A quarter of travel retail leaders debated relevance in the sales proposition. business nimbleness and contractual risk and reward in a candid exchange of views at the ETRC Business Forum in Amsterdam.

A heavyweight panel of senior leaders from four travel retailers have urged the industry to be agile and diversify to avoid becoming irrelevant to consumers, as they offered their own respective takes on the state of the DF&TR business at the ETRC Business Forum.

In a much-anticipated exchange and a first for the ETRC Business Forum, which took place today (30 January) at the Van der Valk Hotel Amsterdam Zuidas, a consensus emerged that adaptation in the face of inevitable change is crucial for sustained value creation.

Xavier Rossinyol, CEO of Avolta commented: “Yesterday doesn’t matter. Only tomorrow. The world has changed. Not only because Donald trump is President of the US, but the entire geopolitics that we’ve seen in the last 20-30 years are gone. The way the different blocs work is different.

“Fundamental topics from healthcare, interest rates, tariffs and commerce have changed. With change, if you embrace it early enough and take the right decisions it could be a big opportunity. This year is going to be different. In Europe, change, volatility and unpredictability will probably be at an all-time high. We will need to adapt very fast to big changes.”

Stability no more…

Ray Hernan, CEO, Aer Rianta International (ARI) concurred, stressing that retail in general needs to evolve. “The moment you stop evolving, you start to die,” he asserted. “Travel retail is probably faster in terms of the pace of change. Without doubt, we have to continue to evolve. It has to be customer-driven.”

TRBusiness was among those invited to attend and cover proceedings at the annual business forum, which is hosted for the the benefit of the European duty free and travel retail association’s members.

Pointing to the complexity of trading, Hernan said brand loyalty is not what it was in the past. “As operators, it will be increasingly challenging to stay up to the pace of change in consumer behaviour,” he went on, emphasising the dual challenge and opportunity that this presents in the context of maintaining existing store environments during contract periods.

He went on to argue that staff are more important than ever today in driving the business. “People are still at the centre of our business but technology will support them in closing sales – but will not take over,” he continued.

Frédéric Chevalier, Deputy CEO, Lagardère Travel Retail agreed, before mentioning that Lagardère prioritises collaboration, in the context of the magnitude of changes that have taken place over the years, particularly with regards to the dramatic evolution in passengers, notably the fallout of key Chinese travellers to Europe.

He said technological changes, such as the rollout of 5G mobile networks, have transformed the way passengers spend time at airports. Chevalier continued: “The value of our industry is dwell time. How are we relevant, especially for the younger generation, in the two hour dwell time? This is totally different from what existed 10 years ago. The technology has changed and there is plenty of examples of this.”

Left to right: Max Heinemann, Co-CEO, Gebr. Heinemann; Ray Hernan, CEO, ARI; Frédéric Chevalier, Deputy CEO, Lagardère Travel Retail; Xavier Rossinyol, CEO, Avolta; and moderator Nina Semprecht, Vice President PR & Communications, ETRC.

The way duty free adjusts the brand proposition will be key to offset volatility, delegates heard.

“The agility to be able over time to adjust the offer to manage the evolution of the market – for good or bad – when traffic increases or high value spenders disappear for external reasons… the way we adjust the business and value creation is I believe at the centre of collaboration, in Europe in particular,” said Chevalier. “Otherwise the cost of volatility will create big issues.”

Max Heinemann, Co-CEO, Gebr. Heinemann said the general understanding is the duty free business is no longer stable post-Covid.

“A view into the past gives an explanation why there is so much focus in Europe,” he observed. “Historically we all saw an industry grow through what could be considered the golden times of air travel, we all survived without marketing and pushed product,” he said.

“In general, we all aspired to become global players in travel retail. Why? To level out the risk and realise our diversification efforts has been positively influenced by globalisation. Nothing is stable anymore.”

Rossinyol was more forthright: “Agility is a very nice word, but what we are talking about money. In order to invest you have to have enough money. The reality today is there is too much money in the system that does not go towards improving the business. If we improve the business, everybody benefits. We have to have everybody understanding that this is about investing in change.”

Max Heinemann: “The call to build a consumer-centric element [to retail] is not part of our [industry] business model and has never been in any contract. We are somewhat losing consumers because it’s really hard to explain why not.”

Travel retail ‘not trend-setting’

Turning to the subject of risk in the concession model, the duration of contracts and the terms in which they are executed (often over many years), means risk is aligned to cost, qualified Chevalier.

Chevalier explained: “We know the risks attached to the concession. We put value in the risk. The consequence of that is the more the risk balanced on our side, the more we price it. The less money we put in the system, the more difficulty it creates to have agility in commercial initiatives, investing in new brands and pricing the offer.”

The contractual risk is probably the biggest that retailers shoulder today, he continued.

Max Heinemann then declared that travel retail “is not a trend-setting industry”, chiefly because the pressure of non-returns from listing brands – some of which may already have a track record of performance in domestic markets – requires immediate commercial intervention.

