The Billionaire Who Wasn't (7 page)

Cars International and Tourists International were facing ever more stiff competition in Europe. Salesmen flogging everything from cars to perfume and alcohol were elbowing each other out of the way to get onto the U.S. ships. Feeney believed that there could be more lucrative opportunities in the less-crowded Pacific. He sent Mahlstedt some literature about the business.

When due for “separation” from the navy in January 1960, Mahlstedt persuaded the captain to discharge him in Yokosuka, the big U.S. naval base at the mouth of Tokyo Bay that served as headquarters of Commander Naval Forces Far East. U.S. ships were constantly coming and going, but in postwar Japan there wasn't much for the sailors to spend their money on, other than the leisure activities one found at every port in the world. Mahlstedt discovered that nobody was selling them duty-free items of any kind. There was no market for liquor because the fleet's home ports were in California, which permitted only one bottle of duty-free liquor per sailor. He set out to sell cars.

“I moved to a little Japanese inn and got a Japanese girlfriend whom I used as my interpreter,” said Mahlstedt. “Each day I would go to the navy base, using my old active duty ID. And I would go on a ship and they would
ask, ‘What's your business?' and I would say, ‘Just visiting friends,' and go down to the ward room and start talking to people.” Perhaps because the sailors didn't expect salesmen, there was a lot of suspicion about Mahlstedt's pitch, and after three weeks he had not sold a single automobile. His first sale came when he took a weekend break in Tokyo and got talking with a U.S. Army captain on the train, who said he would like to buy a car and asked Mahlstedt what he would recommend. The quick-thinking salesman glanced down at a copy of
Time
magazine on his lap, saw an advertisement for Peugeot, and asked his companion, “Are you aware that Peugeot is the motorcar of the year?” Before he got off the train, the captain gave him $400 as advance payment on a Peugeot. “I think he told me how much cash he had in his pocket, and I manipulated the deposit,” recalled Mahlstedt.

Mahlstedt's persistence in Yokosuka paid off, and in the following three weeks he took deposits for twenty cars. He punched out the orders sitting cross-legged on a futon in his Japanese inn and sent them to Feeney and Miller in Villefranche. He got cards made up that said he represented “Tourist Duty Free Sales Establishment, Vaduz, Lichtenstein.” It was such a mouthful, he said, “No one had any idea what I was saying.”

Mahlstedt believed that the real action in the Far East was not in Japan but in Hong Kong, where the U.S. Navy ships berthed on the way home, and where the sailors splurged out before returning to the United States. Early in 1960, he booked a passage to Hong Kong on a Japanese freighter. He made one last sale in Japan to a chaplain on an aircraft carrier, also Hong Kong bound, who gave him a deposit of $200, telling him that if there were any problems he could be contacted c/o American Express in Hong Kong. Mahlstedt's boat was delayed, the chaplain arrived first and couldn't find him and reported that he had been swindled. An admiral put out an all-fleet message warning sailors, “Beware of Jeff Mahlstedt, who represents himself as being from Vaduz, Lichtenstein.” Mahlstedt was apprehended at immigration in Hong Kong but explained what had happened, and the chaplain did eventually get his car.

Mahlstedt set up an office in Room 1404 in a Chinese hotel on Nathan Road in Kowloon. He pinned automobile posters around the walls and registered the enterprise on June 23, 1960, as Tourist Duty Free Sales Company (Hong Kong) Limited, with directors Chuck Feeney, Robert Miller, and Jeffrey Mahlstedt. His “office” was so cramped that a customer could not get out past the bed until the ex-navy lieutenant opened the door.

Business picked up as U.S. sailors in the Pacific got wind of the deals on offer. Feeney suggested to Bob Miller that he should go to Hong Kong to help Mahlstedt expand operations in the Far East while Feeney continued developing Europe. “We divided the world, so to speak,” said Miller, who arrived in Hong Kong in September 1960 to start working with the former navy lieutenant.

