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Travel retail and duty-free sales are set to swell to $145.9 billion over the next three years, according to Euromonitor predictions.
The sector, severely impacted by the Covid pandemic, with sales plummeting 67 per cent at its peak, has been revitalised by a surge of pent-up travel demand and so-called ‘revenge spending’.
This year promises to be a landmark year for travel, with global air passenger numbers expected to exceed 2019 levels at last, topping 9.4 billion, per Airports Council International.
The surge in travellers presents a huge opportunity for travel retail, with Euromonitor predicting that sales will hit $113.5 billion this year. Early data from travel retail experts Generation Research, reports that global travellers in 2023 spent $11.5 billion on fashion and accessories in duty-free alone.
But it’s a fast-paced environment that continues to evolve, and these forecasts represent a downgrade from last year, flags Prudence Lai, consultant at Euromonitor. “Our updated forecast indicates a softer recovery due to a weaker Chinese outbound market, influenced by current economic headwinds and diminished consumer confidence, alongside changing traveller behaviours,” she says.
Key motivators for duty-free spending remain strong, including competitive pricing, product availability, exclusives and authenticity. These factors are essential for travel retail players and luxury brands to understand as they navigate shifts in traveller behaviour, adds Lai. The experience factor is paramount. “Travellers are becoming more experiential, moving from tangible consumption to intangible experiences.”
Pricing challenge
Competitive prices have long been a key tenet of travel retail — and remain so, according to Marco Passoni, senior executive VP at 2.0 Partners, a specialist advisor to luxury and premium brands such as Moncler. Data from the Duty Free World Council places “value for money” as the top motivator for travel retail shoppers in 2023, accounting for 26 per cent of respondents.
A deeper dive into the products travellers are buying, supplied by data provider Pi Insight’s latest global beauty and luxury shopper research, identified “cheaper prices” as the primary purchase driver (23 per cent), followed by “good quality” for both categories, at 23 per cent and 24 per cent respectively.
However, pricing that is competitive enough to encourage travellers to spend is now under threat. There’s the issue of rising manufacturing costs. But there’s also a desire among some brands to elevate consumer perception and increase exclusivity by raising prices, making it harder for travel retail to maintain its attractiveness.
This shift is yielding mixed results, varying between individual brands, notes Hazel Catterall, director of Newmark’s UK EMEA Retail division. “Luxury winners right now are Chanel and Hermès, which have both recently published strong financial results for their global businesses, with their airport divisions very much in line. The luxury business in travel as a whole is not so consistent: the brands finding airport sales more challenging include Gucci and Burberry, among others.”
Luxury brands are betting on beauty to cater for those travellers feeling the pinch. Fragrances — particularly artisanal, niche brands — represent a “luxury experience sensation product” and remain an accessible entry point into the world of luxury, according to Euromonitor’s Lai. Recent launches tapping the affordable luxury consumer include the beauty offerings of Prada, Valentino and Miu Miu.
Competitive pricing has traditionally led travellers to plan their airport purchases in advance, but Britta Hoffmann, director of beauty purchasing at global travel retailer Gebr Heinemann, emphasises the importance of providing travellers with tangible added value and attractive offers that encourage impulse buys.
“Feeling, seeing, tasting, smelling and touching products — as well as personal interaction with sales staff — are highly important in this context,” she says. “Creating these surprising moments is a crucial success factor for travel retail, inspiring consumers to treat themselves and others, thereby making impulse purchases in an environment where there are brands that might otherwise be hard to find.”
Gebr Heinemann’s “test-and-learn” approach, inviting brands to trial travel retail, involves offering a curated assortment of exclusive, limited and trending products. This approach resonates in the luxury space, says Jan Richter, director of purchasing for fashion, accessories, watches and jewellery at Gebr Heinemann: “A spectacular assortment in one marketplace, such as at Istanbul Airport, where a luxury brand environment is combined with younger brands, inspires consumers.”
Leaning into the experience
For luxury and fashion, price becomes less of an issue when brands lean into the experiential side, adds Passoni. Experiential retail, which integrates personalised and immersive experiences into shopping, is likely to be at the heart of the future growth of travel retail.
