In 2011 the Asia Pacific region outperformed Europe in duty free and travel retail sales for the first time since the industry was born over 60 years ago…
PARIS- The duty free and travel retail community assembled last month for the most important event in the industry’s history in the Asia Pacific region. TFWA Asia Pacific & GATE ONE2ONE, the annual conference and exhibition event in Singapore for stakeholders in the industry in the dynamic Asia Pacific region, was larger and better attended than at any time in its 17 year history, evidence of the growth potential of the trade in the dynamic Asia Pacific region.
Vital contribution to transport infrastructure
The global duty free and travel retail industry – the trade in premium and prestige products to travellers at the world’s international airports, on airlines, ferries, cruiselines and ports as well as at downtown and border duty free stores – is worth some US$46 billion in sales each year.
This revenue, and other non-aeronautical revenue streams such as advertising, food & beverage and car parking, is of immense importance to airports and to airlines. It not only provides vital funds for the maintenance and development of the airport facilities, its contribution to an airport’s coffers means that airport charges can be held down for airlines and consequently passenger fares can be kept down. It is estimated that 50% of an international airport’s revenue is derived from duty free, travel retail and other non-aviation activity. At Paris Charles de Gaulle airport, for example, commercial activities generate 60% of total revenues for the airport.
Similarly the international ferry sector, which fulfils an obvious need to transport goods and passengers, is supported to a large extent by commercial retail turnover.
Asia Pacific on the rise
In 2011 the Asia Pacific region outperformed Europe in duty free and travel retail sales for the first time since the industry was born over 60 years ago with sales of US$16bn, up 25.5% on 2010, according to independent industry analyst Generation Research.
Of the $46 billion worth of global duty free and travel retail sales, 35% was generated in the Asia Pacific region, 34% in Europe, 23 % in the Americas, 7% in the Middle East and 1% in Africa. Asia’s share of the pot has increased steadily over the last 10 years as its economies have experienced extraordinary economic growth.
In terms of retail categories, the largest by far is airports which accounts for nearly 60% of duty free and travel retail revenues. Airlines and ferries each have around 6% of business and other outlets such as border shops and downtown duty free stores 29%.
The biggest single product category is fragrances & cosmetics at nearly 31% of sales with wine & spirits at 17%, confectionery & fine food 9%, tobacco goods 7%. However other luxury goods, which include fashion, accessories, jewellery, watches and gifts, account for 37% of sales illustrating the appeal of luxury products to today’s travelling consumer.
The lion’s share of global duty free and travel retail sales take place at international airports and it was at an airport that this trade began over 60 years ago. The Irish opened the world’s first airport duty free shop in 1947 at Shannon Airport, a staging post for airlines flying between Europe and North America. They successfully argued that, having passed passport control, the passengers had left the country and their purchases were therefore not subject to national duties and taxes. The shop was an instant success.
The trade flourished and today around half of the average international airport’s revenue is derived from non-aeronautical businesses, revenue which is essential to the maintenance and development of the airport infrastructure and which ultimately keeps airport service charges to airlines down and therefore fares down.
Resilient in the face of challenge
Since the beginning, Europe has dominated duty and tax-free shopping but that pre-eminent position was threatened in 1999 when, following protracted inter-government debate, intra-EU duty free sales were banned pursuant to the principles of the European common market. However, rather than the business being decimated, after a short recovery period a new ‘travel retail’ concept was born. While the categories of liquor, fragrances and cosmetics remained the mainstays of the product offer, a far broader range of merchandise became available, including fashion, accessories, leather goods, confectionery, jewellery, watches, electronics and other gifts.
The travel retail concept has been adopted and developed all over the world and airport retail outlets have been transformed into fabulous shopping malls with glamorous boutiques mirroring the very best in the world’s capitals.
Travel retail is now home to the world’s most prestigious brands – Christian Dior, Estée Lauder, Ferragamo, Glenfiddich, Godiva, Guess, Hermès, Lacoste, L’Oréal, Montblanc, Rémy Martin, Tommy Hilfiger – to name just a few. Given the passenger demographic, which includes the wealthiest and most brand-hungry people on the planet, travel retail has naturally become a showcase for innovative and luxurious products many of which are exclusive to the channel.
