State of the industry

Despite rising global geopolitical instability, the duty free and travel retail industry had one of its best ever years of growth in 2017. That was the conclusion of Tax Free World Association (TFWA) President Erik Juul-Mortensen at the opening day conference of the TFWA World Exhibition in Cannes, France.

Sales were up +9.5% to US$69.3 billion (source: Generation Research), and first-quarter 2018 sales have also been “encouraging”, Juul-Mortensen said.

The finalised 2017 growth rate is more than a percentage point higher than the preliminary figure of +8.1% released in May at the Tax Free World Association Asia Pacific exhibition in Singapore.

In his farewell address as President – a role he has held for 19 years – Juul-Mortensen noted that the business was expanding in all regions but that “Asia Pacific is at the heart of this growth”.

The region moved forward by +12.6% to cross the US$30 billion marker (at US$30.8 billion) while Europe breached the US$20 billion threshold, growing +7.1% to reach US$20.1 billion.

The Americas and the Middle East expanded at more than +7%, with Africa trailing at +1.1% to reach US$0.8 billion.

“At constant prices our industry has grown by +84% over the last decade,” Juul-Mortensen said.

Among the duty free industry’s distribution channels – divided into four by Generation Research – two have become the clear driving forces of the business: airports and ‘other shops’.

Airport travel retail sales were up by +7.6% to US$38.2 billion, but with a falling market share of 55%. This is due to the fast rise in the other shops business (where most sales come from the downtown duty free channel, but also include border stores, cruise ports and cruise ships). Other shops sales stormed ahead by +13.7%, to US$26.6 billion.

The remaining two channels – airlines and ferries – showed modest growth of +3.1% and +2.0% respectively to reach US$2.6 billion and US$2.0 billion. “This growth is very welcome nonetheless,” said Juul-Mortensen.

Among product categories, it was again beauty that led the way with impressive growth of +19.3%, to US$25.6 billion. This is more than double the sales in the wines and spirits segment, which was the second-fastest growing category at +8.5% to reach US$11.4 billion. All other categories registered increases of below +5%, except tobacco which was flat.

“The amazing growth in beauty can be attributed to the investments being made by both brands and retailers in this sector,” commented Juul-Mortensen.

Preliminary figures for the first quarter of 2018 suggest that the strong 2017 trend is continuing, with growth hitting double digits at +10.7% and sales of US$19.8 billion. One of the reasons for the slightly sharper increase was that in the first quarter more categories managed to score double-digit growth: beauty (+15.9%), wines and spirits (+14.7%) and confectionery and fine foods (+12.2%).

Juul-Mortensen left the stage for the last time as TFWA President to a standing ovation for his tireless work supporting the industry over the years.

The conference also featured a high-level panel of senior retail executives. Dufry CEO Julián Díaz González, Gebr Heinemann Co-owner Claus Heinemann, Lagardère Travel Retail CEO Dag Rasmussen and King Power International Senior Executive Vice President Susan Whelan discussed how the industry can and must adapt to meet new business challenges.

Claus Heinemann noted that while double-digit growth might not continue, duty free and travel retail is still a very stable industry. Rasmussen said he did not believe that growth was only happening because passenger numbers are growing. While the passenger mix is evolving, the business itself is also growing when the fundamentals are considered.

Díaz said that the golden age of duty free is far from over, and noted that the industry has access to a number of marketing tools the High Street “simply can’t utilise”.

Discussing how to create a differentiated experience, Rasmussen argued that stocking local products was a good way to maintain appeal. Whelan stated that the industry must focus on remaining relevant to the next generation of travellers, ensuring space is left for new brands and new experiences.

Looking to the future, Rasmussen said that green issues would rise up the agenda, while Díaz spoke of travel retail as a channel between online and the High Street benefitting from a captive audience.

The conference concluded with inspiring talks from former NATO Secretary General Anders Fogh Rasmussen and scientist and adventurer Dr Bertrand Piccard.

Dr Piccard urged delegates to consider how the industry could be more imaginative in its approach to the future, making it possible to turn a dream into a reality.