Capitalizing on increased travel by foreigners in the United States, Duty Free International has swept to a dominant position its lucrative niche.
David H. Bernstein got his start in the duty-free business at the age of 15, pushing a broom in the warehouse of Samuel Meisel & Co. on Baltimore's waterfront.
He must have profited from the experience, because Mr. Bernstein is now chairman of a company that in less than a decade has swept to a dominant position in its lucrative niche, a listing on the New York Stock Exchange and one of the fastest growth records in the U.S. retail industry.
By capitalizing on a long-term trend of increased travel by foreigners in the United States, Duty Free International has posted astonishing gains in sales and earnings in recent years. Over the past two years, DFI's sales and earnings per share have almost doubled. Sales of $55 million in 1989 soared to $105 million in fiscal 1991, and analysts expect the company to ring up $185 million in fiscal 1992.
Beth Cotner, an analyst with Kemper Financial Services who made DFI her choice in a Wall Street Journal stock-picking feature, said DFI is one of only three companies out of 200 her company tracks that has exceeded analysts' earnings projections for nine straight quarters.
Such achievements do not go unnoticed on Wall Street. Since it went public in 1989, DFI's stock has appreciated more than 500 percent, even taking into account a recent slide that has sheared more than 20 percent off its peak in recent weeks.
While DFI's headquarters are in Ridgefield, Conn., the company has roots in Baltimore. Samuel Meisel & Co., now one of DFI's three divisions, has been a fixture on the waterfront here for about 75 years, providing duty-free merchandise to ships in Atlantic ports and diplomats in Washington and New York. Now based in Glen Burnie, the Meisel company is the "guts" of DFI's operations, said Mr. Bernstein.
Mr. Bernstein, a co-founder of DFI, is a lifelong Baltimorean who still bleeds Colts blue and once told his wife he'd like to be buried under the 50-yard line at Memorial Stadium. "I've never rested a day since the Colts left this town," he said.
While DFI's chief executive officer works in Connecticut, Mr. Bernstein keeps his office at Samuel Meisel, where he has worked since his lawyer father arranged the job with his longtime clients, the Meisel bothers.
Mr. Bernstein continued to work there during summers while he attended Johns Hopkins University, and in 1958 joined Meisel full time. In 1972, the Meisels chose him to become president of the company they founded.
According to Mr. Bernstein, DFI was born out of a friendship. During the 1970s, he met John A. Couri, a young man who owned IDF Services, a company that operated airport duty-free shops, at a meeting of the international trade organization for duty-free merchants. The two became friends and began to talk about eventually working together.
Their opportunity came in 1983, when a small chain of duty-free shops on the Canadian border came up for sale. Mr. Bernstein, who had supplied the shops as a wholesaler, got on the phone to Mr. Couri.
To acquire the chain, the two men formed Duty Free International, with financing from Germany's Gebr. Heinemann,
the world's oldest duty-free company, whose top executives were also personal friends. Mr. Bernstein became chairman and Mr. Couri was named president and chief executive officer, and DFI acquired their original companies.
Since then, DFI has evolved into a company like none other in the United States. It operates three divisions, each of which special izes in a sub-niche of duty-free sales.
The border division, representing almost half of total sales, operates 49 Ammex duty-free and nine retail gift shops stretching along the Canadian border -- from Maine to Blaine, Wash., as the company likes to point out. Based at Ridgefield, Ammex accounted for $51.7 million in 1991 sales.
The New York-based airport division operates 16 duty-free and 14 gift shops at seven international airports, including Baltimore-Washington. These stores, trading as Fenton Hill American Limited, account for a quarter of DFI's business, with $25.3 million in 1991 sales.
The diplomatic and wholesale division, which rang up $28 million in 1991 sales, operates under the Samuel Meisel name out of its warehouse-office complex in the Baymeadow Industrial Park in northern Anne Arundel County. And while it is the least visible of DFI's divisions, it serves as the operational hub for the corporation.
From all over the world, containers of duty-free liquor, tobacco and perfume flow into Glen Burnie, where more than 100 DFI employees complete the extensive paperwork required by the U.S. Customs Service and ship the merchandise. From there, trucks fan out to the Canadian border, East Coast airports, major ports and Washington embassies.
All three divisions have shown steady growth in recent years, but the most impressive progress has come on the northern border, where Canada's high taxes have made DFI's Ammex store a popular stop for vacationing Canadians and visiting Americans.