Passoni believes brands delivering undiluted experiences directly to consumers are elevating the travel retail experience. He points to the quality of Louis Vuitton’s boutiques at Singapore Changi, Doha and Hong Kong airports, Chanel at Paris Charles de Gaulle, as well as Hermès in London Heathrow.
“But the very best experiences are those that blend exquisite brand experiences with something else to create something truly new and special for travelling shoppers,” he says, citing the Louis Vuitton lounge and recently unveiled Dior luxury beauty retreat, both at Hamad International Airport in Doha. The Louis Vuitton lounge, a collaboration between the luxury brand and Michelin three-star chef Yannick Alléno, is an invitation-only space for first class flyers and high spenders at the airport’s two LV boutiques. The Dior luxury beauty retreat is the brand’s first airport spa, combining beauty and well-being experiences with retail.
Thabet Musleh, senior vice president of Qatar Duty Free — which owns and operates both the Louis Vuitton lounge and the Dior retreat in the Doha hub — says, “Brands are aspirational. Having a brand that offers both a product and a service simultaneously will undoubtedly attract more people. Travellers are extending their transit time for these experiences.”
Incorporating unique products into the experience makes a significant impact on high-spending shoppers. At the entrance of the Dior beauty retreat sits a custom-made Miss Dior trunk, of which only four exist worldwide. Priced at an eye-watering €140,000, it houses eight giant bottles of the iconic Miss Dior eau de parfum. “When we sell it — and it’s a matter of when, not if — it will probably be the most expensive beauty product ever sold in an airport worldwide,” Musleh confides.
What’s next for China and Hainan?
Recovery in travel retail post-pandemic has been bolstered by experiential retailing and will be key to growth in challenging markets, outlines Lai. Some of the best examples of experiential shopping are on China’s offshore duty-free shopping haven, the island of Hainan. A recent example is the experiential L’Occitane Hotel concept in the Sanya International Duty Free shopping complex.
“Key attractions for customers are the personalised customer service and expert skincare diagnosis service,” says Mona L’Hostis, L’Occitane marketing director for travel retail. It also helps drive traffic to the new L’Occitane boutique in the same block.
Following a boom period, however, sales have more broadly fallen back on Hainan. Haikou Customs reported that the island’s spending had dropped by 19 per cent year-on-year in the first quarter of 2024. This is likely linked to a rebound of Chinese overseas travel, as well as last year’s government crackdown on daigou (“buying on behalf of”) resellers — who shop in Hainan to take advantage of cross-border price differences and resell luxury goods on the grey market — and competition from nearby shopping destinations such as Hong Kong and Japan. According to data from consultancy Oliver Wyman, Chinese travellers once again prefer shopping overseas, yet brand and product availability have overtaken pricing as key drivers.
Lai from Euromonitor thinks the crackdown on daigou spending will be a short-term shock for Hainan. “In the long run, it should benefit brands, especially luxury brands. Daigou has been a challenge for many luxury brands, difficult to tackle alone,” she says. “So, this government-led proactive crackdown is almost a reset for the industry and helps shift from daigous to direct local sales through official channels, providing a more sustainable business environment in the long term.”
Increasing numbers of Chinese travellers are FITs (free independent travellers) as opposed to tourist groups. Their spending is therefore more individually targeted, and retailers are seeking to respond accordingly.
Post-pandemic, the risks of overreliance on Chinese consumers are more greatly appreciated; their spending has yet to rebound to pre-2019 levels. Once the biggest duty-free market in the world and heavily reliant on Chinese travellers and the daigou trade, South Korea has witnessed plummeting duty-free sales dipping 22.8 per cent to KRW 13.7 trillion (£785 million) in 2023, according to the Korea Duty Free Association.
South Korean duty-free giants — Hotel Shilla, Shinsegae Duty Free and Lotte Duty Free — are navigating the shift by investing more in international markets, such as Southeast Asian countries including Vietnam and Singapore, to offset sluggish performance in their home market. Travel retail also has its sights on emerging markets like India, where luxury demand is rising fast, attracting an influx of brands.
