Instead, Gurland will buy her gifts to bring to Israel before she leaves and packs them in her bag. But she will visit the duty-free store in Israel on her way back to the States to buy things she can't get here.

"I don't (shop duty free) from a price point of view," she said. "It's sheer convenience."

For Lina Gomes, it's much the same. Although she stops in the duty-free store at Newark every time she flies home to Portugal, she said she does it because it's easy.

"I don't think the prices are that much lower," she said.

Janus Holder, the chief executive of EJE Travel Retail at Newark airport, said he is constantly battling the perception among Americans that products sold in airports are expensive. He said he has employees troll shops near Newark to ensure his prices are competitive.

"If we can't give them value in the U.S. and a value in whatever country they're flying to, then we have to ask ourselves why," Holder said. "If we can't, it doesn't make sense for us to have it in our store."

Holder and other duty-free store owners in the United States have to compete with the likes of Costco and Internet outlets. And in some cases -- liquor, for example -- Holder is going up against giant stores that promote a "loss leader," meaning they offer an extremely low price on one type of booze as a way to draw patrons to the store.

Still, a price comparison of some goods sold in Holder's stores at Newark airport shows deals could be had. Among them: a $24 carton of Marlboro cigarettes and a 1-liter bottle of Johnnie Walker Blue for $134. The same carton of cigarettes costs $46 to $52 at several stores near the airport, while the scotch was selling for $162 to $190 at several discount liquor stores.

Duty free always has been more popular overseas. The first duty-free shop opened at Shannon Airport in Ireland in the 1940s. According to "The Golden Book: 50 Years of Duty-Free," the legal basis for operating a duty-free store grew out of the International Civil Aviation Organization conventions in Chicago in 1944 and New York in 1954, which outlined customs and immigration procedures that many countries ultimately adopted. Among the recommendations were allowances for tax-exempt items, in the belief they would discourage travelers from smuggling when moving between high-tax and low-tax countries.

But outside of ocean liners and certain flights, it would take another 30 years before duty-free shops at airports became widespread. The trend took off after the advent of low-cost travel and the realization by airport managers that money could be made from duty-free shops, according to the book.

It was about that time -- the late 1970s -- when Newark Airport officials first approached Ed Holder about operating a duty-free business.

Holder was among the first minority concessionaires at Newark airport. After a civil rights protest shut the airport down in 1972, the Elizabeth gift shop owner got the opportunity to open a store at the airport.

When Newark started offering international flights, the Port Authority realized it needed to offer duty-free shopping, and in 1978 officials asked Holder to give it a shot.

"He was essentially pushing this cart down to the boarding gate, selling liquor and tobacco, and that was duty-free," Janus Holder said.

From a pushcart, the business grew, until Holder split his gift shop in two, selling duty-free goods to international travelers on one side and gifts to domestic travelers on the other. Today, of the five duty-free stores at Newark, the Holders own four, three in Terminal B and one in Terminal A. They remain the only minority-owned duty-free business in the country, and Janus Holder said he is interested in expanding beyond New Jersey.

Liquor, tobacco and fragrances still account for the bulk of duty-free sales, especially in the United States. But abroad, luxury goods such as jewelry and designer handbags also are popular. Industry officials say the reason is threefold: Luxury goods usually carry high taxes, so store owners can offer a big discount; the items make good gifts; and for the most part, they are portable and easy for travelers to carry off a plane.

As luxury items became more popular, suppliers began to recognize the power of the duty-free consumer. They encouraged store owners to project a glossier image and become savvier at gearing products to customers.

Companies like Estée Lauder realized travelers often browse duty-free stores for gifts. They started packaging multiple boxes of perfume and lipsticks so customers could buy in bulk and share them with friends when they get home. And because shoppers can be pressed for time, companies will group complimentary skin-care products or makeup together so a customer doesn't have to search for the different goods.

Consumer product companies also look for niches. A businessman, for example, is apt to buy cologne or skin-care for men; teens also shop, and for them duty-free stores offer small vials of perfume; and smokers are always looking to stock up, so cigarette companies will package five cartons in one box.

"You cannot systematically think you can throw anything into a store in an airport and it will sell," Bottrie said. "We create specific products for consumers (who are) traveling."

Likewise, store owners are known to roll out products according to the flights that take off. For example, some stores are known to push cosmetics preferred by Asian women -- lighter moisturizers, for example -- before flights to Japan, and then change the products to suit European women before a flight to the United Kingdom.

The duty-free business has grown along with airport retail overall. Airports used to be designed to move people from check-in to gate and from gate to baggage claim, quickly and efficiently. But that is changing, Bottrie said.

Airports are becoming "very keen in making sure they create an environment that is conducive to the travel-retail business," he said.

THE BEST PRICE

Duty-free shops like EJE Travel Retail at Newark Liberty International Airport can charge very low prices thanks to their tax-free status. But duty-free prices aren't always the best, according to an informal survey of area stores. (Store prices do not include 6 percent sales tax.)