And no wonder. A bottle of perfume that sells for $50 in Canada might run $30 at Ammex. A bottle of scotch that costs $50 in a government-operated Ontario store comes in around $15 at the duty-free shop. Cigarettes, another big seller, offer similar savings.
When DFI acquired the border chain, most of the stores were small and rundown, Mr. Couri recalled. The previous owner's theory, he said, was that the shops appealed mostly to blue-collar customers who didn't care how the stores looked. DFI, taking the opposite view, upgraded its stores and their product lines.
Getting people to stop has been the key to DFI's success along the border. "Everything is geared to our capture rate," said Mr. Couri, referring to a vital statistic that measures the percentage of "eligible" cars -- Americans plus Canadians who have been out of the country more than 48 hours -- that stop.
To improve the capture rate, DFI has added restrooms, currency exchanges, gasoline pumps and convenience stores at various border crossings. Under another program, bus operators and drivers are given "points" toward a purchase every time they pull into the parking lot. Such efforts have raised the capture rate at Eastern stores from about 0.75 percent when DFI bought them in to 16 percent last year, the company said.
Analysts who track the company say one reason for its success is its capable and cohesive management team led by Mr. Bernstein and Mr. Couri, who work together in a close partnership with little regard for titles. "You just get the sense that they've been working together for years," said Paul Bienstock of Moran & Associates in Greenwich, Conn.
Even though analysts are virtually unanimous in praising DFI's management, the company has vulnerabilities that make Wall Street skittish. After a spectacular run-up that lasted more than a year, DFI took a 6 1/2 -point tumble Feb. 13 when the Canadian government announced plans to slap an $8-a-carton export tax on Canadian cigarettes -- one of the leading sellers in Ammex shops. Five days later it lost another $3.87 amid news reports of Canadian-American tensions. DFI stock closed Friday at $40.75, down from the peak of $55.25 early this month but still well above the $27.25 it fetched after the stock split 2-for-1 last July.
DFI contends that the market overreacted to news that will have a minimal effect on its sales, and some institutional investors jumped on the slide as an opportunity to buy. However, the drop points up that DFI could be hurt by events beyond its control, such as a strengthening of the U.S. dollar or a new energy crisis.
The worst disaster that could befall DFI would be a massive round of tax-cutting by foreign governments, which could make duty-free shopping less attractive. But Mr. Bernstein is confident that won't happen. "Taxation in luxury goods will always continue," he insists.
With that in mind, DFI is looking for opportunities to expand. Not only will it be seeking to plug its few remaining gaps along the Canadian border, it is also on the lookout for opportunities along the Mexican borders and in the Caribbean, Mr. Bernstein said.
Meanwhile, the airport division is adding new retail concepts, some of them outside the duty-free sphere. In what might be its most promising new venture, it has bought the North American rights to Harrod's, the famous London department store, and is testing the concept of a Harrod Signature Shop at Toronto's international airport.
As owner, with his family, of 11 percent of a company whose stock is valued at nearly $1 billion, Mr. Bernstein has become a very wealthy man, at least on paper. But he shuns the trappings of wealth and is on a first-name basis with employees in the warehouse.
Outside his work at DFI, Mr. Bernstein an active board member at Johns Hopkins University and Sinai Hospital, where he is chairman-elect. Colleagues at those institutions describe him as hard-working, patient, level-headed, self-effacing and unfailingly kind -- in Yiddish the word is mensch.
"How do you describe your neighbor next door who's your best friend?" said Lloyd Armstrong, dean of students at Hopkins. "I don't know many David Bernsteins."
Mr. Bernstein, 57, could easily retire and spend the rest of his days on a yacht, but that prospect doesn't entice him. "The thrill of the chase" still keeps him going, he said.
While his personal wealth is a subject that makes Mr. Bernstein uncomfortable, there is one aspect of it that he clearly relishes: It lets him play a part in bringing professional football back to his hometown.
Mr. Bernstein has signed on with a group led by Leonard "Boogie" Weinglass, chairman of Merry-Go-Round Enterprises, that is trying to land a National Football League franchise in Baltimore to replace his beloved Colts.
"I share with him a desire to see the city have the franchise that it rightfully should have," Mr. Bernstein said. "Neither of us looks at it like we're trying to make money. We want this city to have it."
It is, in a way, his duty.