There was an optimistic tone to TFWA President Jaya Singh’s opening address at the TFWA Duty Free and Travel Retail Asia Pacific Summit. The figures around the industry’s growth do not make for happy viewing, and, for example, new data from Paxsmart reveals that international departure passenger numbers fell from 473 billion in 2019 to 84 billion in 2020. However, we should not lose sight of the longer term picture and there is substantial pent-up demand for travel.
As we move out of the crisis, retailers may, he said, focus on a few leading brands, but variety is key to our success. The urge to spend that will result from the restrictions of the COVID-19 crisis will be good news for all brands of all sizes.
In Hainan, for example, we have seen a 356% increase in offshore sales in the first quarter of this year. This shows what can be done when retailers and regulators work together. Asia Pacific is showing us the route to recovery, led by Hainan.
Looking forward to TFWA World Exhibition & Conference in October, he said the steady stream of retailers and brands signing up demonstrates considerable enthusiasm for the event.
The first conference session saw business leaders from five of the biggest travel retailers debate some of the most pressing issues facing the industry today. Charles Chen of China Duty Free Group highlighted the importance of updating digital capabilities in order to capture the attention of Generation Z Chinese shoppers, who are primarily purchasing exclusive, luxury duty free goods online.
Benjamin Vuchot of DFS Group agreed that digitalisation and ‘e-tail’ propositions would help meet the passenger needs of the next generation of travellers. He added these should be used to enhance the unique physical experiences travel retailers can provide, which would present “an amazing opportunity” to cater to these customers with the right offer.
Continuing the subject of consumer purchasing habits and product ranges, Julián Díaz of Dufry Group said his company has seen increasing demand for local, sustainable and novelty and exclusive products among domestic passengers, but added these trends may change once international travellers return in greater numbers. Max Heinemann of Gebr Heinemann stated that rationalisation of product ranges was part of retailers’ “survival mode” in the current circumstances. However, he said future ranges would need to offer a greater variety of exclusive and authentic goods that cater to each individual customer, not just core luxury shoppers.
The speakers also called for more flexibility and sustainability in business models and a wider sharing of data in order to protect the industry in the short and long term. Dag Rasmussen of Lagardère Travel Retail urged businesses to get out of the “20th century” mindset and share data in order to develop personalised offers that would provide “great value” to airlines, airports, retailers and brands.
In the following session, Soon-Hwa Wong, Chairman of the Pacific Asia Travel Association, said that vaccine passes would help to open travel, but more clarity about how they will operate is needed. While the Asia Pacific region is managing the crisis better than others, a conservative approach and low vaccination rates would slow recovery. Conrad Clifford, Regional Vice President Asia Pacific at IATA stated that a key challenge facing the industry was getting governments to feel comfortable with opening their borders. Governments would need to curb measures to impose punitive levies and restrictions on the industry.
DFWC’s Sarah Branquinho said that the situation has been made more complicated by the challenge of interoperability and each country having its own regulations and requirements. Sunil Tuli of APTRA agreed that confusion about the rules governing travel was limiting progress. The industry is ready for a come-back, he said, and can be up and running as soon as passengers return. Stefano Baronci Director General of ACI Asia Pacific said he was optimistic about a return to recovery, which could come, he said, as early as next year. Looking at the importance of retail to airport revenue, he said it was essential to help keep charges to airlines as low as possible.
In the final conference session, consumer behaviour expert Nathalie Nahai took a closer look at shopper purchasing habits and how these have evolved as a result of COVID-19.
She said customers are becoming more familiar with remote, online experiences and shopping at their own pace, and are now more empowered to take these virtual shopping experiences into physical spaces. She added it was vital that travel retailers understand and adapt to these behaviours in order to successfully attract these customers both now and in the future.
Nahai said shoppers, particularly younger consumers, are becoming increasingly motivated by their values when it comes to making purchases. Just over half of shoppers say they feel most connected with a brand when they believe its values are aligned with their own. Sustainability is another major consideration, with 62% of Generation Z consumers preferring to buy brands with high sustainable credentials.
She encouraged duty free and travel businesses to create spaces and a brand presence that would “welcome and delight” passengers, helping them to create positive memorable experiences and reduce the stress of current travel challenges such as COVID-19 testing and extra security at airports.
Han Shengjian of the International Economic Development Bureau opened the first workshop session with the announcement of his organisation’s ambition to help make Hainan “one of the most developed free trade ports in the world” by 2050. He also highlighted the benefits brought about by duty free allowances approved by the Chinese government, which are leading to further growth in visitor numbers and sales in the province.
You Jiangwei of Shenzhen Duty Free Group shared detail on his company’s Mission Hills development at Haikou, created in partnership with DFS. The shopping facility was not, he said, a mall, but a small town, covering 100,000 square metres. He predicted that a return of aviation would lead to a recovery of duty free sales in 2022. Hainan would be, he said, a ‘beacon rising’ from the pandemic, and would become a venue for international tourism, particularly from East and South East Asian countries.
Xie Zhiyong of Hainan Tourism Investment Duty Free gave an update on business at Hainan Tourism Duty Free Shopping Complex, which the company operates. He said sales at the location had reached RMB 1.1bn, with perfumes & cosmetics representing the largest category for duty free sales (51%). Zhiyong added that his company has focused on attracting new brands to the complex at the start of this year, with plans to have 95% of stores open by the third quarter of 2021.
