If 2017 was the year when luxury retail shifted from physical to digital shoppers, then 2018 is shaping up to be when travel retail becomes the new disruptor and brands look to airports to discover the appeal of data-driven, experiential retail.
Consumers are called passengers in travel and duty-free retail, due to their location-based shopping at the airport. It’s this terminology that holds the key to airport retail’s advantage over other retail channels. Here, brands know where and when, how and why passengers are shopping. And usually what they are buying regularly. They can also talk to them before, during and after travel.
End-to-end marketing has never been so readily deployable through existing data capture, thanks to the way airports and airlines have operated for years – prioritising getting passengers from check-in to boarding-gate as efficiently as possible – while they keep tabs on where their passengers are at all times. However, as airports expand in line with growing demand for global travel, and aeronautical revenues remain flat due to the crowded and competitive marketplace, airport operators are looking to non-aeronautical revenues, and in particular the growth potential of travel and duty-free retail.
‘Travel retail is flying high’ according to Erik-Juul Mortensen, president of the Tax Free World Association, who was speaking at the association’s annual industry conference in Cannes in October 2017 and the organisation’s 70th anniversary.
Latest figures for the category’s overall global performance show a reversal of the 2015 2.7% year-on-year decline, with 2016 sales growing to $63.5 billion, a 2.4% gain on the previous year. Fragrance and cosmetics account for the lion’s share of tax-free revenues, generating $21.5 billion, a 9.2% increase according to the TFWA market research partner firm, Generation Research. And if 2017’s first quarter performance of $17.7 billion and a 4.2% year-on-year growth, is anything to go by, the rest of the year will see a similar growth trajectory.
Global travel retail is forecast to grow 8.5% each year between 2017-2025, according to market research firm Technavio and growth will come from premium tax-free categories such as fashion, jewellery, accessories and fragrance/beauty products.
In particular fragrance and cosmetics brands are seeing travel retail sales spike, according to a WWD report. ‘Luxury was up 5% in the second quarter (of 2017), and travel retail is one of the drivers,’ says Camillo Pane, chief executive officer of Coty Inc.
With TFWA reporting travel retail sales growth of 8.2% year-on-year in Asia, the region is seen as a catalyst for future trends. ‘Chinese shoppers are flying everywhere,’ says Vincent Boinay, managing director of travel retail worldwide at L’Oréal. ‘They’re not the only ones, but they are the most important in the growth of our industry lately.’
Compared to Europe, Asia will likely be the global growth engine for tax-free tourism spending, according to Global Blue transaction trends. A recent joint Global Blue x UBS bank report highlighted that in September 2017, regional tax-free sales in Asia were up 39% year-on-year (YoY) and in particular Japan and China were both up 80% (YoY), as Chinese shoppers chose to travel and shop here instead of Korea due to the ongoing political unrest there. Once the favourite travel and shopping destination for Chinese, Europe is experiencing a slump, with tax-free sales down 10% for the same period. A note from UBS says: ‘Asia is seeing accelerating Chinese demand currently – due to narrowing global price differentials (for luxury products) – and there is a raised probability of price increases going forward, if and when volumes slow into 2018.’
Serving Chinese passengers
In particular premium beauty brands need to be ready to serve Chinese passengers in innovative or exclusive ways. ‘Chinese consumers want what the key influencers have, the products they see on their social media feeds. It’s key to engage Chinese travellers before they set off on a trip,’ says Olivier Dubos, senior vice president, worldwide travel retail at Parfums Christian Dior. For brands that offer something special, their customers are likely to upgrade their purchases if they have a personalised experience.
Airport retail concepts
Many luxury brands are trialling new retail experiences at airports as a way to encourage passengers to stop and engage with their latest campaigns. Burberry’s Balloon at London’s Heathrow Airport promoted its DK88 bag and trench-coat collection, while Dior installed a pink Cadillac at Singapore’s Chiangi Airport for its Miss Dior fragrance launch. LVMH-owned Bvlgari opened a miniature version ‘pop-up’ of its Rome flagship at Paris Charles de Gaulle airport, complete with gemstone history lessons and an interactive travel Instagram campaign to unveil the inspiration behind its latest Le Gemme scent collection. The brand’s European marketing director for travel retail Caroline Ferlay-Naudin says such pop-ups bring a statement of image and luxury to passengers and they lure new younger customers.
More than just pop-ups and exclusive location-based footfall drivers, travel retail is at the forefront of an omnichannel revolution. As airports increase their spending on digital innovations – IT investment was up 8% between 2013-2016, according to Airports Council International – brands with airport retail locations are following suit with new concepts and multiple technology-led passenger touchpoints to facilitate a more seamless retail experience.
