The global duty-free and travel retail market was valued at $74.9 billion in 2017, and projected to reach $153.7 billion by 2025, fuelled by the wider growth of the travel and tourism industry.
Covid-19 has hugely hampered the growth of the travel retail sector, however, with the closure of retail stores in travel hubs contributing to overall losses for many big brands. This is particularly the case for cosmetics and fragrance brands, which is the category with the largest market share within travel retail.
So, what is the state of the sector now, and what omnichannel efforts are travel retail hubs doing to drive sales?
Travel disruptions create a domino effect on retail
Reduced passenger numbers due to Covid-19 has led to a huge drop in retail revenue for major airports. At Heathrow Airport, passenger numbers were down 96% for the three months to 30th June. Consequently, Heathrow reported a 55.8% decline in retail sales (to €150 million) in the six-month period ending 30th June. The airport also predicts passenger volumes to reach just 29.2 million in 2020, which is more than 60% lower than 2019.
Elsewhere, Gatwick Airport saw passenger numbers fall by 66% to 7.5 million in the first six months of 2020. This resulted in a loss of £321 million, compared to a profit of £47.7 million in the same period in 2019.
Unsurprisingly, duty-free operators have been hit hard. According to Forbes, Dufry (who owns World Duty Free) reported a 61% fall in turnover, while French rival Lagardère Travel Retail saw like-for-like revenue down 55%. Dufry is reportedly undergoing negotiations with airports over rent relief, in order to minimise further decline.
As well as duty-free operators, retail brands are also suffering from the decline in travel retail sales. John Lewis recently announced the closure of eight stores, stating that they were “financially challenged” – three of which include its Grand Central location in Birmingham as well as stores in Heathrow and St Pancras. Travel retail disruption has also hit beauty brands; Proctor & Gamble reported net sales for beauty were down 21% for Q3 2020. P&G’s Japanese skincare brand SK-II was particularly impacted, seeing over a 20% decline in sales due to travel retail disruption. Similarly, Vogue Business reports how L’Oréal’s 19.4% decline in sales for Q2 has been blamed on the closure of airport stores.
Now that travel is resuming, albeit in a limited capacity, the expectation is that stores will start to regain some footfall. However, with more people working from home on a permanent basis, and general fear over returning to ‘normal life’ – the road to recovery for the travel retail sector is likely to be slow.
Travellers shift to ‘pre-planned’ shopping behaviour
The closure of global retail stores back in March led to a rise in online shopping, as consumers quickly shifted to ecommerce. The difference with travel retail, (in comparison to retail as a separate sector) is that it is hugely reliant on foot traffic and the spontaneous nature of shopping in the context of travel, such as when waiting for a flight or browsing duty-free. The sustained absence of this footfall means that retailers are struggling to justify sky-high airport retail rents.
At the same time, ecommerce has certainly impacted how consumers shop while travelling. Research by AOE suggests that travellers are shifting away from impulse purchases at the airport to planned purchases, with consumers researching online beforehand (and buying from ecommerce sites like Amazon, if items are cheaper than at the airport). AOE also found that 53% of shoppers make the decision to buy in duty free before they get to the airport, versus 47% who visit duty free on impulse.
To align with this behaviour, the travel retail market is increasing its investment in omnichannel capabilities. Heathrow Airport launched the ‘Heathrow Boutique’ in 2017 – an online marketplace that allows consumers to reserve their shopping to collect at the airport. It also offers the option for travellers to have their items delivered home if they spend over £300, as well as a personal shopping service (which has been suspended since Covid). According to Drapers, Heathrow has been upping promotion of its Boutique offering during the crisis, and “will digitalise its retail proposition going forward”.
Promotion of Heathrow Boutique will undoubtedly be crucial to success, with a lack of awareness being one of the main reasons that customers do not convert in ‘reserve and collect’ channels. Payment options are another obstacle; AOE’s study found that the average pick-up rate for the model is below 50%, but that this increases to 95% with the inclusion of an online payment option.