Two months later, dressed in dark suits and ties, Miller and Mahlstedt opened a car showroom in Rediffusion House in Wanchai. Champagne bottles popped and a long string of fire crackers was set off to dispel the bad spirits. “I know the date because we had the
South China Morning Post
open on the coffee table and it had ‘JFK Elected President of the United States,' November 9th, 1960,” recalled Miller. The showroom was well located. The naval launches came to a jetty in front of the building. All around were topless bars and music parlors with accommodating hostesses and just along the street was the Luk Kwok Hotel, featured in
The World of Suzie Wong,
that year's hit movie. Rediffusion House was conveniently topped with a three-pointed neon star that looked just like the Mercedes emblem, to which Mahlstedt would direct the sailors going on shore leave.

“We sold everything,” said Mahlstedt. “If you wanted a Mercedes or a Sunbeam Alpine you got it. It didn't matter if we had it or not, we had it.” They also began selling liquor to the navy in the Far East when the prohibition on bringing five-packs of duty-free liquor to California was lifted. Bob Edmonds, working on his own, had gone to Sacramento and successfully lobbied the California legislature for a change in the regulations, arguing that it discriminated against military personnel.

Miller, meanwhile, had learned about a duty-free opportunity in Hawaii. On the way to Hong Kong, he had stopped off in Hawaii and stayed with his old friend Peter Fithian, a 1951 graduate of the Cornell Hotel School. The blond Bostonian had set up a company called Greeters of Hawaii and employed girls to dress up in hula-hula skirts and greet incoming airline passengers with a lei and a kiss. He was once featured in the then-popular CBS show
What's My Line?,
in which contestants were interviewed by panelists who tried to guess their unusual occupation: his was kissing girls for a living. The airport terminal in Honolulu was a Quonset hut made of corrugated iron with a plywood floor. A new terminal was under construction to cope with a surge in tourism as Pan Am and American Airlines started replacing their eighty-seat Douglas DC-8 airliners with bigger Boeing 707s. Fithian
introduced Miller to several of the concessionaires at the airport. “When they asked what I was doing, I told them I was in the duty-free business,” said Miller. “They said, ‘Oh, that's interesting, because when the new terminal is finished, there will be a tender for a duty-free concession here.'”

Over a year later, when Miller was in Japan on a business trip, he got a call from Fithian to say the deadline for bidding on the duty-free concession at Honolulu airport expired that week. If he wanted to submit a tender, he would have to get to Hawaii right away and submit financial statements and a deposit. Miller called Feeney, who was in Geneva: “Chuck, I need a balance sheet in twenty-four hours. Can you send one out please?” Feeney got the accountant in the Geneva office to work up some figures and figured out how much they should bid, then telexed them to Miller, who flew to Hawaii. The bid, in the name of Tourists International Sales Ltd., guaranteed to pay Honolulu airport $78,000 for five years, starting on May 31, 1962, for the duty-free concession. It was a huge sum for a tiny retail space in the new terminal, but Feeney and Miller were gambling on the duty-free business picking up as tourism increased. Miller hardly slept the night before the opening of the bids. There were five contenders. They assembled at a government building to witness the director of transportation write the numbers on a large blackboard. Tourists International was successful. The second-highest bidder was a company called Mercury International, which was a money changer. When they realized they had lost, their manager offered Miller $100,000 to default on the bid. “No way!” he said.

A few months later, Miller and Feeney also secured the first duty-free concession at Kai Tak International Airport in Hong Kong. A new terminal building was also being constructed there to replace the British-built Nissan huts that had served passengers since World War II, and the runways were being extended to cater to the 707s. Dick Folta, a part-time car salesman, noticed in the weekly publication of airport tenders that the Hong Kong authorities also intended to introduce a duty-free concession for alcohol and tobacco in the new terminal, so he tipped off his bosses. Feeney and Miller bid for the concession under the name Tourists International (HK) Sales. Miller dropped off the tender in a box in the Hong Kong Civil Aviation building. To get the three-year contract, they guaranteed 28 percent of their gross sales, plus a nominal sum for the concession and all service charges. There was no public opening of bids in the British colony. Miller simply received a government letter one morning informing him that they had won.

At the time, the two airport duty-free concessions were seen by the four Cornellian entrepreneurs now running the cars and liquor sales operation—Feeney, Miller, Sterling, and Mahlstedt—as sideline businesses that might or might not make money. They stocked the duty-free shops and appointed managers, but travel in the Pacific was in its infancy and the tiny stores did little business when they opened. Selling cars to the military and liquor to American tourists was where the big money was to be made. They were, however, prepared to take their chances with whatever opportunities arose. Though operating in an opportunistic manner, without a written plan or strategy, they were getting bigger and bigger all the time. “It was like riding a tiger,” said Miller. “It took you wherever it was going.”

