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The Industry In 2018; Part One

Around the globe, forecasts for 2018 are in abundance. Forecasts, like all future foretelling, are prone to unexpected variables that can throw them wildly off-course. However, they offer useful guidance, especially at times of rapid change. Here CiR look at the key industry trends that could impact on Travel Retail and Duty Free this year.

January 2018 | by Garry Stasiulevicuis, President

Retail, like many industries, is in the midst of striking transformation– much of it thanks to a technological revolution. Its landscape is being reshaped, driven by factors such as personalised shopping, artificial intelligence, drone advances and virtual reality. That reshaping is also going to come to the duty free and travel retail channel in much more decisive ways than previously experienced.

At CiR, we have been reviewing the channel, and crunching our own data and numbers, to produce our assessment of multiple key trends in the travel and retail markets that we believe will affect the DF&TR channel in the coming 12 months and beyond – whether for the better or worse. 

Here are the first of our thoughts, with more to share in future posts.

1. Russian and Chinese spending should strengthen

These two nationalities like to spend when they travel and are vital to the DF&TR channel. However, recent years have seen both cutting back due to geopolitical and other factors. Russia’s poor economic performance – a consequence of low oil prices, and sanctions from the west for its 2014 Crimean annexation – hit travel hard. Now, Russian international travel and spending is back on the rise according to the UNWTO. The rouble’s stabilisation in 2016 and 2017 has played a key role – although it remains well off its 2010-2012 highs against the euro.

Meanwhile, Chinese outbound travel continues to rise, with MasterCard forecasting 103.4m by 2021 (excluding trips to Hong Kong and Macau). That is something DF&TR operators will be grateful for, but memories of how Chinese spending per head dropped as government curbs and other factors took effect not that long ago, will be a worry. Additionally, the one-size-fits-all Chinese shopper of the past no longer exists and the industry will need to work harder to differentiate between the various Chinese shopper segments that are travelling today and in the future.

In the DF&TR segment’s favour is that Chinese international tourism spend has more than tripled between 2011 and 2016, going from $73bn to $261bn (source: CLSA) and spending in the first 10 months of 2017 grew by +19% (source: UNWTO). Luxury is also strongly back on a growth curve and, McKinsey, expects the Chinese to be a powerhouse driver of  luxury demand. The consultancy believes Chinese luxury goods spending will be +9% per year from 2016-2025, well ahead of the rest of the world’s +3% growth.

2. North Africa is recovering… but terrorism remains a blight

Yes, that is good news for DF&TR operators in tourism destinations such as Tunisia, Morocco and Egypt. But remember that the strong sales seen in north Mediterranean locations like Spain were largely due to a shift in travel from those South Mediterranean/African resorts perceived to be a riskier proposition after headline attacks in 2015, and political instability before that.

Today there is a perception of a lower risk in the region but while that is good news for North Africa, it will also mean lower demand for Europe’s southern coasts as travel shifts back and rebalances. A key variable here is terrorism – where it strikes next in Europe may also impact travel itineraries, particularly from Asian markets.  

3. The cruise market in China is a big opportunity

There is a boom in the cruise market globally but it is especially big in China. Cruise Lines International Association’s forecast for 2018 suggests passenger numbers will rise to 27.2m worldwide in 2018. The growth has been steadily up since 2009 and demand from China has been so strong in the five years to 2016 that Chinese cruise passengers now outnumber those from Germany and the UK. Among the nearly 3.1m cruise passengers from Asia, China accounted for 66% in 2016.

In 2018, CLIA says that 27 ocean, river and speciality ships will launch to cater to the increased global demand. More cruise lines are also deploying vessels to China on a permanent basis and these ships are being revamped with shopping facilities geared closely to Chinese tastes.  

The number of ships deployed in Asia overall has grown by 53% since 2013 and destinations with the greatest growth in port calls in Asia in 2017 were Japan, China and Thailand (source: CLIA). Cruise may have a small slice of the DF&TR pie, but the distribution channel looks to be the most reliable over the next 12 months.  

4. More airports will look at e-commerce

An airport app here or there is not going to make a difference to the online onslaught now affecting all retail channels. The DF&TR channel has some immunity from this as it has an impulse driven element to it. However, as mobile purchasing becomes the norm, airports and their retailers will have to build an offer that appeals to travellers – not price-based, but novelty-based – and is unique to the channel.

That alone is not enough. The channel needs to engage potential shoppers before they get to the airport – or risk losing sales to travellers along each step of their journey in the local market.

Retailers may be cutting back their physical presence on the High Street but only so that they can fire up their digital services. The smarter ones are combing them because customers increasingly expect online and offline retail to be a seamless proposition. E-commerce may be convenient, but shoppers still get a thrill from touching and exploring a physical product.

This unified approach is an opportunity for airports. They have started to develop single platform online e-commerce through players such as AOE which is now in Frankfurt and Auckland, and expanding to London Heathrow. Setting up a fully-integrated digital shopping portal – with e-commerce included – is going to be costly, and logistically challenging, but if they get it right airports can, at least, ensure they are not a diminishing presence in a crowded retail market.    

Another major benefit will be learning about their passengers through their online shopping habits, which will enable more targeted services and products to be directed to them every time they travel.

In conclusion;

A promising year for the industry, with opportunities arising and re-emerging across the continents and channels, but moving at pace to capitalise the opportunities could be key.

Look out for more 2018 insights from CiR coming shortly.