Beginner's Guide
Are you new in duty free and travel retail? This chapter will help put you right on track. Globally the travel and tourism industry accounts for more than 10% of world GDP. Tourism and travel is the world’s largest and most dynamic industry employing about 400 million people. One out of every ten employees on earth is finding his or her income in a tourism or travel related industry.
So where does duty free and travel retail come in?
Without travellers there would be no tourism industry. Without tourism industry and all the many millions of travellers, eg. customers in the world’s duty free shops, there would be no duty free sales. The progress and prosperity of international duty free and travel retail trade is therefore very much dependent on developments in the sector of international tourism and travel. The travel retail trade could in fact hardly have found a better “partner” than the travel and tourism industry, hand in hand they have evolved to the giant global industries they represent today.
In 1997 the international duty free and travel retail trade celebrated its 50th anniversary. On 18 May 1947 - approximately, as there is still some debate regarding this exact date - the world’s first duty free shop opened at Shannon Airport on the west coast of Ireland. Two months earlier the Dail Eireann (Irish Parliament) had passed the Customs Free Airport Act which effectively gave birth to duty free as we know it today.
The development of this trade between 1947 and 2007 has been an exciting and impressive one. Several major events and evolutions have taken place in international duty free and travel retail trade since 1947 - the very dramatic growth of this business into a US$ 34 billion industry in 2007; shifts in consumers’ preferences and purchasing habits; new different travelling nationalities; threats and challenges of various kinds (eg. the abolition of intra-EU duty free sales as from 1 July 1999); Asia’s emergence as a new major duty free market in the early 90’s but the economic crisis that halted all expansion in this region in 1997/98; the 9/11 atrocities in 2001; SARS; Iraq war; the assimilation of 10 new EU countries in May 2004 and another two in January 2006 and another …; all the fancy shopping centers we today find at airports and onboard ferries...
INTRODUCTION
The global duty free and travel retail market is recognized as being unique in character, of massive potential and very different from trade in domestic markets, primarily because of:
- different (= lower) pricing
- the duty free market offers predominantly brands and products of prestigious and de luxe
- quality in pleasant, luxurious and exclusive environments
- a captive audience
- special terms governing the retail operations.
Duty free and travel retail shops represent the global shopping market for international travellers. It is a statement of courtesy and goodwill among nations the world over and the advantages of this trade are enjoyed by all parties involved - be they governments and authorities, manufacturers and suppliers, shop operators and distributors or simply travelling consumers. The existence of duty free and travel retail shops is, today, indeed of interest and benefit to most nations the world over.
The physical locations where these sales take place include airports, onboard aircraft and ferries as well as international land border crossings. In other words, wherever international travel takes place. Other kinds of duty free and travel retail trading include military and diplomatic sales, sales in low-tax markets as well as sometimes off-airport/downtown shops possibly offering a pre-order service or similar.
Travellers leaving a country may purchase a certain pre-defined - depending on destination - quantity of merchandise free of taxes and duties, provided that the goods are to be consumed after they have left the country’s borders. In some countries - especially in Eastern Europe, Africa and Asia - one may also purchase these goods upon arrival.
Duty free and travel retail shops are a meeting point for manufacturers’ products and consumers who should be regarded as especially purchase-motivated - a market place uniting special market conditions and requirements and providing unique advantages for both sellers and buyers alike.
Today this trade embraces all kinds of consumer products - alcohol, tobacco, perfumery, confectionery, electronics, etc., etc. Thousands of enterprises - shop retailers as well as manufacturers - are so deeply involved in this market that without it they would have to close their business altogether; the employment and income of tens of thousands of people with dependants are deeply correlated to the existence and prosperity of the world’s duty free and travel retail trade; some 12 billion passengers / 500 million travellers / 200 million individuals are annually - by the world’s duty free and travel retail shops - offered savings, shopping opportunities and shopping experiences that exist nowhere else.
So how did it all begin?
THE BEGINNING
No living person seems to know the exact historic time when duty free trading - not necessarily as we know it today and which we meet at airports and so on - actually began. Probably, the idea and concept of duty free trading is as old as international commerce - excepting barter trade - itself. Therefore, an exact year is difficult to find. Some indications lead us, however, to the middle of the 19th century.
Around 1840 in Europe the habit of selling goods free of taxes and duties occurred (possibly for the first time) such as when ship chandlers routinely supplied merchant sailing vessels and their crews with goods - such as liquor and tobacco - that otherwise bore high taxes.
In 1860 the same ship chandlers began to provide the first huge transatlantic liners, such as the Leviathan and the Great Western, with duty free merchandise. These ships were granted the permission to sell these goods - out of territorial waters but on the open sea where they were consumed - free of duties and taxes to their privileged passengers.
