BACKGROUND OF THE CASE

“Play is the mechanism by which children learn how they experience their world,
practice new skills, and internalize new ideas and is therefore the essential work of
children”(Guyton, 2011). 

Playing with toys becomes an integral part of a child’s life. Through toys, the child
learns to interact and is given an opportunity to discover things. For parents, it has
been a useful tool to teach kids practice skills and strengthen social bonds. For
adults, it can be a beautiful reminder of the lessons from their youth.

In the 1990s, the market for toys is growing in the Philippines. As a result, Toys
Retailers Limited (TRL) entered into an exclusive concession operation agreement
with the state-owned duty free shop –Duty Free Philippines. The agreement
states that TRL will be the exclusive supplier of DFP for Toys, Infant Lines and
Juvenile furniture department at the New Fiesta Mall.

In June 1997, TRL was incorporated for the purpose of operating Toys, Infant Lines
and Juvenile furniture concession at DFP. The concession agreement allowed TRL
tax free import privileges provided that all the goods imported tax free are sold only
at DFP stores.

TRL provides the manpower, fixtures and everything else necessary to run the
store. In exchange for the concession agreement, TRL will pay DFP 30% of gross
sales. On the other hand, TRL is very familiar with the characteristics of the duty

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free market. However this is the first time that they will be handling the duty free
market for toys.

Duty Free at
Fiesta Mall

DFP is now entering its 12th year of operations. In year 1997, DFP moved to its new
Fiesta Mall right beside NAIA and is part of the Department of Tourism. It provides
over 60% of the government’s tourism infrastructure budget. It is DFP’s belief that
shopping is an essential component in the promotion of tourism.

Figure 1: Sales from the Years 1991 to 1997

SALES
$400,000,000
$350,000,000
$300,000,000
$250,000,000
$200,000,000
$150,000,000
$100,000,000
$50,000,000
$-
1991 1992 1993 1994 1995 1996 1997

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THE CUSTOMERS

a. Balikbayans
 Filipinos who lived in abroad for more than 12 months or foreigners of Filipino
ancestry whom also has lived abroad for more than 12 months
 Those entitled up to US $2,000 of tax and duty free shopping within 24 hours
of arrival and upon presentation of passport and proof of balikbayan status.
b. International Travellers
 Filipinos who lived or travelled abroad for less than 12 consecutive months.
 Those entitled up to $1,000 of tax and duty free shopping within 48 hours of
arrival and upon presentation of passport and proof of balikbayan status.

Figure 2: Customer Count from Years 1991 to 1996

CUSTOMER COUNT
800,000

700,000 673,995
631,229
606,471
600,000 553,499
500,000 468,925

400,000

300,000
216,084
200,000

100,000

-
1991 1992 1993 1994 1995 1996

THE INDUSTRY

The Duty Free retailing industry was growing by leaps and and bounds due to the increased
spending power of the new Tiger economies. In 1997, about 952,777 arrivals were
estimated to be the largest number of visitors that came from East Asia and 491,523 is the
second largest coming from North America.

The Asian economic crisis began in June 1997. The month to month sales of DFP was
affected and reduced to an average of 35% comparing to their previous year. The
devaluation of the peso caused DFP prices to become higher than domestic prices at 25%.

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THE COMPETITORS