Other airports have turned to ecommerce since the crisis. Brisbane airport, for example, launched the BNE Marketplace, which allows consumers to buy discounted products online. Crucially, the marketplace also enables retailers to sell its products held in stock, despite their retail stores being closed. The decision to call the site a marketplace (rather than an ecommerce channel) means that it serves as an additional option for retailers who also operate owned channels or via other third-party sites.
???? BNE Marketplace is supporting airport retailers and your wallet with up to 40% off sunglasses.
— Brisbane Airport ✈️ (@BrisbaneAirport) May 27, 2020
So, why would consumers choose to shop from an airport-run marketplace rather than established ecommerce retail sites (that offer the same discounts)? According to Brisbane Airport’s head of consumer marketing, Mike Doyle, customer interest stems from existing trust in Brisbane Airport, as well as the marketplace’s wider aim of keeping people in jobs. Doyle told CMO: “Moving into this space doesn’t feel foreign and gives shoppers some comfort…”
It’s unclear whether BNE Marketplace will continue to run as a long-term initiative for the airport, but its short-term success is a good example of rapid digital innovation, as well as how to adapt during a crisis.
Integrating ‘touchless’ solutions into store CX
Despite travel retail stores gradually reopening – Heathrow has re-opened more than 30 stores across Terminal 2 and 5 – overall travel remains stagnant, with consumers still reluctant to venture abroad due to changing quarantine measures (and general worry about the virus). This means that the return to ‘normal’ is still some way off, which in the meantime, means travel retail hubs must work to ensure health and safety measures are in place, as well as find new ways to entice consumers back in.
Research by m1nd-set suggest that consumers expect retailers to adapt store practices. Pre-Covid, more than 90% of shoppers said that touching the products was an important part of the travel shopping experience, while 48% said they tried or tasted products before purchasing. Now, of course, consumers are less willing to engage in a physical shopping experience, with more than 60% of shoppers saying they will refrain from engaging with retail staff when next travelling.
This is where experiential retail comes into play, with digital technology enabling retailers to engage shoppers in new ways. This was already the case before Covid, but with consumers increasingly demanding ‘no touch’ experiences due to safety concerns – it is now crucial that retailers are able to deliver it. Again, ‘reserve and collect’ technology can be effective in this case, allowing shoppers the flexibility to browse, buy, and pick up their shopping before they jet off.
When it comes to the ‘in-store’ experience, beauty retailers are introducing QR codes on products to enable shoppers to find out more information (rather than engage with store associates). The introduction of QR codes from Instagram is likely to accelerate this strategy, as the QR codes can be conveniently linked to existing Instagram profiles.
To replicate beauty and cosmetics ‘try-ons’, brands are also turning to AR and VR technology. SK-II is reportedly trialling touchless ‘Magic Scan’ mirrors in select travel retail locations, to offer personalised product recommendations from AR-enabled skin analysis. Elsewhere, Perfect Corp – the AI and AR beauty tech provider – has recently added new ‘touchless’ features to its existing solution.
Now, partnering retailers can choose from four ‘non touch’ features to enable shoppers to digitally ‘try on’ make up, including gesture control, voice activation, face mask detection, and virtual arm colour swatch.
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While disruption in travel retail is likely to continue in the short-term at least, some remain positive about the long-term growth of the market – and even the opportunities that Covid-19 has uncovered.
WHSmith, for example, is a big investor in the space. It recently opened a new store in Heathrow’s Terminal 2, in what has been described as a ‘one stop shop’ for travellers, and has plans to open two new stores in Manchester’s Terminal 2.
— Prolight Design (@prolight_design) September 1, 2020
According to Retail Week, WHSmith is one of many retailers that could take advantage of the ‘terminal churn’, i.e those that have moved out of travel retail hubs as a result of Covid. The suggestion is that the demand for shopping in the context of travel will always remain – the only thing needed is the return of passengers.
This is particularly the case for ‘essential’ retail stores like WHSmith, which offer everything from books to confectionary. When it comes to more luxury purchases, it will be up to retailers to ensure their offering is enough to lure in shoppers, and that it is adapted to suit the changing needs of consumers (both during Covid-19 and beyond).