A question of price

Is value for money still a driver in modern travel retail?

Marco Ghiotto, Senior Partner at TW.0 & Partners, reflects on the changing nature of the travel retail industry across the past 20 years. He says the luxury environments that have been created inside many major airports have taken attention away from the fact that – despite the long-term trend of rising passenger numbers – spend-per-pax has been falling for some time. With COVID-19 putting huge pressure on non-aeronautical revenues, he urges a return to the main principle that initially sparked the duty free industry on to the path of success: price competitiveness. Edited by Mark Lane.

Until about 20 years ago, airports resembled little more than large shoeboxes, where travellers could quench their thirst and eat in a bar/restaurant and visit the restrooms, writes Marco Ghiotto. They could kill time, boringly, in a large waiting room, before boarding. The sole exception was the chance to shop perfumes, liquor and cigarettes at seductively temping prices.

That was the bygone era of duty free.

Since then, the scenario has radically changed due to two external factors – the establishment of the EU and the dawn of the travel retail age.

Upon the creation of the EU, the borders between member states vanished and the Treaty of Schengen cancelled most of the duties that made duty free irresistibly popular.

Travel retail, in turn, has revolutionised the physiognomy of civil aviation to such an extent as to practically distort its ultimate purpose: air transportation.

Airports have turned from shoebox format into multi-storey cathedrals, festivals of phantasmagorical architectures and showcases of unbridled luxury – shopping temples.

As a result of that dramatic change, pre-COVID-19 data shows an astonishing trend of travel retail turnover, in line with the explosion of air traffic demography. In 20 years, the travellers’ population has risen from 1.6 billion passengers in 2000 to 8.8 billion in 2019. The revenues, meanwhile, went from US$20 billion to US$81.9 billion.

But is all that gleams gold? Can the crazy pinwheel of travel retail, its world of dazzling lights and sparkling brands justify the record trends shown by the industry, leading up to COVID-19?

The answer is: scratch the surface a little to discover an unexpected reality.

The interior of many major airports (or in this case at Jewel Changi Airport, airport adjuncts) have been spectacularly transformed

Before COVID-19, the buoyant travel retail industry concealed the seeds of a crisis. Its inability to attract consumers proportionally to the demographic growth appears in a recent Bain & Company’s analysis, shared during the recent Moodie Davitt Virtual Travel Retail Expo.

Evidence shows that the spend-per-pax rate has been constantly decreasing in the last six years: -1 CAGR [compound annual growth rate] point in real terms (-4 points, like for like) against the industry official CAGR of +8.7% (excluding F&B).

In fact, the increase in the number of travellers effectively balances the loss per capita and even provides the illusory image of a booming industry.

We ask ourselves what therapy the sector operators will have to apply to reverse the trend, once the travel world has emerged from the crisis.

Concession retailers, airports and brands seem to have fully embraced the “new normal” philosophy, already. First, they act as an army of crusaders when it comes to making the retail and the airport experience more relevant, deeply sensorial and unforgettable for customers. They aim at making the visual appeal of the offer irresistible.

Second, they are competing to adapt the omnichannel lesson taught by the high street to the more complex airport environment and make it full-scope digitally connected.

The new normal menu seems unanimously identified by two main servings: increasing environmental appeal and widely deploying omnichannel.

Personally, I wonder if these two elements alone will prove decisive. Indeed, we at TW.0 & Partners feel like travel retail resembles a car that drives with one less cylinder.

A diverse array of luxury retail and F&B is now an expected sight in the vast majority of major airports (Istanbul Airport pictured)

In fact, the only booster of good old duty free – long before airports had turned into spectacular shopping malls – was not the luxurious image of their lounges and galleries nor any futuristic digital infrastructure, but a much more substantial driver: value for money.

Passengers were keen on spending their money because they had a clear sense of saving and convenience. This attitude triggered the explosive growth of the travel retail industry, but the original prerogative seems to have somehow lost its way, in time.

In order to attract world-class brands, airports have turned the environment into top luxury. Gorgeous duty free shops, glittering windows and galleries and even service providers and F&B, all shine like gold, nowadays. The downside to that booming upscale is the fading relevance of the primary source of attraction: price.

China’s flamboyant growth strategy in the sector, besides the aggressive recent spending-repatriation regulations, has never undermined the basic but undeniable concept of value for money.

No matter how luxurious and stellar-shining the ultra-modern Chinese airport environment may look, price relevance remains the solid foundation of the Chinese travel retail business.

In conclusion, the pre-COVID-19 travel frenzy has diverged the attention of the industry stakeholders from price – the main substantial driver of shopping – towards an epicurean ostentation plus, more recently, a roaring digital evolution.

But modern consumers, even the shopping addicted and big-spending Chinese, are perfect market dwellers – they rely on full price transparency and on their ability to compare options. And they make their final decision based on ultimate convenience.

A fascinating, but in some ways insufficient representation of reality, will not necessarily succeed in triggering the drive for recovery.

The industry should find the optimal balance between image and substance. And never forget the traction power of solid price competitiveness.

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The Moodie Davitt eZine Issue 287 | 30 November 2020

The Moodie Davitt eZine is published 15 times per year by The Moodie Davitt Report (Moodie International Ltd). © All material is copyright and cannot be reproduced without the permission of the Publisher. To find out more visit www.moodiedavittreport.com and to subscribe, please e-mail sinead@moodiedavittreport.com

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