The concept of duty free was thus born on the high seas where no country or territory could exercise its fiscal sovereignty.
In Europe the modern version of duty free shopping dates back to shortly after World War II. On 18 May 1947 the Irish Parliament passed the Customs Free Airport Act by which transit and embarking passengers could bring merchandise onboard the aircraft which were exempt from normal customs procedures.
Trading began on a very small scale in 1947 when a small whisky and tobacco store opened at Shannon Airport on the west coast of Ireland. At that time, Shannon’s advantageous and strategic position made it logical that the relatively short-range piston-engined passenger aircraft of the day should make their final refueling stop there before the final 4,000 km haul to New York.
While the plane was refueled the passengers left the aircraft and went into the terminal. The then airport manager, supported by the minister of transport of the day, got the idea to sell some merchandise to these transit passengers while they were waiting for their departure. Since the transit lounge was not technically a part of Ireland and as sales would be for export, domestic taxes and other charges as well as duties could be deducted from the sales price.
A long-standing tradition had started.
60 YEARS OF EVOLUTION
Thus duty free trade - as we know it today - began in a humble fashion in 1947 with a one-person operated shop at Shannon Airport.
By the year 1960 global duty free trade had reached a global retail value of some US$ 25 million and duty free stores were already in operation at airports such as Amsterdam Schiphol (since 1957), Tel Aviv (1957), Brussels (1958), Miami (1958), London - Heathrow (1959), Frankfurt (1959), Düsseldorf (1959), Osaka (1960) and Oslo (1960). Air France was one of the pioneers with regard to inflight sales and is believed to have started this activity in 1955 followed by Lufthansa in 1960.
During the decade 1961-1970 the duty free business grew no less than 18 times reaching a value of about US$ 450 million in 1970. In the 1970’s the global duty free business continued to grow rapidly - this was also the decade when ferry traffic (in Scandinavia especially) as well as charter and tour travels started to become important. By now, primarily Asians and Europeans had become often seen customers in the duty free shops due to their frequent border crossings often finding that the duty free prices offered significant savings on domestic prices. Growth in Americas had not yet taken off - new shops were, however, opened in Guam (1972), San Francisco (1973) and Saipan (1974). The new Paris - Charles de Gaulle airport offered instantly duty free shopping opportunities when it opened in 1974. Additional shops opened in Caracas (1974); Stockholm (1976) and Mexico City (1977) as well as in 1979: Abu Dhabi, Madrid, Rio de Janeiro and Rome.
In 1980 global duty free sales had reached a value of US$ 2 billion. From then on the growth of this business widely outpaced that of tourism and travel in general.
This significant growth in the 1980’s is basically explained by factors such as:
- considerable increases in the number of travellers using air transport
- more awareness among travelling consumers about the existence and advantages of duty free - shops
- increased professionalism among shop operators on how to meet the consumer demand (improved store design, merchandising, etc).
- awareness among airport owners and authorities about the potential of duty free shops as a
revenue earner, resulting in an interest and knowledge on how to exploit this potential.
The dramatic annual rises in sales during the 1980’s came to a halt towards the end of the decade. In a market getting ever more saturated, the annual percentage sales increases have in fact since 1990 reached levels below the two-digit percentage mark.
From a very modest start in 1947, in some 60 years an exciting multi-billion US dollar industry had established itself catering to some 1 billion travellers annually. The requirements and preferences of an ever increasing number of travellers are today satisfied by more than 1,500 duty free and travel retail shop operators worldwide as well as almost 5,000 manufacturers offering some 12,000 brands and more than 450,000 products. With a total retail turnover of US$ 34 billion in 2007, this figure is expected to rise to US$ 40 billion in the year 2010.
DUTY FREE AND TRAVEL RETAIL TRADE TODAY
The duty free and travel retail business was traditionally based on two corner-stone items: liquor and tobacco. Luxury and sundry goods of all kinds have since, however, made their entrance, today they represent more than one third of all sales. The old and traditional definition of duty free and travel retail shopping is getting somewhat blurred and newer ideas and concepts such as “travel retail shops” and “travel value shops” are becoming more and more known and acceptable.
The importance and scope of global duty free and travel retail trade must not be underestimated. This trade affects today the livelihood and well-being of tens of thousands of people finding their employment in this particular industry; thousands of manufacturing companies would find themselves in financial difficulties should they not have the global duty free and travel retail market to which to export their products; entire infrastructural and logistical systems would be in jeopardy (eg. in Scandinavia with the ferry lines) and subject to dismantling were it not for the existence and prosperity of duty free and travel retail trade in these areas; governments and airport authorities would lose considerable income from concessionaires at airports were it not for their duty free and travel retail operations; consumers would be deprived of unique shopping opportunities and shopping experiences if duty free and travel retail trade did not exist...