“Travel retail in 21st century? Chinese, Millennials and Digital”

What is the overall context that makes travel retail such a strategically important area for growth?

Martin Moodie: Travel retail offers a tremendously compelling opportunity for many of the world’s leading premium and luxury brands. Why? Firstly, of course, because a sustained rise in the potential customer base is almost a given. Look at any near- or longer-term passenger traffic forecast from the likes of ACI, IATA, UNWTO, Boeing, Airbus etc. and you will see robust growth projections. Between 2017 and 2036, the number of airline passengers is expected to grow at a compound annual growth rate of 4.7 percent.  Similar optimism pervades the burgeoning cruise line sector. There are few local markets where that audience in waiting, as it were, can be so assured. How to convert that potential customer into a real one is of course trickier!  I’ll come to that later.

Next is the question of who those passengers are. The global travel market is a fascinating, ever-changing crossroads of humanity, legions of people on the move. Many of them are from key emergent markets, and consistently high spenders in shopping terms. The Chinese are the most obvious examples but there are many others from Russians to Indonesians to Nigerians and so on. Today’s travel retail market offers such consumers a plethora of the world’s great brands, generally offered at alluring prices in attractive environments, backed by important guarantees of genuine product and aftersales service.

Many studies have underlined the proclivity to purchase by travelers, whether for gifting or self-use. The impressive rise in the quality of the travel retail environments – and the increased importance of retail revenues to airports – has driven a vastly improved offer over recent years, a trend that is set to accelerate.

Besides being a significant sales channel in its own right, travel retail also offers an important global showcase for brands, the oft-quoted ‘show window’ effect. After all, travelers are domestic market customers on the move. A quality presence in an airport environment can only enhance local market identity.

How has the market changed recently?

Passenger growth has been very strong in recent years, rising by 8 percent last year with a similar increase expected in 2018. The key dynamic though of the 21^st century has been the rise and rise of the Chinese travelling shopper. Take just about anywhere the Chinese shop in travel retail and their share of total spend will easily outweigh their proportion of passenger volume.

There are many other consumer dynamics, far too many to list here, but naturally the rise of Millennials is pivotal to future travel retail fortunes. That consumer often has different aspirations and desires, as well as shopping habits, from previous generations. Understanding, and adapting to, the needs of that consumer will be crucial going forward.

In terms of platforms, the evolution of physical and virtual shopping is key. Travel retail was a classic bricks and mortar business. Steadily it has added a digital component to its repertoire, both as a defensive move against the rampant growth of the e-commerce world that has so decimated many local market retailers, and as a way to reach out to the consumer throughout the travel journey. The key, I believe, is to marry the best of both worlds. Travel retail offers certain things that Alibaba and Amazon cannot – feel, smell, taste, human engagement, an enhanced experience. And of course, certain ‘travel retail exclusives’ that can’t be found elsewhere.

So, if you asked me for three watchwords for 21^st century travel retail, they would be Chinese, Millennials and Digital.

How are luxury brands capitalizing on this market sector?

With increasing relish. Two of the leading travel retailers are now part-owned by luxury groups. The growing sophistication of the airport retail environment and, particularly, the enhanced stand-alone space now being devoted to luxury brands in airports such as Sydney, Heathrow, Hong Kong, Changi and many others, has altered the perception of the sector among many luxury houses. Look at Rolex’s magnificent duplex store at Hong Kong International Airport – that’s from a brand that shunned the airport retail channel for years.

What are the key hubs in travel retail?

Too many to mention! Often, it’s not a question of which country travel retail stores are in, but what nationalities are travelling through them. Helsinki Airport is a case in point. The airport operator, Finavia, has cleverly positioned the hub as a key East meets West transit point. I was surprised by just how many Chinese passengers (and shoppers!) were in the airport last time I was through there a couple of weeks back. You could say the same about Istanbul, Dubai, Hong Kong… so many. In terms of sheer sales volume, Incheon and Dubai always slug it out for biggest single airport location each year.

What are the most popular kinds of goods in travel retail?

Beauty products are by far the biggest sector with around 36% of sales according to Generation Research (2017 figures for duty-free and travel retail sales); followed by wines & spirits with 17% and fashion and accessories with just over 14%. But the mix varies heavily by location and categories such as wellbeing, watches, jewelry, confectionery, destination merchandise and fine foods are growing strongly in many locations.

What new services are being offered?

This is the key really to how travel retail evolves in the face of competition from the online juggernaut. Personalization (engraving, calligraphy, personal shoppers, concierge services, loyalty programs and so on) is an antidote to an often homogenized and bland shopping experience elsewhere. In-store experience comes in many forms, from tastings to magic mirrors; from fun social media engagement to educational elements; and of course, first-class service). Give me an immersive experience, not just a purchase. Make it fun, fast (I do have a plane to catch, after all) and friendly.

How do you see this sector evolving in the future?

Overall very positively. I don’t say that lightly. I have ‘skin in the game’ as a publisher solely focused on the travel retail sector. I founded my company in 2002 in the belief that I would be servicing a growth industry that would far outlive me! Nothing has happened since to change my mind. The overriding challenge remains what it always was – how to convert more passengers into shoppers.  The sector must stop relying on the ‘elevator’ effect of more passengers year-on-year (stop thinking ‘captive’ market and aim for captivated instead) and focus relentlessly on engaging them earlier, convincing them better and serving them more engagingly.

The tension between physical and digital – humanization versus digitalization if you like – will find increased harmony in a balanced online and offline offer. Travel retail stores will increasingly underline what they can offer that pure online players cannot, and travel retail exclusives will become much more important than in the past. Industry stakeholders will start to come together in an effort to grow the pie, not fight over the portion size. Airlines and airports could and should work together as retail partners. Both are serving the same customer, simply at different points of the journey.

You will see the rise of the ‘marketplace’ concept. Watch progressive airports such as Auckland, Changi, Frankfurt and Heathrow reach out beyond their traditional ‘boxed retail’ concepts. Look at how AirAsia is attempting to create an ‘Amazon of the skies’ marketplace, knowing it has the passengers, the digital knowhow and the fulfilment capacity.

It’s all to play for.