Free WordPress Themes

Marketing to the sixth continent

DDF shop_panoramic view. Concourse C Terminal

Over one billion people travel each year, spending more than USD 1.1 trillion on travel retail, leading to global brands referring to it as their ‘sixth continent’. Cityscape takes a closer look at this growing phenomenon and asks what does this mean for airport development in the future.

April 2015

Travel retail is at an all-time high, with one billion travellers spending more than USD 1.1 trillion dollars a year. Speared on by innovation in airport design and creative retail concepts, companies are rethinking the importance of travel retail to their sales strategy.

According to Deloitte’s 18th annual Global Powers of Retailing report, companies such as Pernod Ricard and L’Oreal refer to travel retail as their “sixth continent”.

International tourism continues to rise above expectations despite continuing global geopolitical and economic challenges, and sales have grown by more than 12% a year since 2009.

The Middle East has been at the centre of this journey in more ways than one. Dubai Duty Free reported record-breaking sales of AED 6.999 billion (USD 1.917 billion) for 2014, representing a 7.36% increase over the previous year. The operation recorded 26,995,367 sales transactions in 2014, which is an average of 73,960 sales transactions per day across both Dubai International and Al Maktoum International, Dubai World Central.

With sales of AED 1.147 billion (USD 314 million), perfume – which now contributes 17% of Dubai Duty Free’s total sales – retained its position as the best-selling category. Liquor and gold followed, with sales of AED 1.045 billion (USD 286 million) and AED 597 million (USD 163.6 million) respectively.

Meanwhile, Abu Dhabi Duty Free also saw record figures in 2014. The retailer saw sales rise 11.5% in the first half of the year, to reach AED 487.9 million, up from AED 437.6 million for the first six months of 2013. The total number of transactions in the period was just over 2 million, 12.8% higher than the first half of 2013.

“In 2013, international tourism receipts on a global level was estimated to be USD 1.159 trillion, up from USD 1.078 trillion in 2012 by nearly 7.5%, which includes purchasing accommodation, food and drink, local transport, entertainment and shopping in destination countries. The Middle East region accounted for nearly 4.1% or USD 47.3 billion of this market in 2013,” said Herve Ballantyne, Consumer Business leader at Deloitte Middle East.

Emerging middle class

According to Deloitte, half of the global growth has come from an increase in travellers, especially from emerging countries like China. Much of the rest is due to the willingness of travellers to shop en route and abroad, and retailers’ improved capability to serve them.

The expanding middle classes of emerging markets are travelling to the world’s capitals and boosting sales, especially of luxury products, and this is benefiting the developed economies of the U.S. and Europe. Over half of France’s EUR 16 billion luxury industry depends on tourists. Therefore, in 2015, expect retailers to continue catering to high-spending travellers, especially emerging market tourists, to drive growth.

“The rise in the middle-class traveller could transform the travel retail markets in terms of shifting the focus from luxury products to a more diversified product offering. The middle-class tourists increasingly prefer shopping destinations that offer lower prices (duty free shops at airports) and a broad product range,” Ballantyne said.

Other growth opportunities for the Middle East include the emergence of low cost carriers, which is opening up the market to new travellers.

“The ease of access to travel through low cost carriers has shifted the consumption pattern towards a demand for low-cost and high-value travel. The rising disposable incomes, a growing middle-class population and growing volume of Generation Y entering the workforce are driving the low cost airlines and travel retail business in the Middle East. Moreover, travel within the Middle East is expected to be a key market for the low cost carriers with growing population of leisure travellers and people opting for religious trips such as Hajj and Umrah,” said Ballantyne.

“Future growth is expected to focus on Africa with Flydubai launching services to Tanzania and Uganda, for example. Also, the growing middle-class population in India will increasingly drive people to access low cost air travel and the retail market.”

Time to shop

The Deloitte report pointed to the fact that travellers have one important retail commodity – time. Lengthy wait times at airports provide the perfect opportunity to shop and indulge.

In response to these opportunities many companies are investing in building brand awareness in emerging countries, even when the targeted consumers may not purchase those brands at home. This is because these consumers are keen to acquire foreign and luxury brands while travelling, especially in developed markets which offer superior product selection and availability as well as advantageous price comparisons due to high import taxes in home countries.

As a result, airports have become retail destinations and airport retail design has evolved, now dominated by luxury fashion trends rather than the duty free shops of the past. Airports have also become testing grounds for retailers and an important source of data, allowing companies to experiment. For example, World Duty Free Group (WDFG), Heathrow Airport’s anchor retailer, uses airport data to better prepare for international arrivals, such as ensuring that speakers of the right languages and cultural sensitivities will be on hand. They can even reconfigure shop displays to suit the national tastes of travellers passing through.

“According to Verdict, the global airport retail market is estimated to be USD 34.2 billion in 2013, and is expected to grow at 10% CAGR through 2014 to 2019, to reach nearly USD 60 billion by 2019. The Middle East and Africa region accounted for nearly 8-9% of the global airport retail market in 2013, while Asia-Pacific region led this channel with nearly 40% market share,” explained Ballantyne.

“According to Dubai Duty Free, the Middle East enjoys the highest airport retail penetration rate of 55% compared to global penetration rate of 48%. Hence, this provides lot of upside potential for the travel retail business in the airports of the Middle East.”

Retail destinations

As the Global Powers of Retailing report points out, the growth in travel retail is turning airports into retail destinations in their own right. Deloitte Middle East highlights five drivers in this:

A new crossroads of the world: Geographically, the Middle East has positioned itself as the crossroads of international travel. “The region is situated within the long haul flying distance of every important destination across the world. International travellers generally don’t visit places in Dubai, Doha and Istanbul for shopping during their transit and waiting time, but like to spend money at the airport shops,” explained Ballantyne.

Transit hotels: Transit hotels at the airport terminals are growing in numbers. “The key advantage of transit hotels is that it doesn’t require a traveller to commute outside the terminal as they are situated inside the terminals. Also, this encourages travellers to spend time and money on shopping during their stay at the transit hotels at terminals,” Ballantyne pointed out.

Luxury shopping: Several premium brands operate their stores at the airport terminals, which act as a captive marketplace for the traveller, driving them to spend during transit time.

Transport integration: Focus towards connecting city centres with airport terminals through train and free shuttle services for passengers.

Increasing facilities for business and leisure travellers: Airport lounges are rapidly becoming centres of attraction for travellers in terms of world-class facilities for both the business and leisure traveller.