Luxury Travel Retail: Positive Outlook for Growth and Profit

28 Feb 2014|pompei de warrensc

Against a difficult economic backdrop, Duty Free and Travel Retail represents a unique opportunity for growth for luxury brands. The exponential growth in air travel offers luxury brands a seemingly endless supply of potential customers, including many from the BRICs and from China in particular. At the same time, sales figures from Duty Free and Travel Retail operations prove that this is a strategically vital channel for luxury brands.

Key figures:
• Air traffic has grown by 94% in the last twelve years and is set to reach 12 billion journeys by 2031 (Source: Airport World).
• There will be an estimated 1.264 billion passengers in 2014* (Source: Airport World)
• DF&TR are the third largest market for Pernod-Ricard ahead of France (Source: Pernod-Ricard)
• In Asia, 50% of l’Occitane’s sales are through DF&TR and in 2013, Estée Lauder’s DF&TR sales grew by 15%

Airports and brands alike have begun to seize this opportunity. DF&TR has undergone a rapid transformation in recent years, bringing about profound changes to airports and the passenger experience. DF&TR have redefined themselves, going beyond purely transitory and transactional spaces to offer passengers a real retail environment. According to a survey conducted at Mumbai CSIA airport in 2012 among 1500 international passengers, detax on arrival or departure motivates only 25% of purchases.

Although these spaces have changed significantly, the transformation is far from complete. While luxury brands have been able to transform the airport experience, they have yet to offer their customers an exclusive retail experience. All too often, DF&TR spaces tend to resemble luxury supermarkets more than boutiques; in spaces like these it is difficult for luxury brands to control and enhance their image, or build meaningful relationships with customers.

The new challenges for DF&TR
Clearly DF&TR have some way to go. To truly respond to the strategic challenges that DF&TR represents for brands, it is essential to reevaluate it within the specific context of the airport system.

Air passengers: a different kind of customer
Airport customers are first and foremost passengers, and as such may be experiencing any number of the emotions which air travel entails. Stress, excitement, worries about missing their flight, physical and psychological tiredness: all these factors can affect their emotional state. Customers’ relationships with travel and air travel in particular are also key factors influencing their purchasing behavior and their attitudes towards DF&TR. The DF&TR market is therefore a very specific one, whose needs are determined by the context of the travel itself.

Tough competition for DF&TR
While airports are investing heavily in DF&TR and their interests align fairly closely with those of luxury brands, meeting passengers’ needs remains their number one priority, and in this sense DF&TR is just one option amongst many. Travelers passing through an airport have a range of choices which could mean skipping DF&TR all together, whether this means taking advantage of services (Shanghai’s iShop), or of lounges offering ever more high end services (concierges, secretaries, relaxation spaces). The passenger and the airport represent two complex challenges which brands must understand in order to truly cater to customers’ needs and develop their strategies accordingly. However, the travel context can also present an exciting source of inspiration, and allow brands to build a more meaningful relationship with their customers. With this in mind, the importance (and the uniqueness) of DF&TR within luxury brands’ retail portfolios and strategies becomes clear.

At a conference organized by the International Association of Luxury Professionals in November 2013, WPP’s strategic marketing consultancy Added Value presented its analysis of the future of Duty Free and Luxury Travel Retail. The report combines almost 15 years of experience in the luxury sector with an analysis of recent trends in the world of luxury travel. For more information please contact us.

prev next