However, he acknowledged that contracts do not consider consumer-centric actions.

“The call to build a consumer-centric element [to retail] is not part of our business model and has never been in any contract,” he made clear. “We are, somewhat, losing consumers because it’s really hard to explain [to them] why not.”

On the subject of tenders, he said the approach differs from the past. While previously, retailers flocked to bid in the spirit of growth. Today, not least due to industry consolidation, success is being measured by other metrics. No longer solely about generating topline growth and size, it is instead about longevity, stability and creating additional value – for shareholders or otherwise, delegates heard.

Hernan described the process of changing the mindset of airports within the realms of  contractual negotiations as a long, piecemeal process. For instance, Covid helped shift the dial from fixed minimum annual guarantees (MAGs) to per passenger guarantees.

“We are all competing feverishly for new business and it only takes one of us to go out of line and the airport will accept it,” he put bluntly. “It’s about being more disciplined as operators; it’s easy to win new business, it’s harder to win new business profitably.”

While acknowledging great collaboration between retailers and brands to align innovation to customer needs is required, Hernan believes that greater support should be shown by airports looking across the entire ecosystem.

He described: “It is shocking that only one in four passengers going through an airport spends in our stores. We don’t really know the customer coming through the doors tomorrow. The airports probably have a better idea. When it comes to collaboration with airports, there needs to be another step change in terms of sharing data and information. We need to get to the customer a lot earlier in their journey.”

Delegates at the ETRC Business Forum enjoy the networking coffee break following the morning session. This included opening remarks from ETRC President Nigel Keal; a keynote address from Chatham House CEO Bronwen Maddox spotlighting Europe’s path in the wake of the EU elections; and a panel session concentrating on travel retail’s preparedness for the EU Green Deal featuring Camillo Rossotto, Chief Public Affairs and ESG Officer, Avolta; Julie Lassaigne, Secretary General, ETRC; Saskia Möller, Director Legal, Compliance & Sustainability, Gebr. Heinemann; and Laurence Pardieu-Duthil, Chief Sustainability Officer, L’Oreal Travel Retail.

On retail’s ability to solve the airline data sharing conundrum – for so long an obstacle to progress in the sector – Hernan remains unconvinced due to the margin requirements.

“The commercial model doesn’t fit. I’m looking at airports, I’m thinking you have low-hanging data fruit that we can use and use it better.”

He describes as ‘fools gold’ in recent years the idea of consumer spending increases when you strip out the inflationary effects.

Rossinyol acknowledged being in the “the most amazing industry in the world”, connecting and interacting with a captive audience in an ecosystem that no other retailer enjoys.

Data, he says, is the only way to unlock relevance for every customer at any time.

Xavier Rossinyol, CEO, Avolta: “MAGs will kill this industry in the long term. They are a cancer and need to be eliminated.”

MAGs ‘cancerous to the business’

“In our industry we have two things: sales and non-sales. The non-sales are three times bigger than our sales. The people next to shops and restaurants do not spend anything. Why don’t we pay attention to that? It’s because it is too difficult. If we change the contracts, airports and landlords could make three to four times more.

He continued: “The brands believe in our industry sometimes better or more than we do. When you sign a contract, you forget about it until it needs to be renewed but we take so many decisions based on the contract we sign and its conditions. This is absurd, our day-to-day should be based on what the passenger wants and how we can maximise value for money.”

Asked how ETRC can better serve its members, Rossinyol urged the association to be radical and confront regulation and red tape.

He said good groundwork has already been laid to push for further change within the European Union.

“Regulation sometimes is well intended but we all know that many times it is just something that adds cost and no value,” he said.

Heinemann remains skeptical on whether the industry is doing the right amount of collective problem-solving from a regulatory perspective and said that to engage with global instability it is a necessity to identify selected topics and interests that everyone is invested in to quicken collective transformation.

On increasing retail competition in the industry, Heinemann added that complexity remains for new retailers attempting to break into the industry.

Several reasons are connected to this, not least of all that they need to possess critical mass as a business and the capital to reinvest into it.

Competition is good, but if unsustainable practices are being pursued it does not contribute to the wealth of all, he said.

Hernan agreed, reinforcing that there needs to be a more disciplined approach from operators – as airports could decide they only require one operator at a location.

TRBusiness reported live from the ETRC Business Forum in Amsterdam, where strong turnout from key travel retailers and suppliers helped the event to its biggest-ever attendance.

Assessing the wider regional complexities, Heinemann outlined how the malaise in the Chinese pax situation – whether you are in or out of China – and rise in the daigou shuttle trader business in recent years has created a ‘crumbling’ effect for business.

Rossinyol then declared: “MAGs will kill this industry in the long term. They are a cancer and need to be eliminated,” adding it will take a great deal of ‘trial and error’ to maximise value between retailers and brands.