As it happened, Chuck Feeney was exploring another potentially lucrative new opening in North America. He had returned to the United States in early 1961 with Harry Adler to buy out Duty Free Shoppers, the bankrupt company that had failed so badly in Switzerland. He found that the people who owned the shares had already written off their investments as a tax loss.

The idea behind the company was that duty-free goods could be sold to American tourists anywhere beyond U.S. borders. Feeney and Adler flew to Mexico City to test the market there. After a payment of $5,000 to a fixer, they opened a tiny shop in Londres Street in the heart of the cosmopolitan Zona Rosa district and stacked the shelves with samples of watches, scarves, cashmere sweaters, cuckoo clocks, and liquor bottles that they bought from neighboring shops. Except for the samples, they carried no stock. “An American tourist would come into the shop and buy from the catalog or whatever he could see in the shop,” said Adler. “We would say, ‘We will send it to you.' When the tourist went back to the U.S. he would declare that while abroad he purchased, say, a Pringle cashmere sweater, which would come as unaccompanied baggage. The order would go to Geneva and would be shipped from a warehouse in Amsterdam. The postman would come to the customer's door with the package. He would say, ‘You have got to pay duty.' The customer would say he declared it as unaccompanied baggage when returning from Mexico and give him the receipt. The mailman would send off the receipt. It worked fairly well.”

Feeney's next move was to explore the possibility of duty-free business on the Canadian border, which promised to be a much bigger market. If American tourists in France or Germany could order liquor to be sent from
bonded warehouses in Europe, they could also do the same from Canada. Feeney checked and found that no one had exploited this opportunity—apart from a Canadian ship supplier in Haiti, Elias “Papa” Noustas, who had started a mail-order liquor business in Haiti in 1960. Feeney went to see him in Port au Prince to talk about how it worked. He then contacted Jeff Mahlstedt in Hong Kong and asked him to come to New York to help launch the mail-order business in Canada for Tourists International. His Cornell friend was happy to leave the Far East, as he hadn't been getting along with Miller, and he came to New York.

When it came to business, Feeney did things as economically as possible, and he and Mahlstedt would meet in a coffee shop each morning to work out their strategy. “We would scribble notes, and call people from the pay phone until they threw us out,” recalled Mahlstedt. “We would go from coffee shop to coffee shop. We would sit in the coffee shops pasting up pieces of paper to take to the printer. The total up-front cost was printing the brochure. And we didn't pay our printer immediately, either. We then rented an office on the top floor of a run-down building at Fifth Avenue and Forty-second Street. My hotel room in Hong Kong was bigger! When you went in, you had to slide around the desk. Chuck's stance was, “Look, it's a great address—Fifth Avenue. How can you beat it?”

Always coming up with new ideas, Feeney devised an order form with a perforation for a tear-off portion. Mahlstedt believes this was the first time such a system was used for direct mail. He also came up with the idea of attaching blank checks payable to Tourists International for customers to use. The order form told travelers “whether you are going to Canada, Mexico, the Caribbean, Europe, the Far East or Pago Pago, you are entitled to have your duty free five-bottle pack sent to your home . . . as well as cashmeres, cameras, watches, china, crystal, silver, pearls, leather goods, jade, skiwear and many more items all at duty free prices.” They should simply declare the purchases at customs as “goods being shipped to you,” ask for Form 3351, fill it out, and airmail it to Tourists International, Duty Free Sales Division, 94 Rue du Rhone, Geneva, Switzerland—the office Feeney had acquired when he bought out Adler's bankrupt company. “We do the rest . . . shortly after you have returned home, we will acknowledge your order, and inform you of the approximate date your liquor will be delivered to your home.”

It was a complicated procedure with a six-week wait for delivery, but the savings for the customer could be as high as 50 percent. The most important
element of the operation was that the booze did not have to originate in the country that the tourist was visiting. An American in Canada who ordered five bottles of Johnny Walker would get his package from the bonded warehouse in Amsterdam after sending his customs form to Geneva.