Duty bound

airport retail consultancy

With retailers and brands searching for new avenues to fuel growth, there is one market that is receiving increased attention: with an 8% CAGR forecast between 2018 and 2023, it is no surprise that many are looking to enter the Duty Free and Travel Retail market (DFTR).

The market is defined as selling to international travellers who will take the goods out of the country, making sales for certain categories exempt from the payment of local or national taxes and excise duties. The majority of the DFTR market contribution is from airports, but border shops, cruise ships and airlines also contribute.

The key growth drivers in this market are:

  • Airport passenger numbers are forecast to grow from 8bn today to over 21bn by 2040

  • The profile of travellers is favourable: a high share of millennials, above average income and high growth from emerging economies

  • Airports are recognising the importance of the DFTR channel and are optimising layouts to maximise the commercial opportunity.

Whilst most players in the domestic market are aware of the success that WHSmith has in the market, many tend to associate DFTR with alcohol and cigarettes, thinking it is not for them.

However, in addition to the attractive market growth rate, there are many compelling reasons to enter the market:

  • Airports are looking to become more unique, hence partnering with retailers and brands not normally associated with these travel destinations, which provides an opportunity for brand building to a strong consumer profile

  • Airports provide a data-rich environment, with detailed knowledge on the passing footfall, an ability to capture data on buyers, as well as to test appetite in other `domestic' markets

  • The ability to offer a different pricing structure and exclusive products means that cannibalisation of the domestic market is limited

Some high-profile examples of entry into the DFTR market include Oliver Bonas, which after a presence in rail stations opened its first airport store at Luton Airport in 2018, followed by a store at Gatwick in 2019, with plans to open further airport stores. The Harry Potter Store originally opened as a pop up at Heathrow T5 in November 2016 and due to its success, now operates as a permanent store. Victoria's Secret now has 175 Travel Retail stores (compared to 225 in domestic markets), after only launching Travel retail in 2009. Penhaligon is opening an exciting `made to measure' fragrance concept in Doha in 2019 while Zamora is launching a basil-flavoured limoncello in DFTR, as well as the Italian and Dutch domestic market.

Of course, the market has its own challenges, not least currency fluctuations. The operating model for the travel market is different, with longer opening hours, different stock replenishment processes, staff security clearance requirements and a consolidated retailer landscape. However, being one of the few physical locations that can largely guarantee immediate and long term growth in footfall, we believe that the travel market has high potential for retailers and brands who are looking to diversify their domestic presence.

Christina Roseler