The airport retail sector is well placed to accelerate non-aeronautical sales growth via the combined strength of a large physical retail portfolio and ready-made destination retail status. Brands that utilise smart digital retail strategies to harness the passenger data readily available to airport operators, will win the battle to convert more passengers into customers.
Passengers are driving demand for digital innovation at airports and travel retail brands are playing catch up. While 97% of today’s airline passengers arrive for their flights accompanied by a smartphone, according to data from SITA, it is their motivation for travel shopping that helps them spend time in airports. 63% say they want exclusive retail offers, according to Nielsen, while a further 44% are motivated to buy a gift at the airport and around a third name ‘self-treating’ as a good reason to make a purchase in duty-free if the price is right.
Key to further growth for travel retail, especially in airports, will be increasing the number of passengers who make purchases – currently only 15% of passengers, according to Generation Research. Experts agree digitising the passenger experience is central to changing the way people think about shopping before boarding a flight.
‘We all need to create more of a reason to stop in-store on the way to boarding,’ says Stéphanie Metz-Thevenod, EVP marketing and digital at Lagardère Travel Retail, talking at the TFWA conference. She says the retail group converts between 10-20% of passengers through emotion. ‘And digital engagement is the way to get there.’
‘We need to think about customer experience and differentiation when developing omnichannel strategies, and this starts in the store where we have the strongest reach and the most valuable physical (and thus emotional) link with passengers,’ says Metz-Thevenod, who thinks developing digital assets in this kind of store is key and calls it the ‘phygital reality’.
But what will make passengers more likely to buy at the airport? It needs to be convenient, frictionless and most importantly, memorable. One example from Lagardère Travel Retail is Aelia Duty Free’s in-store service, ‘The Art of the Gift’, where passengers are targeted prior to travel with what Metz-Thevenod calls ‘signatures services to change the way passengers interact with store staff’. Currently this amounts to being able to order before you fly, collect in-store, at departure or on arrival. Metz-Thevenod says the company is testing ‘Real Time Bidding’ programmes where Aelia Duty Free can connect with potential customers through any app, when they are in the proximity of the airport and via beacon technology when they are in-store.
The test for developing and progressing targeted communications at passengers, will be relevance. ‘Retailers need to manage the customer relationship: they need to nourish a one-to-one discussion with the passenger and start a win-win relationship, where knowing your customer and their purchasing behaviour will allow you to push targeted offers,’ says Metz-Thevenod. Consumers are already overwhelmed with marketing messages that are not always relevant. Brands that join the dots between passenger data and purchasing history are likely to win new customers. ‘Collecting data is easy to do but the challenge is to connect with the purchase profile and send out the right offers to the right shoppers’ advises Metz-Thevenod.
Travel retail, the brand-building channel
Who are the leaders when it comes to planning ahead for the digital retail experience? ‘Travel retail brands are increasingly incorporating digital as part of the entire airport retail experience,’ says Muriel Zingraff-Shariff, an omnichannel and travel retail expert. When she worked with BAA on the launch of Heathrow’s Terminal 2, she asked all the brands building new retail concepts to include a heavy digital focus in store. ‘There is a new generation of bricks and mortar retail that is about helping consumers along the digital journey, for example augmented mirrors or pre-order apps on their smart phones. They key is flexibility, especially in luxury – the future is about offering choice, whatever channel, while browsing on the go or in the physical store,’ she says.
‘Travel retail is a fantastically emerging channel, especially as it grows more diverse and luxury brands wake up to its potential,’ advises Zingraff-Shariff. ‘The sector has shifted from being on the side and considered as not strategically important, to a channel that easily creates brand equity.’ Cosmetic brands are best placed to benefit from this growth, due to their heritage experience in the sector, according to Zingraff-Shariff. ‘Luxury brands are also re-evaluating their presence in this channel. It gives amazing feedback on how the brand is performing with different nationalities and at varied destinations. Brands can pinpoint by location how passengers react to their brand promotions, for example the difference between Chinese who speak Cantonese at Hong Kong airport or those using Mandarin.’
We can define what omnichannel means for future travel retail sales growth in one word: personalisation. ‘Omnichannel means brands can develop more personalised strategies. Passengers are not doing so much impulse buying anymore, as the categories have developed, from jewellery to watches and luxury fashion – they have all evolved into much greater categories and passengers target travel retail purchases by destination. Growth will come from combining e-commerce with personalised concierge – travel retailers need to be at the service of passengers who are captive and willing to spend.’
For more on digitising the passenger airport retail experience request a copy of The Digital Journey, a TFWA Monitor report produced exclusively for TFWA members by the Strategic Insights team at Portland Design.