DFS Group, whose Hawai'i stores serve a shrinking pool of tourists, has slashed about 130 local jobs, becoming the latest big Hawai'i company to cope with its economic troubles by reducing staff.

"Right now in our business it's like riding a roller coaster," said Sharon Weiner, vice president of global communications for DFS. "It's been a hard time."

Weiner said about half of the cuts are because of fewer tourists and a weaker local economy, and the other half involves a corporate restructuring.

Hawai'i's unemployment rate has already hit a seven-year high — 4.5 percent in September.

DFS is a global retailer that operates about 40 stores in the state catering to visitors, particularly those from Japan. Its layoffs join a slew of other workforce cuts this year: 1,900 at Aloha Airlines; 274 at Maui Land & Pineapple; 169 at Hawaii Medical Center; 120 at Molokai Ranch; 85 at Weyerhaeuser Co.; 81 at The Honolulu Advertiser and 38 at Palama Meat Co.

The cuts have mostly been driven by the slowing local economy — and with tourism as the state's largest economic driver, visitor industry businesses have been especially hard hit.

Among other companies that cater mostly to Hawai'i tourists, Maui Divers laid off 11 of its 600 employees, Hilo Hattie filed for bankruptcy reorganization and numerous hotels have cut staff.

The layoffs at DFS represent about 16 percent of the roughly 800 people it employs in Hawai'i, and affect hourly workers and salaried management. About half of those being laid off are full-time employees, and the others are part-time or on-call.

Weiner said about half of the reduction is a response to declining visitor arrivals and a slowing state economy. The other half, she said, involves a global corporate restructuring of warehousing, purchasing, management and other areas.

For instance, DFS, which is a unit of France's LVMH Moet Hennessy Louis Vuitton, is relocating most Hawai'i warehouse operations to Torrance, Calif., and consolidating some assistant buyer positions previously in stores to Hong Kong and San Francisco.

Similar moves are being made in other countries where DFS does business, Weiner said.

JAPANESE VISITORS KEY

The company once known as Duty Free Shoppers operates 34 retail stores at the Honolulu airport, including two that sell duty-free merchandise to departing foreign travelers. DFS also operates two airport stores on Maui, one store at the Hilton Hawaiian Village and a flagship store in Waikiki selling both traditional and duty-free merchandise.

Japanese tourists account for 90 percent of its duty-free sales and more than 60 percent of its other retail sales. Visitor arrivals from Japan this year through September are down 9.3 percent over last year, including a 19.8 percent drop last month.

Spending by visitors from Japan per person per day is actually up 5.6 percent to $278 this year through September, but fewer visitors means that total spending by Japanese tourists is down by about $50 million, or 3.8 percent, to $1.4 billion in the same period, according to state figures.

Weiner said DFS sales of duty-free goods totaled $92 million in the first nine months of this year, down from $98 million in the same period last year.

Weiner noted that recent strength in the yen has helped DFS sales, but that volatile financial markets make it uncertain whether the currency will remain strong. "You can't count on that continuing," she said. "Nobody knows."

Another potential bright spot is a government plan to expand a visa waiver program in January to allow more tourists into Hawai'i from South Korea. But Weiner said that even if that market doubles as expected within two years, the increase doesn't come close to offsetting the drop in Japanese visitors.

"We're looking forward to it, but it's not going to be the answer," she said.

State tourism liaison Marsha Wienert said there are also fewer Mainland visitors this year because of the national economic downturn, but that Japanese visitor counts have been declining for the past few years.

And other foreign economies have become less steady as the financial market crisis spreads.

"I don't think there's a business out there that's not feeling the effects right now," Wienert said.

'ALWAYS A CHALLENGE'

As a company closely tied to Japanese tourism in Hawai'i, DFS historically has enjoyed and endured the industry's cycles of growth and decline.

During the 1980s and early 1990s as Japanese tourism in Hawai'i flourished, annual DFS sales of duty-free goods typically topped $400 million. But in the long economic slowdown that followed, annual sales fell to around $200 million, and then were hurt further following the terrorist attacks on Sept. 11, 2001.

After 9/11, DFS employee work hours were trimmed by the equivalent of 250 to 300 workers before 70 layoffs were made.

In 2003 after the U.S. war with Iraq began, DFS eliminated 25 jobs and reduced the hours for hundreds of other workers.

And last year, the company trimmed about 25 management positions.

Weiner said part of DFS' difficulty is that it must pay the state a minimum annual payment negotiated for a multiyear contract as the exclusive duty-free retailer in the state. DFS is two years into a five-year contract in which it must pay the state at least $38 million a year.

"It's always a challenge for us with that requirement," Weiner said.

DFS has not sought any reduced payment for the present contract.

In 2003, DFS forced the state to reduce its minimum payment for most of that year by $15 million and rebid the contract after threatening to file for bankruptcy and claiming hardship in part caused by enhanced security restrictions at the airport, which hurt sales.

Weiner said DFS is not making other cuts, such as reduced store hours, which it had done in the past. It also is proceeding with changes to the newest wing of its Waikiki Galleria store.

The $40 million project involves replacing a seven-year-old collection of shops and entertainment set amid a street- scape facade of old Hawai'i with a new corridor of two-story luxury boutiques leading to escalators running to the main store's third-floor duty-free level.

DFS spent $65 million in 2001 to extend its store to Kalakaua Avenue with 70,000 square feet of retail space featuring Crazy Shirts, Maui Divers, Tori Richard and other shops in a setting reminiscent of 1920s Waikiki.

The refurbished wing, dubbed Waikiki Luxury Walk, will feature boutiques of Emporio Armani, Pucci, Coach, Chloe, Marc Jacobs and Ralph Lauren, among others. Roughly two-thirds of the project is complete, and the balance should be open by December.

Initially the project was to have been completed last year but was delayed.