The growth of duty free and travel retail is tightly linked to the growth in international passenger traffic. Airports Council International (ACI), whose 580 member airport authorities operate over 1,650 airports in 179 countries, reported in August 2011 that worldwide airport passenger numbers had increased by 6.6% in 2010 to 5.04 billion, registering increases in all six regions with the highest growth in the Middle East (12%), Asia-Pacific (11.3%), Africa (9.5%) and Latin America-Caribbean (13.2%). Angela Gittens, Director General ACI commented at the time that these numbers underscore the urgency of the airport capacity challenge. Airport operators worldwide are focusing on the need to provide the passenger a positive, seamless travel experience, she said, and planning new capacity to meet the expected doubling of passengers in the next 15 to 20 years.
ACI forecasts that the growth in passenger numbers around the world to 2014 will be +4.9% per annum but in Asia the prospects are even more positive with projected growth of +8.3%. By 2019 the APAC countries are expected to have 2.5bn air passengers a year – 33% of the global total.
Massive airport investment is underway in Asia to accommodate the projected growth in travel and tourism to and from the developing Asian economies including China, India, Vietnam, Cambodia, Indonesia and Myanmar. China alone plans to build 76 new airports in the next 10 years and India’s planned investment in aviation infrastructure is estimated to total US$20bn over the decade. Improved retail facilities and massively increasing passenger flow represent tremendous potential for the duty free and travel retail industry.
Essential Business Forum
TFWA Asia Pacific & GATE ONE2ONE, which takes place each May in Singapore, provides a forum and trade floor where the international brand-owners can meet and do business with the buyers, agents and distributors from airports, airlines and other outlets across this vibrant region.
This year the record-breaking event welcomed 236 exhibiting companies, up 11% from 2011, and 2164 trade visitors, up 2%, of whom the majority were key buyers and agents. To accommodate the numbers, the exhibition space was extended to nearly 7,000 square metres, 11% larger than the previous record in 2008, including the opening of a new Mezzanine exhibition level.
Fragrances & cosmetics brands outnumbered other categories, occupying 25% of the stands in keeping with their pre-eminent position in global sales. Wine & spirits and jewellery & watches each accounted for 17%, fashion & accessories 14%, confectionery & fine food 11% and the multinational tobacco companies 7%.
The business agenda was packed with a high-level conference on Monday 14th May on the theme ‘Power and Potential in Asia Pacific’ and workshops on topical issues: developing the potential of China and other emerging markets in Asia; the application of the latest technology to the industry; and growing the airline retail sector. Countless meetings between stakeholders took place throughout the week and yet participants still found time to do some business networking at the delightful social events.
Global event in prospect
Many of those participants and hundreds of colleagues from around the world will next convene at TFWA World Exhibition from 21st to 26th October in Cannes, France. This global exhibition and conference for the duty free and travel retail industry attracts some 6,000 trade visitors each year who flock to the resort on the Cote d’Azur to do business with the 460 or so exhibiting companies present.
The organiser of both these prestigious events is Tax Free World Association. Founded in 1984, TFWA is the world’s largest duty free and travel retail trade association which exists to support and represent the interests of the brands trading in duty free and travel retail. TFWA is a non-profit association and through its events provides a platform for showcasing brands to retailers at airports, cruise and ferry lines and other duty free and travel retail operators such as international airlines etc. A part of TFWA’s work is also to assist the industry meeting challenges from detrimental legislative threats and to support the industry through improving awareness and understanding of the industry in the surrounding world.
With a membership of over 420 of the world’s best known and most prestigious brand-owning companies, TFWA is well-placed to represent and support this thriving industry. TFWA organises high-quality exhibitions, acclaimed conferences and workshops, and in-depth market research for the industry, all under the ethos ‘by the trade for the trade’.
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.