DFS to hang on to state duty-free concession

The retailer plans to proceed with a $40 million renovation of its Waikiki Galleria

With a new duty-free concession contract pretty much in its hands from the state, DFS Hawaii expects to move ahead with an estimated $40 million renovation of Waikiki Galleria.

DFS was the sole bidder seeking to operate the duty-free concession contract, good for five years at the airport and elsewhere, plus the option of a five-year extension.

The contract went up for grabs in the fall, but attracted no other bidders.

DFS, the longtime holder of the contract, has also been the sole bidder in years past, including 1996, 2001 and 2003, the year it settled a dispute with the state over $49 million in back rent.

DFS' current duty-free contract lasts until May 2007.

Sharon Weiner, DFS Group vice president, said yesterday she was pleased to be able to move forward with the renovations, though details are still being finalized.

The group hopes to begin the renovations some time in the spring. But the idea is to go more upscale by completely redoing the entrance to the Galleria -- named "Waikiki Walk" -- as well bringing in higher-end brands.

"It will be a luxury-branded presentation, along the same lines as the Royal Hawaiian Shopping Center," she said.

DFS recently completed the renovation of the Galleria's third floor, which opened on Christmas Day, featuring new brands of high-end watches and jewelry.

Under the bid, which is still under review by the state Department of Transportation, DFS agrees to pay the state at least $38 million a year for five years. DFS also must make $1.75 million or more in improvements at the airport. Weiner said the contract is usually awarded within a month. State transportation officials could not be reached for comment.

Going upscale at Waikiki Galleria, according to Weiner, is consistent with the state's strategy of targeting higher-spending visitors.

"You have a finite number of hotel rooms in Hawaii right now, and a finite number of potential customers," she said. "So you have to do a better of job of targeting the higher-spending customers, and attract them with the right stores and merchandise."

While Japanese visitors may not be spending as much during their trips to Hawaii, Weiner is confident there are emerging markets in shoppers from China, Korea or Taiwan.

In 2004, DFS shelled out $4.5 million to open a new Duty Free Shop near checkpoint three at the airport targeting shoppers en route to international destinations.

DFS also operates more than 30 regular retail stores at the Honolulu Airport. Several new ones that have opened up within the last year include Coach, Le Sportsac, Tumi and Maui Divers Jewelry.