Duty free & travel retail plays an important role in the revenue of the aviation, travel & tourism sectors in many countries around the world. With the outbreak of Covid-19, the duty free & travel retail industry suffered a lot in 2020.
Duty free & travel retail is a major contributor to the world economy. According to the Duty Free World Council (DFWC), it is estimated that the duty free & travel retail industry generates about 68 billion USD annual retail revenue, creates 650,000 jobs and contributes 35 billion USD to global GDP.
Airport is the most popular channel of duty free & travel retail industry globally. Duty free & travel retail is the largest contributor to non-aeronautical revenue, accounting for about 40% of the airport’s non-aeronautical revenues on average.
In addition, some other popular duty free & travel retail channels include ports, duty free shops at borders, cruises on international waters, and on airlines during international flights, and also duty free shops in the city (travelers need to prove they are traveling to shop there).
Duty free & travel retail are generally segmented by product (perfumes & cosmetics, alcohol, tobacco, electronics, luxury goods, food & confectionery, and others), distribution channels (airports, airlines, cruises, and other channels), and by geographic area. According to data from Generation Research, in 2018, the perfumes & cosmetics segment was the dominant product category that contributed to the industry’s sales with revenue of 31.5 billion USD. Channel airport generated 41.7 billion USD in the industry’s global revenue. Asia-Pacific was the largest market in terms of revenue, accounting for about 45% of global revenue in 2017. In 2018, the region grew 23.3% with 38.8 billion USD.
Impacts by Covid-19 in 2020
Covid-19 has caused a lot of damage to the global tourism sector, countries shut down travel and many major airports saw the decrease of international passenger numbers by about 90% in the early months of 2020. As a result, the global duty free & travel retail industry has declined significantly.
According to a survey by DFWC, in the first quarter of 2020, 21% of usual duty free visitors avoiding browsing duty free shops at airports, and 79% of travelers who visited duty free shops spent less time shopping than usual because of Covid-19. While in 2019, the duty free & travel retail market was valued at 74.31 billion USD, in 2020, this number was estimated at only 33.43 billion USD, down 55% over the same period last year.
Duty free & travel retail operators and major retail brands in the world were also affected. Lagardère Travel Retail reported a 55% decrease in sales, Dufry also experienced a 61% decrease in sales, Lotte Duty Free saw a 46% decrease in sales in Q3/ 2020 and had to close some of its outlets around the world. Sales of major beauty brands such as L’Oreal, SK-II, … also declined by about 20% due to damage of duty free & travel retail at airports.
Changing to adapt
The damage caused by Covid-19 forced duty free & travel retail operators as well as distribution channels such as airports to respond in order to maintain their duty free & travel retail businesses.
Some major airports in the world such as Heathrow (UK), Brisbane (Australia), Changi (Singapore) have turned to promote e-commerce channels to bring convenience and safety to travelers. Airports have also launched initiatives that allow travelers to reserve and collect products upon arrival at the airport. Touchless technology, virtual reality (VR), and augmented reality (AR) are also applied at shops in some airports to limit direct exposure but still allow travelers to experience the product before purchasing.
According to a forecast from ResearchandMarkets, if conservatively growing, the travel retail market will likely reach 46.11 billion USD by 2028. Stakeholders’ efforts to respond to restrictions and regulations Travel between countries has been gradually loosened, which is a favorable condition to help the travel retail & duty free to gradually find a suitable direction to recover in the future.
The efforts of all stakeholders to respond to the gradual easing of travel restrictions in the world are favorable conditions to help the duty free & travel retail industry gradually find suitable directions to recover in the future.