The Billionaire Who Wasn't (14 page)

Feeney needed someone of Monteiro's drive and experience in Alaska because in 1969, he had gone to the state authorities and persuaded them to grant DFS a duty-free concession at Anchorage airport. The cash-rich Japanese tourists were not only flocking to Hawaii and Hong Kong, they were now heading to destinations in Europe and the mainland United States. The era of the Boeing 747 jumbo jets had arrived, making the world more of a global village. Anchorage was a refueling stopover for planes that were obliged to fly to and from East Asia across the North Pole, as they were not permitted to enter Soviet air space. The passengers had to disembark during refueling and hang around the primitive terminal building.

“Who would have thought of going to Alaska, a fueling stop, to open a duty free there?” said Bob Matousek. “Chuck did. He was prepared to take the risk. He had an uncanny quality, a perception, an ability to see business opportunities that no one else could. The 747s exploded the business, opened the floodgates.”

The Alaska store, dominated by a stuffed polar bear, was an instant success. When the half-dozen morning flights arrived from Japan en route to London or Paris, the passengers would stream into the terminal, shriek at the low prices in duty free, and plunge into a frenzy of shopping. There was mayhem again in the afternoon as planes arrived bound for Europe or Asia and travelers snapped up liquor, watches, perfumes, and furs. They could leave their purchases there and collect them on the way back, when they could also stock up on Alaskan king crab and salmon.

Feeney stopped over in Anchorage once on a trip with Jean Gentzbourger. Carol Monteiro had given birth to a son. They were Catholics, and they asked Feeney to become his godfather because, they joked, he was the only Catholic around at the time. Monteiro took Feeney and Gentzbourger on a tour of the city sights, which included a raunchy bar where scantily dressed women took the drink orders. Gentzbourger went to the fattest hooker in the bar, a 250-pound toothless woman, gave her $20 and told her Feeney really admired her but was very shy. She said she knew how to handle such guys and went and sat on Chuck's knee. She was so big he couldn't move. “No, no,” protested Feeney as she said, “Don't worry. I know you are a shy man.” His friends fell about laughing.

The success of Anchorage also led to what Feeney called “a complete debacle,” the decision to set up a duty-free shop for Japanese tourists in Paris. It was our “biggest fiasco,” said Bob Matousek, who had become a close
friend of Feeney and who went to manage the DFS shop when it opened on the Avenue de l'Opéra in 1970. The idea was that when Japanese tour groups transited through Anchorage or Hong Kong on their way to Paris, the store managers there would get information about the flight and telex the details to Paris. DFS in Paris would arrange for the group to be driven to the store, where the tourists could buy cheap liquor and tobacco, and Parisian merchandise such as perfume, ties, scarves, and leather goods on which the tax could be claimed back at the airport.

The Americans, however, were no match for the Parisian “crocodiles.” Rival stores and agents turned DFS tactics against them. “Paris is a city of a million stores, and the Japanese travel agents were growing more and more sophisticated as they grew older, and so they were getting paid off in cash,” said Feeney. “The biggest mistake was simply not realizing that the tour escorts would finesse us. We reached the conclusion that this was madness. So we eventually closed the store.”

The success of other DFS stores, however, particularly in Hawaii, was becoming the talk of the travel trade. The duty-free concession there was clearly a gold mine. Only the owners knew how much cash they were generating, but other retail outfits were taking notice. DFS had renewed the Hawaii concession in 1967 for three years without serious opposition. They feared that when it came up for renewal in 1970—this time for a ten-year period—they might lose it to a higher bidder. All the goodwill and effort would go to benefit someone else.

In July 1970 Feeney, Miller, Parker, and Pilaro flew to Honolulu to decide what they should bid to renew the Hawaii concession. They picked up rumors that a Japanese company called Empire Boeki was going to put in a serious bid against them. Alarmingly, the Japanese were being advised by Desmond Byrne, DFS's former chief accountant, who had moved to Hawaii after jumping ship during the 1965 financial crisis. Byrne knew the numbers. He knew how DFS operated and its potential.

Secrecy was all-important. Bidders were required to put up a large bond that had to be a certain percentage of the bid. The partners knew that if they went to a bank and bought a single certified check for the bond, somebody in the bank could figure out their total offer. To disguise what they were doing, they went to different banks and bought five or six certified cashier's checks. The four men gathered to do their calculations at the house Feeney rented at Aina Haina Beach. The bid was the minimum they would give the
Hawaiian government for each year of the ten-year concession. As the numbers man, Alan Parker supplied the raw data. Feeney was the most bullish about projections for sales. They settled on an offer of $69 million—just short of $7 million a year.