Passoni from 2.0 Partners believes China will remain a challenging market: “Clearly there is hunger for spend from Chinese shoppers and the price issues in the country make shopping abroad and in travel retail attractive. But with numbers as they are, it will never be as it once was. India, Malaysia and Vietnam are the obvious answers to this. Not only are they fast-growing economies, but they have strong Gen Z populations who will be big spenders.”
In India, the middle class is set to grow almost fourfold by 2030, increasing demand for luxury and travel, while in Vietnam, the luxury sector was worth $957.2 million (£751 million) in 2023 and is set to rise by 3.2 per cent year-on-year until 2028, according to Statista.
Consumer trends
The growing influence of Gen Z is prompting significant change in the sector. Beauty brands associated with celebrities, influencers, makeup artists and digital natives are on the rise, with increased emphasis on this market segment anticipated throughout 2024.
Products that align with sustainable values are also becoming more important, driven in large part by demand from younger travellers. Yet, defining ‘sustainability’ remains a grey area for many, varying considerably among individuals and across categories, so consumer transparency is key to allow for individual preferences and informed decision-making, explains Richter. For Gebr Heinemann, the company’s future-friendly beauty range combines sustainable products with a clear and comprehensible criteria, which is then communicated transparently and simply to shoppers.
In luxury and fashion, iconic brands capitalising on travel retail’s international role have tended to dominate airports. Now, the influence of Gen Z is attracting luxury streetwear, athleisure and ‘gorpcore’ brands to the line-up.
Ganni chief commercial officer Louise du Toit says the brand is witnessing a rebound in travel among its customers this year. “This resurgence presents a great opportunity to tap into key cultural retail travel locations. Our data shows that Ganni clients are particularly interested in shoes and bags when exploring our travel retail destinations,” she says.
Catterall of Newmark Retail, which is facilitating Ganni’s expansion in the sector, points to appealing to Gen Z as a hot topic. “These are the commercially important passengers of the future, but at the moment research suggests they have no clear understanding of what duty-free or airport shopping means. Gen Z’s favourite beauty brands such as Elf, Glossier, Fenty and Tarte are not yet available in European duty-free, yet these are the brands they want to see and engage with,” Catterall says.
More brands should be integrated that resonate with this demographic, she suggests. Alongside this, Catterall proposes targeted marketing to help educate Gen Z about the duty-free experience, especially the price savings that Gen X and Boomers fully appreciate. “There will be some commercial risk to the retailers, but it can be managed — I wouldn’t encourage any airport or retailer to change their entire brand mix overnight,” she cautions.
Korean travel retail giant Shinsegae Duty Free has been tapping into younger consumers by way of exclusive collaborations with brands such as Off-White — but they’re not always successful. Shinsegae Duty Free PR director Jooyeon Ahn explains that, “Brands should consider launching products that meet diverse customer needs while aligning with their brand identity. They must design product line-ups that fit both current trends and existing styles, conducting pre-tests and continuous marketing to avoid failures, as seen with Maison Kitsuné’s golf line.”
Richter agrees: “These new categories are experiencing growth, and the portfolios are constantly being adapted and expanded to meet consumers’ needs. But it is important that brands stay true to their DNA and embed these new categories authentically within their product ranges. Some brands are already successfully doing so, and it is a trend that is here to stay.”
Key takeaways:
- Travel retail and duty-free sales are surging back after a prolonged period of post-pandemic uncertainty. Opportunities for luxury brands are centred around exclusivity in terms of product assortment, experience and engagement.
- The airport experience offers a special touchpoint for client acquisition and retention. Richter of Gebr Heinemann advises: “Travel retail… increases the global reach and the awareness of a brand. An important factor is a balanced mix between carry-over styles and seasonal novelties, which must be aligned with the passenger structures of the respective regions/airports.”
- Gen Z doesn’t appreciate travel retail as much as older generations. They require encouragement (including more Gen Z-targeted brands in airports) and a certain degree of education about the benefits of duty-free shopping.
- Euromonitor’s Lai suggests that, “loyalty programmes and using data to drive customer engagement is crucial. Experience is at the core of luxury in general, so omnichannel, seamless in-store experiences are very important for understanding shifts in traveller behaviour and meeting their expectations.”
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