Chen Hui of Zhuhai Duty Free Group outlined how the strong response from the Chinese government was helping to bring back domestic shoppers to his company’s stores. From January to April this year, the company’s duty free shop on the Gongbei border has seen passenger numbers return to 70% of pre-COVID levels. Hui also announced plans to develop a dedicated 3,500 square metres duty free store in Hainan that will serve the island’s residents, which is due to open in the second half of this year.
CNSC Sanya Duty Free’s Ken Zhu explained that the development of Hainan means that Chinese consumers have moved from shopping abroad to shopping at Hainan, and spending topped RMB 100bn in the past ten years. His own company now has 30 stores across China, with plans to expand into more cities. The location of Sanya means it’s relatively easy to attract a high end customer. A new store here was constructed in just 60 days, and the number of brands stocked has increased from 220 to over 300 with SKUs up from 8,000 to 15,000.
Concluding the session, Dr Peter Mohn and Clara Susset of m1nd-set presented their study on the characteristics of duty free shoppers in Hainan. The data revealed some eye-opening figures – for example, 98% of visitors to Hainan did some form of shopping, which Mohn said was the “highest numbers he has seen” in his 25 years analysing the duty free and travel retail market.
The data also revealed some unique characteristics of Hainan duty free shoppers. These consumers were primarily focused on self-consumption, with 67% buying duty free gifts for themselves. They were also more open to buying new duty free products, with 68% purchasing new brands during their visit. However, the majority of Hainan shoppers (85%) also value the importance of brand reputation when choosing duty free products.
The second workshop of the day explored the importance of digital in the post-COVID world. Gary Mortimer, Professor of Queensland University of Technology, looked at the post-COVID consumer and emerging trends and opportunities for duty free and travel retail. There is considerable pent-up demand for travel, and the GTR industry should prepare for that now. Digital is the new norm (for shopping, engagement and entertainment as well as that all-important flow of information). The future of central business districts is in question, and retailers need to take stock of where they operate and what hours they operate.
Local brands will, he said, be important and the business should be mindful of how to strengthen local community connections. Similarly, trust is an issue, and retailers need to provide the right information and brands that offer reassurance. Value is not just about low prices, and there is much to be gained in thinking about the consumer who wants to share the social value of travel.
When asked if he thought we would see a ‘roaring twenties’ he replied that when borders open, the once-a-year economy traveller will take two or more trips or will upgrade their travel. We will, he concluded, be spending at higher rates.
Sung-Bin Im of Incheon International Airport Corporation highlighted the rapid rise of luxury shopping in Korea resulting from ‘flex’ culture – the desire from people to showcase their success among their peers. Incheon International Airport is looking to capitalise on this trend with updates to its luxury proposition, such as opening the world’s first duty free store for high-end label Louis Vuitton at the end of last year. The airport has also made a 95% reduction in rents and launched more than 100 ‘flights to nowhere’ since last September to support retailers and grow passenger footfall.
Sabrina Wang Chief Commercial Officer at Lagardère Travel Retail Asia said that China was seeing a dramatic bounce back of luxury consumption, with the personal luxury market growing 48% in 2020. The key trends impacting the industry across the region are the rapid expansion and modernisation of airports, the growth and diversification of domestic travel, price convergence with overseas duty free and the evolution of the luxury customer profile in airports. Post-pandemic, consumer behaviour has also changed. Customers are ‘buying a feeling’ and want experiential shopping, they are looking for products that maintain value, they spend more on healthcare, and they want to blend the physical and digital. The female consumer is becoming more important and all shoppers want more choice and a better offer.
Wang then went on detail the recent progress of her business, which now operates in 39 countries at 260 airports and 730 metro stations. It now has over 75 luxury brand partners. The company’s strong CRM programme has helped to bridge the gap between the physical and digital, and has over 2 million registered customers.
Erin Lillis of Lacoste said 2020 was tough for everyone in fashion but her company was performing strongly, with sales by category growing 25% in April compared to last year. The fashion label has been aiming to “extend the emotional bond” with customers in China by opening a pop-up store in Chengdu. It is also making a step change to its corporate responsibly and sustainable commitments, with plans to give all of its textile products “a second life” by 2025 – whether this is selling older collections as retro purchases or recycling these to create new garments.
Sarah Mathews, Group Head of Destination Marketing Asia Pacific TripAdvisor added more weight to the argument that consumers will be more than keen to start travelling again once restrictions are lifted. Travel remains important; in their own research, TripAdvisor found that 72% believed travel was as important to them as in past years, 72% of visitors were already planning their next trip, while 57% said they’d spent time during the pandemic planning future trips.
Vaccination rates affect future plans, and 88% of consumers report they are more likely to travel domestically if they are able to get the vaccine, while 77% stated they are more likely to travel internationally. Travellers’ attitudes to planning have shifted, and 69% said they were going to research their trip more than in the past, while the same number said they would think more carefully about what they would pack. Shopping and travel have a natural affinity, according to Mathews, and while natural environments and sightseeing were the top priorities for travellers, shopping was third on the list when it comes to choosing a destination.
Harding Retail’s James Prescott said the pandemic could prove to be the catalyst to drive businesses in the US$41bn cruise industry. He said the cruise market currently serves just under 30 million passengers, with this figure expected to double in the next couple of years. Harding Retail is aiming to capitalise on this boom in a number of ways, including a GDPR-compliant intelligence system that enables it to gain greater knowledge of its passengers’ travel and buying habits.
Prescott said: “For domestic cruises, everyone who gets on board is fully vaccinated. There aren’t many places today that give a fully vaccinated, almost normal environment taking you to guaranteed sun, with an action-packed experience on board.”
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