They gathered for the formal opening of the sealed envelopes at noon on Tuesday, September 1, 1970, in a drab Department of Transportation office with a fan turning at the ceiling and chairs facing a blackboard. Feeney and Parker took their seats, along with Bob Matousek and finance director Mike Windsor, an Englishman the company had hired in Hong Kong. Some airport staff came in to watch the proceedings. Kay Lund of the
Star-Bulletin
took a seat. Alan Parker looked nervous, recalled Windsor, though Feeney seemed pretty calm.

There were four bids, but only two were serious, those from DFS Ltd. and Empire Boeki. An official wrote up on a blackboard, year by year, the annual guaranteed rent each company was bidding. It was very close. Empire Boeki bid $65 million, just $4 million behind DFS. Kay Lund noted that although it had been anticipated that the winning bid would be big, airport officials gasped when the top figures were revealed. The phenomenal sums, she wrote, illustrated how lucrative the duty-free business had become, not just for DFS but for the State of Hawaii.

That successful bid “changed the owners' lives forever,” reflected Mike Windsor years later. If DFS had lost the bid, he said, it would have been a huge setback from which they might not have recovered. By retaining it, they could ride the wave of Japanese expansion.

In the next three years, the total number of Japanese overseas travelers—“OJs” as they called them—doubled, reaching 2.3 million. The number of salesgirls in the Waikiki store rose from six in 1962 to 160 in 1972, still standing shoulder-to-shoulder taking orders. The Japanese had the highest savings rate in the world, and they arrived with dollars and yen stuffed into their money belts. DFS took both currencies. One-third of the purchases were in yen, and DFS became one of the major foreign receivers of yen currency. The executives would sometimes take suitcases full of yen notes to Tokyo to exchange for U.S. dollars through banking channels. In Hong Kong, they accumulated so much yen they had to use metal trunks. “We were convinced the currency would have to revalue,” recalled Alan Parker. “We rented an enormous safety deposit box in the Hong Kong and Shanghai Bank and for months would just accumulate this yen. Then our financial
guy in Hong Kong, Colin Wright, would buy one of these old trunks, and we would fill it with 10,000-yen notes and he would fly to Tokyo and pay it in, and we'd change it into dollars.” The yen strengthened from 360 to 280 to the dollar in the early 1970s, giving DFS a huge profit on their accumulated Japanese banknotes.

They arbitraged the yen in other ways. DFS set up a company in Honolulu called Kinkai Properties Ltd. to buy the real estate for the downtown shop. “Kinkai owned and leased the building to DFS and the lease was in yen,” said Tony Pilaro. “So we went to Sanwa Bank and borrowed yen at 1 percent interest for the mortgage, we took $55 million, put the $55 million on deposit, invested in treasury bills at 7 percent. Zero risk. Six percent. It was a Christmas tree!”

Feeney went to Tokyo in 1970 and hired a “very smart” Japanese woman, Noriko Sagawa, to manage a DFS office from which they could watch trends in tourism and engage in “wholesale” trade with Japanese tour organizers. He rented space in Tokyo's Imperial Hotel, and later established an office and showroom in a building where half of Japan's prospective travelers picked up their passports. He got friendly with the major Japanese travel agents, who organized tours a year in advance, and found out where their clients would go the following year. He studied Japan Airlines' projections for passengers and routes. He retained the Nomura Research Institute of Japan to prepare a regularly updated “econometric model” to predict Japanese travel plans. The research had to be accurate, as by this stage DFS was ordering its stock six months in advance.

DFS also started providing an after-sales service at Narita airport in Tokyo and Osaka airport for customers returning from abroad who found missing or broken articles in their duty-free packages. Feeney wanted Japanese customers to see DFS as a natural and positive part of their holiday abroad, a company that would look after them and see to it that they got their purchases in good order. All merchandise was guaranteed genuine—important in a part of the world where fake consumer goods flooded street markets—and all defective or broken articles were replaced. The claims offices also reassured the Japanese customers that if their purchases were not delivered to their returning flight—as sometimes happened—they would eventually get them. The offices were stocked with an array of duty-free samples, and tourists could pick up the four-page brochure,
Passport to Shopping,
which detailed the merchandise available at the DFS stores at their
destination. Later, they could apply for a DFS credit card. DFS looked after its friends and staged a $200,000 golf tournament in Japan each year. The company successfully lobbied in Tokyo to block legislation that would have allowed Japan to sell duty-free goods to tourists arriving home.

