Duty Free & Travel Retail

Historically, over the past 60 years, the growth of global duty free trade has exceeded that of most other industries whilst in 1947 global duty free sales totalled a few hundred thousands US dollars, in 2007 this figure had risen to US$ 34 billion.

Throughout the years the business has faced numerous challenges, usually of economic or political nature. The economic turmoil in Asia in 1997/98, the abolition of intra-EU duty free sales in mid-1999, 9/11 and SARS are examples of major events that had a severe impact on the business with sharply declining turnover figures in the geographical areas concerned. This industry's ability, however, to overcome those obstacles and adopt to new challenges in an ever changing business environment is well-known. Thanks to a steady in-flow of creative and innovative thinking, based on 60 years of experience among the trading parties involved, the future outlook for a steadily growing global duty free and travel retail business cannot be described as anything but bright.

Although constraints on growth historically have been many, travel is still the main engine force behind all travel related consumption. In addition, duty free sales have been driven by several factors, such as:

• a considerable increase in the number of travellers using air transportation.
• greater awareness among travelling consumers about the existence and advantages of duty free and travel retail shops.
• increased professionalism among shop operators in how to meet consumer demand (improved store designs, merchandising, etc.).
• awareness among airport owners and authorities of the potential of duty free as a source of additional (non-aeronautical) revenue.

During the 1990’s the strong annual double-digit growth that this industry had experienced in the previous decades came to a halt. From 1995 up until 2003 the global travel retail market remained basically flat, at or around US$ 20 billion annually. Events such as the Asian economic crisis of 1997/98, the abolition of intra-EU duty free sales in 1999, 9/11 in 2001, SARS and the Iraq War have hampered this industry’s growth and put it in long-term defensive mode.

In 2007 the global duty free and travel retail market grew by 17.2% from US$ 29 billion in 2006 to US$ 34 billion and by 11.8% in local currency units. All of the main product categories showed increases. In terms of markets, Europe was up 18.0% to a market share of 42.1%; followed by Asia Pacific up 17.1% to a market share of 26.9%; The Americas up 14.2% to a market share of 23.7%; the Middle East up 24.7% to 6.0% in market share; and Africa up 20.3% to a market share of 1.3%. Sales by channels saw airport shop sales rise by 22.3%; Ferries decline by 23.0%; airlines rise by 14.5%; and 'other shops and sales' by 12.6%.

Definitions

The traditional perception of travel retail shopping is changing, however, and the changes and developments are occurring at a fast pace. Privatisation of airports, increase in travel, the changing profile of travellers, the harmonisation of taxes and duties among countries, new destinations, new emerging travelling nationalities, the disappearances of boundaries... More importantly, new emerging demographic structures and social patterns in especially the developed and newly industrialised nations mean that, in future, ever more people will have even more time, inclination and income to travel and shop. We make a clear distinction between three kinds of travel purchases, each representing a specific market or type of travel purchase, namely: Duty Free Shopping, Tax Free Shopping and Travel Retail Shopping.

Duty Free is traditionally sales at airports, onboard aircraft and ferries only. In general terms, duty free goods are imported goods sold to travellers at prices excluding these import duties. Duty free does not include tax free.

Tax Free includes duty and tax free sales at airports, onboard aircraft and ferries, of course (as above). In addition, sales at off-airport shops and downtown shops, border shops and sea port shops, military and diplomatic sales (excluding sales of merchandise other than alcohol, tobacco and perfumery). Also sales in hard currency stores (to the extent that these still exist), as well as in low-tax areas (statistics are also naturally included in the market defined as "Travel Retail Sales" below).

Travel Retail includes all kinds of sales to the travelling public embracing duty and tax free purchases made by nationals in duty free shops as well as foreign visitors' purchases in local duty paid stores and, naturally, in duty free shops.

Today travel retail shopping has to be viewed and analysed from the angles of legislative bodies, producers as well as suppliers of goods and services. Travel Retail concessionaires , travel shop owners and operators, encompassing not only the traditional areas of airport retailing, sales onboard aircraft and ships, at border shops, etc., but equally high street retailing that caters to travellers/tourists, sales in low-tax areas and so on.

The concept of Travel Retail Shopping focuses on the entire spectrum of travel shopping. It makes no distinction between tax free and tax paid, duty free and duty paid, airside or landside sales, airport and downtown sales, shopping by domestic travellers (with international or intra-regional destinations) and foreign visitors and so on.

The concept of Travel Retail Shopping is defined as the income of a country resulting from travellers' shopping expenditure (usually termed "spend"), i.e. payments for consumer goods (excluding motorcars, furniture and some other merchandise that may be characterised as capital goods) at retail prices, in the country concerned.