SINGAPORE — Sales growth within the duty-free and travel retail segment is slowing down and the ever-evolving desires of the Asian traveler — along with the rise of online shopping — will present even more challenges to the sector, according to industry players here.
While Asia currently holds the largest market share of duty-free sales at 37.6 percent, retailers are seeing a slowdown in growth rates despite the increase of travelers. In 2014, the $62 billion industry had only a 3.5 percent increase in revenues in Asia, a sharp drop from 12.1 percent growth seen in 2013. Tax Free World Association (TFWA) president Erik Juul-Mortensen believes that this is “a cause for concern.”
More than 3,000 representatives attended the 20th annual TFWA conference in Singapore, where speakers tried to anticipate the shifts of a volatile global economy.
“Maintaining the growth we’ve witnessed here in recent years is going to be increasingly challenging,” Juul-Mortensen said to the conference attendants. “This new economic reality, coupled with other major developments in our industry, suggests to me that we have arrived at a watershed point.”
Asia’s duty-free industry has long relied on the appetite of consumers from China for its sustained growth, but the Chinese consumers’ retail habits have evolved since it has become less acceptable for extravagance due to its government’s corruption crackdown.
“A resentment of conspicuous consumption has led to a drop in sales in China,” Juul-Mortensen said. At the same time, he noted that travellers are still spending- they are just doing it in new ways.
“The Asian Pacific consumers have evolved firmly into the age of the individual, the bespoke, the one-off,” Juul-Mortensen said. “Experience is now the new luxury.”
But Andrew Wu, group president of LVMH’s Greater China region, advised attendants not to see Chinese consumers as a single entity, and to take heart. In the past, it was often government officials, or relatives of government officials, who were frequent consumers of luxury goods. But as it is no longer “politically correct” for such extravagance, retailers are looking only at this decrease, which he believes accounts for only one-third of sales.
“What’s fascinating, or sometimes getting missed, is that the two-thirds of the normal consumption is growing,” Wu said. “We are in a very interesting situation of normalization of Chinese consumption.”
The growth of e-commerce, inevitable in today’s reality, is also viewed as both an opportunity and a threat to duty-free purchases in the airport. Nicole Foo, assistant vice president of Changi Airport Group’s advertising and promotions department, said that retailers must work with the airport itself to create a more “holistic” environment.
Changi Airport has chosen to integrate e-commerce as part of a traveler’s experience, she said. An example is allowing visitors to Changi to purchase duty-free items online up to two weeks before their departures, giving them more of an option.
Alan Brennan, global head of sales for Nestlé International Travel Retail, believes that the industry’s main drawback is the lack of foot traffic within airport stores, which only accounts for 20 percent of travelers globally. With online shopping being more readily available to consumers, duty-free retailers will be jostling for attention in an already uneven playing field, he said.
“We can’t compete and battle with e-commerce on anything, and we can’t compete with the domestic market on everything,” Brennan said, “But we can pick our battles — and customer service is one of the areas we can win as an industry.”
It becomes more imperative that the service in a duty-free shop be impeccable and flexible to individual consumers needs, he said.
“Fundamentally, it’s about really understanding those travellers and understanding what their needs and expectations are and ultimately being able to target it in an appropriate way instead of a one-size-fits-all approach because clearly it’s not working,” Brennan said, adding that retailers and duty-free stakeholders must do more to urgently address this issue.
“The reality is that if we don’t change, we’ll be left behind,” he said. “The biggest threat to our business is complacency.”