“We set up a whole staff of people in Japan that would liaise with all the travel agencies so they knew when the tour groups were coming and what flight they were arriving on,” said Bob Matousek. “Customer relations staff would meet the tour conductors off the flights and they would come en masse to the downtown store with the tour conductor, and the travel agency would get a commission.” DFS gave the tour operators and travel agents $1 for every traveler they brought to a DFS store and a 5-percent commission on all sales made to their groups.

Feeney drew an imaginary compass around Japan, looking for other destinations where the Japanese tourists might go. He visited the Philippines but Imelda Marcos, first lady and governor of Metro Manila, made too many demands. “Imelda Marcos was trying to line up a partnership in which we did everything, put the money up, ran the shops, took all the risk, while she was supposed to get kickbacks,” said Feeney. “When the word ‘corruption' came up, we ran.” Paying commissions to travel agents was one thing—but getting ensnared with corrupt politicians was another.

Feeney set his sights instead on Guam, the Pacific island where America's day begins, as a possible future destination for the Japanese. He took the four-hour flight from Tokyo to have a look around. Guam, the southern-most island of the Mariana Archipelago, was American territory, ceded to the United States after the Spanish-American War in 1898. It had been seized by the Japanese in 1941 and recaptured by American forces three years later. About three times the size of Washington, D.C.—with one-third of the surface taken up by U.S. military installations—Guam had an indigenous population of only 65,000. The currency was the U.S. dollar, and stores stocked American goods.

The Japanese hadn't started coming yet, but it was evident they would, concluded Feeney. With its American culture, pleasantly warm climate, and coral reefs, Guam had the potential to become Japan's Miami Beach. “I realized this was a place we wanted to be. It was a natural destination. It was like Hong Kong: The only taxes were on liquor and tobacco. So we could open up a store and sell products other than liquor and tobacco. It was a no-brainer.”

“Tony, we could own this place,” Pilaro recalled Feeney telling him on a flight to Guam in 1971. “He hands me this mythical flag—on the plane as we are flying in—and says, ‘I want you to take over.' I went in and bought the living shit out of everything, bought the airport concession, bought the hotel shops, I moved very fast.”

Guam had no civilian passenger terminal at the airport, then known as Naval Air Station Brewer Field, other than a wooden shack. An elderly American, Kenneth T. Jones Jr., who in the wake of the U.S. victory in 1944 had established a retail company on Guam called Jones & Guerrero, had the retail concession at the airport, but Feeney saw that he had no idea how to run it. DFS established a shop in the Dai-Ichi Hotel, Guam's first international hotel, situated on Tumon Bay and overlooking sandy beaches and a lagoon of jade green and cobalt blue. With its Nina Ricci fragrances, and displays of Camus cognac, “we brought a little bit of Paris to Guam,” said Pilaro. In 1972, they opened a second store downtown, and at the end of that year got the duty-free concession for the airport. They opened four more stores in a row of first-class hotels that were built on Tumon Bay. Chuck brought in one of his best car salesmen, Bob Bruso, a former supply officer in the U.S. Navy, to manage Guam as the Japanese tourists, just as Feeney predicted, started coming in large numbers.

Guam was such a success for DFS that Feeney decided to have a look at Saipan, an island one-fifth the size of Guam lying in the Northern Mariana Islands, 200 miles closer to Japan. Saipan did not even have an airport. Island-hopper planes taxied up a dirt runway to a Quonset hut. Before the war, it was administered by Japan, but U.S. Marines expelled Japanese forces in June 1944 after one of the most fiercely contested battles of World War II. Of the 32,000 Japanese soldiers on the island, 29,500 were killed in the fighting. In one of the most tragic episodes of the war in the Pacific, hundreds of Japanese soldiers and residents along with their families threw themselves to their death over the 800-foot high Laderan Banadero cliffs at the island's most northern point, rather than surrender to the Americans. Under a postwar United Nations agreement, Saipan was recognized as a trust territory administered by the United States. When he arrived in 1974 on a small propeller-driven aircraft, Feeney found the island still bore the scars of the fighting. But it had better beaches than Guam and a spectacular coral reef along its western shores. It was also becoming a place of pilgrimage for Japanese remembering their war dead.