EUROPEAN SALES DOWN -9.3%

By Generation Research, 23 December 2009

Eight months into 2009 European duty free and travel retail sales have on average – all categories considered - dropped –9.3% (in Euros) compared to the same period in 2008, according to the ETRC Index.

In the most recent July + August period the business declined –6.1% compared to –9.0% in the May + June period, -9.1% in the March + April period and –13.5% in the January + February period. 
  

 “Clearly traders had hoped for and expected a better improvement in the business in July and August, especially as there were appreciable improvements in passenger numbers”, says Yngve Bia, President Generation Research compiling the ETRC Index on behalf of the European Travel Retail Council. “The sad fact is that business has not really improved a lot since March”.
 
Erik Juul-Mortensen, President of Maxxium Worldwide and President TFWA analyses:  
 
“The decrease in international travel as a result of the general economic downturn has been the factor most adversely impacting the business. This combined with the LAGs situation, the H1 flu situation and the new policy of a few European low cost carriers to restrict the hand luggage have all had a negative impact on sales”.
 
Whilst the pace in the decline of passenger numbers has eased, this has not translated into better business of equal measure. In the July + August period average spend per passenger (SPP) dropped –1.8%. For the first eight months of 2009 the average decline in SPP comes to –1.3%.
 
Ambroise Fondeur, Deputy CEO Commercial and Marketing Aelia, observes: “Sales per pax are still growing at Aelia hence allowing overall sales to be slightly positive so we do not experience the decline you are indicating, which is satisfying in this environment. The situation is however quite different from one site to another. Regional airports tend to suffer this year with the combination of reduced UK traffic and low pound exchange rate. Paris is OK and our new stores opened in Poland perform strongly”.

“If we separate the recession from the UK pound effect, the recession has only had impact on the number of pax but less on the spend per pax”, adds Jacques Parson, Director Kappé Schiphol.
 
Sagar Merchant, Customer & Market Insight Manager World Duty Free says: “On the whole, duty free in the UK has seen strong growth, both year-on-year and versus budget. Whilst pax numbers have been down, spend per pax has been higher. In fact, shoppers are buying less items but at higher prices. Last week, we saw volumes improve as well, so hopefully our performance - now driven by volume as well as higher price purchase - will continue to improve.  The weak pound has had a positive impact for us. In addition, London Heathrow is performing very well and in line with London [ie. downtown London, Ed’s note] and the rest of the UK”.
 
Magnus Skjörshammer, Purchasing Director AS Tallink Silja Duty Free, reports from the ferry sector: “With all the new passengers, some are not travelling with us to shop. This brings the sales per pax sales down. This is a challenge for us to convince our new travellers of the benefits of shopping onboard”.
 
Generally, the parameter Sales per Passenger at European duty free and travel retail locations has been significantly affected by the poor values of the Pound Sterling, the US dollar as well as the Russian Rouble. The nationalities travelling using these currencies have simply reduced their spending in the shops over the past year.
 
“Against results in 2008 European sales have this year improved month by month and are likely to catch up with the 2008 monthly performance towards the end of this year, especially as the last months of 2008 were especially poor, says Yngve Bia.
 
Among the product categories monitored Confectionery has withstand the economic challenges the best having recorded a decline in sales of only –6.6%. 
 

The second-best category is, somewhat surprisingly, Liquor with a drop in sales of –6.8%.
 
Erik Juul-Mortensen comments:“I believe that there has been an element of trading down or perhaps more correctly of certainly not trading up. The LAGs situation has not helped much in 2009, an element which at times seems to step in the background, but it remains a problem for sales”.
 
Sales of Clothes & Accessories contracted –7.6% in the period January to August whilst sales of Beauty products registered a drop of –7.9%.
 
The product categories hardest hit include Other “Luxury Goods” (-18.0%), Watches & Jewellery (-17.4%) and Tobacco (-14.3%).
 
In the airport sector across Europe it is evident that it is especially the regional airports that have suffered the most in duty free and travel retail sales entirely due to significant declines in traffic.
 
Sagar Merchant comments: “The regional airports have been hardest hit by pax numbers and until recently our performance was disappointing. However, in the last few weeks our regional revenues have seen significant improvements as we continue to improve our targeted offering”.
 
In the ferry sector sentiments are more upbeat. Magnus Skjörshammer says: “A record number of passengers have travelled with us this year. Many new passengers are travelling with us for the simple reason that they prefer travelling closer to home, and not far off. Also, many perceive travel with a sea vessel as less expensive than air travel”.
 
Early on it could be anticipated that 2009 would be a challenging year not only for European duty free and travel retail trade but also globally. Generation Research forecasts that global sales this year will drop by some US$ 2 billion (-5.4%) to US$ 35 billion. The European drop in sales in 2009 is estimated to US$ 1 billion, from US$ 15.3 billion in 2008 to US$ 14.3 billion in 2009 equal to –6.5%. This would require, however, that the European business performs and finishes 2009 in a rather brisk fashion. Against a very poor 4^th quarter 2008, this seems to be quite achievable.
 
Erik Juul-Mortensen summarizes:  “Like others I have noted with pleasure that the development in recent months seems to have brought a little light indicating that we are indeed seeing the first lights of coming out of the recession after a very difficult 12 months. However, and I gave the same reply to a trade journalist, who called me yesterday, that it is still early days and that we should not be too shocked if in Europe we should experience a further drop, albeit small, before the direction out of the current climate is secured.  This means – as I see it and for what it is worth – that we will be well into 2010 before the industry is back on track with the healthy development we have been used to some years ago”.   
 
For further information on the ETRC Index, including archive with access to previous indices, please see www.etrc.org/data-room/index_etrc.php
 
The statistical contents in this feature are only as up-to-date as their availability and compilation allowed at the time of publishing. All statistical numbers shown here are subject to review and revision in subsequent features and charts as additional source material becomes available.