BRIC – boom or bust in Travel Retail?
We consider what’s in store for the travel retail industry as the BRIC boom begins to slow down.
September 2015 | by Alison Hughes, Research Director
Travel retail is an industry to be admired: it’s survived natural disasters, battled through the most dangerous epidemics and triumphed in the face of a global economic crisis.
It’s perhaps travel retail’s resilient nature in such adverse trading conditions that allows it to reap the rewards when the next opportunity presents itself.
The Big Four
When Brazil, Russia, India and China were first clustered together to highlight their economic prowess at the beginning of the millennium, 40%* of the world’s population were generally experiencing a better standard of living and an increased level of disposable income. Naturally, this made them eager to travel and make the most of this prosperity.
By grouping the BRIC states in this fashion, their respective growth and potential captured the attention of the international market – and has proven beneficial to travel retail.
For the retailers, this meant adapting and evolving to cater for a more varied shopper profile. They had to appeal to both the mature and emerging markets whilst also incorporating the bargain hunters, the luxury brand seekers, the impulse purchasers and the pre-planned shoppers. It was around the same time that digital technology presented travel retail with an extended shopper journey – from booking, boarding and beyond.
The brands already had differing levels of exposure to BRIC in their respective domestic markets. The main difference between a shopper in their domestic environment and when they’re travelling is their mindset; for example, our research indicates that the vast majority of BRIC duty free shoppers plan to buy a gift – be it for family, friends, colleagues, or as a self-treat*. Such behaviour has enabled all categories to modify their product format to appeal to these trends.
Ultimately, the BRIC phenomenon made us feel that these nations had a bright future ahead – and that this would have a positive impact on the travel retail industry.
With rapid progress comes the risk of regression
As with all trends though, it seems that BRIC may have run its course. It was announced last month that “the BRIC bloom is off the rose”. Professor Michael J. Boskin states that further growth for BRIC is looking less likely as each country is presented with its own unique set of challenges.
China has inevitably slowed down and is now prone to economic risk; Russia is continually criticised for having a difficult business environment and Brazil is too dependent on its agricultural commodities.
It is only India’s growth rate that has stayed up – and is one of only a few economies to escape the so-called ‘middle-income trap’ and continue to increase their prosperity**.
Of course, the travel retail industry relies on each country’s short and long-term successes – but there will always be numerous unforeseen factors that require us to adjust. For instance, we anticipated last month that the devaluation of the Yuan is likely to make the Chinese shopper more discerning with their purchases – favouring the exceptional over the ordinary. We know that travel retail will excel at this and continue to provide an experience through its understanding of different shopper preferences.
It’s worth remembering the context of how and why the term ‘BRIC’ was first coined by Jim O'Neill back in 2001 during his time at Goldman Sachs.
O’Neill’s point was to highlight the increasingly influential role these countries would play in the global economy over the following 10 years. He used the acronym to conveniently package this important trend and to argue that international economic cooperation should alter to reflect a changing reality – which it did.
Perhaps the next acronym – be it MINT (Mexico, Indonesia, Nigeria and Turkey), CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) or other – will not impact on travel retail in the same way as BRIC; particularly as most retailers and brands have already adapted to accommodate the emerging markets.
It’s likely the next trend will influence in a way that subtly evolves the unique platform of travel retail. As the target audience becomes more widespread and varied, brands and retailers will make the experience seemingly more personalised and sophisticated.
In our understanding of the industry, with the latest trend comes the opportunity for new discoveries, innovations and ideas that travel retail will continue to embrace for years to come.
For as we know, travel retail will always adapt and advance itself along the journey.
* Source: Desk research