LONDON — Could a new golden age of travel be dawning?
Globe-trotting luxury titans Johann Rupert and Bernard Arnault clearly think so, as do Steph Korey and Jen Rubio, the Warby Parker alumni and cofounders of Away, the direct-to-consumer luggage company which on Friday announced a Series B funding of $20 million.
Over the past year, Rupert and Arnault have put their money behind travel-led businesses: Rupert, chairman of Compagnie Financière Richemont, has taken a 5 percent stake in Dufry, after predicting earlier this month that people will increasingly choose to spend their free time traveling as robotics and digital advances take over the workplace.
In October, LVMH Moët Hennessy Louis Vuitton boss Arnault took a controlling stake in Germany’s Rimowa luggage maker in the wake of Samsonite’s purchase of Tumi. The Rimowa purchase also fit nicely with DFS, the duty-free retail group, which is majority owned by LVMH.
Earlier this month, Rupert said long-term luxury consumption trends will be all about travel.
His theory is that the second Machine Age is upon us and that tech advances, such as artificial intelligence, robotics and manufacturing practices will change the jobs landscape considerably — and also afford people more free time.
“What will people be doing in 15 to 20 years’ time? I suspect they’ll travel, they’ll want to visit countries, they’ll want experiences,” which makes travel retail interesting, he said during a call to discuss Richemont’s fiscal 2016-17 results earlier this month.
“The Chinese are a highly, highly cultured people and they will travel increasingly. I am optimistic. Man will have more free time and that will be spent on cultural experiences.”
His prediction chimes with travel trends.
“The number of people traveling is projected to grow at a faster rate than global gross domestic product for the next five to 10 years, so travel retail is a good place to be, and it has a lot of space to grow and improve,” said Luca Solca, managing director Exane BNP Paribas.
“In the U.S.A., for example, one has the impression airports could be materially improved. Compare and contrast JFK or LaGuardia with Heathrow, and you get the difference.”
According to the market research firm Technavio, from 2017 to 2021 the $62 billion global travel-retail business is expected to grow at a compound annual growth rate of 8.56 percent. One driver is set to be a focus on premium-priced products.
While the business has long suffered ups and downs from currency fluctuations and travel threats, investments continue to be made at every level, from airports to stores to brand owners.
During the Tax FreeWorld Association’s annual meeting in Cannes in October, Erik Juul-Mortensen, TFWA president, cited statistics indicating that passenger traffic is set to increase 5 percent annually through 2035.
“There are no industries that are growing like that,” said Cedric Prouve, group president of international at The Estée Lauder Cos. Inc.
The Technavio report in February estimated that fashion goods, accessories, hard luxury items, cosmetics and fragrances accounted for 64.3 percent of total travel-retail revenue generated in 2016.
The hottest region was Asia-Pacific, which grew 10 percent in the first nine months of 2016, according to Generation Research, which made its preliminary data available through the Tax Free World Association.
In a separate report on travel retail, Solca pointed out that luxury spend by people traveling accounts for about 40 percent of the global personal luxury goods market.
Of the 40 percent, 11 percent is tourist spend in airports, in-flight or on ferries, as well as in border shops and duty- and tax-free downtown shops and other outlets. The report said Asia-Pacific was the fastest-growing region ahead of Europe and America.
Although Richemont declined to comment on the strategy behind its investment in the Switzerland-based Dufry, the travel retailer with operations in 63 countries, industry sources said the move should enable the luxury group’s brands — such as Cartier, IWC, Montblanc and Dunhill — to access good locations in anticipation of a surge in travel, especially among the Chinese.
Trends in the U.K., and globally, show a robust demand for luxury goods among Middle Eastern, American and Chinese travelers in particular.
On Monday, Global Blue will report that the overall spend by tourists visiting the U.K. increased 38 percent in the month of April. Much of that has been fueled by Middle Eastern tourists, whose U.K. spend is up 12 percent this year compared with last.
“Middle Eastern visitors have continued to travel to the U.K. in the face of low oil prices and reduced economic growth forecasts,” said Gordon Clark, Global Blue managing director, U.K. and Ireland.
Consumption, he said, was not only powered by the weak pound, but by other factors, such as the availability of luxury goods on offer and levels of customer service.
So far this year, Middle Eastern shoppers have accounted for the largest share of international tax-free shopping in the U.K., with 37 percent, ahead of China’s 20 percent, according to Global Blue. The tax-free shopping organization added it’s expecting a bumper summer, as Ramadan ends in the last days of June.
Those tourists aren’t necessarily limiting their shopping to Mayfair, Knightsbridge and the West End. They can pre-shop Heathrow’s lavish terminals from their iPads, browsing and reserving duty-free luxury goods and collecting and paying when they get to the airport.
The major London airports are built as tourist shopping destinations. At Gatwick, travelers are led through a winding Willy Wonka-style path lined with beauty, chocolate, accessories, clothing and alcohol shops on their way to the departure gates.
Global Blue said overall, international tax-free spend in the U.K. grew 38 percent in the month of April, the 10th consecutive month of growth, due in part to increased activity from China, whose tourists spent 81 percent more than last year; Hong Kong, which grew 50 percent, and the U.S., which was up 56 percent.
Worldwide, international tourist spending is picking up, according to Barclays and Global Blue. In the first quarter, Chinese tax-free spending “grew nicely” across Europe and Asia-Pacific, compared with a decline in 2016, according to Barclays.
In the month of March, meanwhile, Chinese global spending grew 10.6 percent, while Russian global spending was up 40.7 percent as the country continues to recover from its economic crisis.
In his analysis of Richemont’s investment in Dufry, Solca said the company has “several unresolved distribution problems,” including dependence “on an ailing and inventory rich wholesale channel for watches.”
He also cited comments by Rupert that travel retail could be a solution to sell small leather goods, a key driver in Montblanc’s recovery.
“LVMH has shown in the past 20 years, that ‘selective retail’ — more so with Sephora than with DFS — has been a significant driver of value creation.”
“Direct investment in travel retail is not without challenges, as profits depend on the timing and cost of airport concessions. Mistakes in this area — as DFS has recently shown with its Hong Kong business — can be costly,” Solca said.
Established in Hong Kong in 1960, the DFS group carries 700 brands through 420 boutiques on three continents. There are 17 duty-free stores in major airports and 18 downtown T Galleria locations.
In September, DFS opened its first European store in Venice, a 75,600-square-foot expanse of retail space in a 13th-century building. The focus is on travelers and on luxury high-end gifts, although the goods are not discounted or duty-free.
Over the last three to four years, the group has been changing its downtown stores, elevating its T Galleria units product offer, its visual and merchandising and loyalty programs.
In 2016, it opened a T Galleria store in Cambodia and in Macau and two wine and spirit stores in Singapore’s Changi airport. The group, which employs 9,000 people, recorded 164 million travelers visiting DFS stores in 2015.