UK travel retail sector rebuffs damning report on duty free prospects

Senior travel retail sources have rejected the findings of a new GlobalData report, which forecasts that UK duty free spend will plummet by -70% between 2019 and 2025. The report pinned the supposed slump on Brexit-related new rules introduced in January 2021 which eliminated tax free sales for passengers departing the UK, leaving alcohol and tobacco as the only ‘duty free’* categories. The report concluded: “Germany and France will overtake the UK’s number-one position to become Europe’s biggest duty free markets by 2025. The UK’s share will have dropped from 23.6% in 2019 to just 8.0% in 2025.” GlobalData said: “Changes to rules due to Brexit will lead to duty free spend nosediving in the UK, falling from US$3.8 billion (almost £3 billion) in 2019 to US$1.1 billion (£0.9 billion) in 2025.”

Top five countries' share of Europe duty free sales, 2019, 2020 & 2025

Source: GlobalData, Retail Intelligence Center

Contentiously, it added: “With alcohol and tobacco being the only categories where UK duty free purchases are possible, there will be zero duty free spend on cosmetics & toiletries – previously the largest product area by far – and on food, jewellery & watches, electricals or clothing.” Birmingham Airport Commercial Director Richard Gill disagreed with the findings, commenting: “Following the relaxation of testing requirements the market has been very quick to respond and we are thankfully seeing some great signs of recovery which bodes well for 2022. “The abolition of the extra statutory concession (VAT relief for non-EU travellers) was certainly a blow to the UK travel market and puts many UK airport retailers and airports at a clear disadvantage to their European counterparts. But many passengers on their long-awaited travels are now experiencing the opportunity to be able to purchase duty free when travelling anywhere outside of the UK for the first time since 1999 which is definitely assisting in average spend growth.

“Our duty free partner and many other retailers have decided to maintain a price advantage to the High Street on all categories available to all travellers. This of course impacts margin but is an important message to demonstrate and maintain the USP of airport shopping. This is resulting in continued interest and willingness to buy and alongside the other key travel differentials such as travel exclusive products, larger value etc is driving continued spend growth.”

“Many passengers are now experiencing the opportunity to be able to purchase duty free when travelling anywhere outside of the UK for the first time since 1999, which is definitely assisting in average spend growth”

Birmingham Airport Commercial Director Richard Gill

In her report, GlobalData Retail Analyst Sofie Willmott commented: “As many UK consumers have not travelled by plane or journeyed through an airport for almost two years, changes to duty free shopping have gone mainly unnoticed. Duty free prices are now a thing of the past for most products and although we expect retailers to continue selling a wide range of beauty items, watches and clothing, shoppers will need to be savvy if they want a bargain.” “Duty free prices are now only available on alcohol and tobacco with retailers required to offer their own discounts if they want to entice travellers to buy and attempt to maintain the perception that airports offer lower prices than the high street. “The removal of duty free shopping for items such as makeup and perfume may stop some price-conscious consumers from buying, and deter impulse buys. Duty free operators, like World Duty Free and Dufry, will have to be creative with promotions and pricing to convert what were duty free sales into regular retail sales at British airports.” However, sources in the UK travel retail sector pointed out several key factors that call the report’s findings into question.

Primary among them is the fact that price is not the only driver of shopping in travel retail; in fact according to third-party research from several players such as MINDit it can trail in importance. “Important drivers are also novelties, exclusive travel retail editions, experiences and last but not least ‘simple convenience’,” one source said. Another airport source confirmed Gill’s view that ever since the introduction of the Brexit-related regulations, spend per passenger has increased overall. That is widely attributed to passengers understanding – and making widespread use of – the benefits within the tobacco and spirits allowances which can now be sold duty free to passengers departing the UK and heading to European Union countries. Another insider pointed out that spend has also increased across the other tax free categories as the savings provided to customers have been kept at pre-Brexit levels in many UK airports. “Therefore the overall offer and savings attractiveness for customers has been further increased, which has also resulted in a higher store penetration,” one executive said. Gill concluded: “Airport retail is here to stay and as passenger numbers continue to recover post-COVID the interest to invest by existing and new retail and food & beverage partners is definitely apparent to see.” *GlobalData’s definition of duty free includes duty free and tax free products sold through airside stores in airports or on board an aircraft or ferry and in duty free downtown and border shops but excludes tax free purchases by tourists at conventional stores.