Travel Retail- A Game changer for retailers.
Today brands and retailers are using travel retail for building their brands by targeting a much-focused audience.
Travel retail or duty-free retailing or airport retail are the terminologies used by modern retailers for this emerging business channel.
My article narrates some of my experiences acquired by spearheading travel retail operations and sharing some trends which I foresee emerging in 2020.
Travel retail will become the way customers shop in the future. One of the reasons is that it’s tax-free.
A number of airport retailers are increasingly looking into customer experience surveys to get a better understanding of travelers’ spending habits.
Travel retail – A modern face of retail – My perspectives.
I got exposed to travel retail in 2017 when I was assigned the responsibility for initiating and launching a new business channel for brands handled by me as a retail practitioner.
As I got involved in business expansion pitching to various duty frees category managers and leasing spaces at prominent airports, I found that this business has the potential to overshadow the existing malls or traditional retail.
What is fueling growth to travel retail business?
During my recent holidays in India, I was amazed to see the booming travel retail operations not only in metro airports (New Delhi or Mumbai) but also in tier 2 cities airports (Bhopal, Goa, Dehradun, Surat)
- The quality of airport infrastructure has drastically improved.
- The quality of retail offerings and brands, cafes, lounge facilities, brands (fashion and accessories), book stores (WHSmith is the category leader in this segment) or even travel accessories shops have improved and they offer high-quality products.
- Airports offer a great variety of food options (food lounges, food halls, etc).
- Millennials today prefer to learn from travel experiences, gathering memories is more important than saving money. They believe in the quote “Travel is the great teacher”.
- Change in traveler’s behavior, today they see traveling as a leisure activity and prefer to spend more time at the airports which offer great experiential retail.
It makes more sense to check-in early at the airports and experiences its retail galore.
Today, airports (I can say from Indian & the Middle Eastern aviation scenario) are busier than most of the prominent malls in the country.
The picture shows an activation by MyFM in Ahmedabad thanking their listeners for making the FM station number one. The passengers received a hamper gift pack for them at the Ahmedabad airport’s arrival terminal.
Emerging Trend is toward luxury items in travel retail.
The reason is that passenger buying behavior has changed dramatically. Passengers research, check availability and compare prices online – and then purchase the products at the airport.
There is the emergence of electronic shops at airports selling the latest i-phones, Macbooks, Samsung notes, etc which were not common in the past.
The big game-changer has been the surge of mainland Chinese travelers.
Their appetite to learn about and visit the world and their willingness to shop when they travel have provided the industry with a fantastic opportunity.
Interesting Statistics- Travel Retail
- Travel Retail channels now encompass Airports, Airlines, Cruise Lines, Ferries, Border Stores, and Diplomatic stores
- Airports have heavily increased their retail spaces and turned into shopping malls with multi-brand stores and stand-alone boutiques.
- Travel Retail offers a shop window and communication platform with the highest frequency of customers in your matching target group.
- A huge increase in potential customers due to consistent growth rates of international travelers. More than 1 Billion tourists crossing international borders globally.
- More than 100 Million Chinese outbound travelers.
Category domination: (global travel retail sales in 2018)
- US$ 5.7 billion Watches, Jewellery, and Fine Writing
- Fashion & Accessories contributed US$ 9.6 billion
- US$ 25.6 billion Fragrances & Cosmetics
- Confectionery & Fine Food pitched in with US$ 5.0 billion
- US$ 11.4 billion Wine & Spirits
The winner is Fragrances & cosmetics category globally followed by wine & spirits.
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Building the Travel retail ecosystem – the role played by data analytics.
Airports provide the physical space and infrastructure; brands and retailers the retail environment and airlines provide the necessary customer data to communicate with and sell to passengers in a targeted manner.
For example- when you shop at any retail outlet at the airports, they scan your passport, hence your details other than your name, etc gets captured. Details like frequency of travel, destinations mostly traveled your shopping behavior, frequency of purchase, etc.
This data is shared amongst airlines, airport operators, travel retail operators and retail operators so that they can create experiential retail experiences in their concepts and services.
Challenges for 2020
- High operating costs, emerging from built & run model or public-private equity models or even high bidding model.
- Travel retail is a highly complex and concentrated business. TOP 10 Operators are generating 40% of global Travel Retail sales and keeping most airport concessions throughout the world
- Brands are pushed to pay higher margins, resulting in low net operating margins.
- Consumer’s perception that Duty-Free price advantage is less attractive.
- External factors like travel caution advisories in cases of geopolitical issues, impact the entire travel retail sector.
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Case study: How WHSmith pivoted its business model to the travel retail or duty-free retail model?
WHSmith, one of the oldest retail chains in the world.
You cannot miss WHSmith shop in case you are a frequent traveler as they are present at almost all the prominent airports, seaports in the world.
607 high street stores, as well as 149 airport units, 127 rail/metro units, 131 hospital units, and 286 travel units outside the UK. They employ over 13000 employees.
Amidst retail apocalypse, wherein most of the traditional retailers are going out of business, WHSmith is delivering consistent growth.
(Estimated growth for 2019 is around 11%).
The Key for WHSmith growth lies in understanding the travel sector and understanding consumer’s behavior.
WHSmith has mastered the art of studying its customer’s behavior.
At the airport, we are all a captive, trapped audience.
In such situations, people are driven by impulse purchases and immediate needs and are less price-sensitive and more focused on convenience.
WHSmith’s range of items – books, stationery, magazines, newspapers, entertainment products, and confectionery – cater perfectly to these kinds of impulse buys.
For example, imagine that You are at the airport waiting to board the aircraft. You decide you need something to keep you occupied for the journey.
You pop into WHSmith’s to buy the latest copy of your favorite business magazine and while you’re there you buy something to chew or some chocolates. Then you discover you’ve forgotten your charger.
Consolidating all the items, you have a decent amount of purchase in your invoice. And since you are in excitement for travel (either business or leisure) you don’t mind paying a little higher price for your purchases.
It is the emotion i.e. NEEDs overtaking the WANTs.
It happens with me quite often that I end up shopping for some small gifts or toys for my son or even chocolates while taking a return flight from my business travel.
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WHSmith, instead of competing with the likes of eBay’s or Amazon’s of the world, took a different approach.
They focused on securing more locations at airports, railway stations at every prominent travel hub.
Because, the answer to this strategic move is that in high street locations you would get lots of customers who would come and browse, but then they don’t buy, because, at that moment, they’re really just doing comparison shopping. But that doesn’t happen so much in a travel location.
The same rationale applies to moviegoers purchasing popcorn and a coke at inflated prices which are sometimes higher than the movie ticket prices.
In my next article, I shall share case studies from successful brand activations in travel retail.
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About the author:
Ritesh Mohan is a passionate retail professional with over 20 years in the Retail sector, handling some of the biggest brands in beauty, fashion and fragrances retail & FMCG sector. He has been instrumental in the growth of some of the regional brands as well in the Middle East region. Ritesh specializes in Retail management, Product development, and Retail Operations, Sales Management and Franchising. He strongly believes in empowering business owners with his wisdom & experience of around two decades in the industry.