Management consulting firm Kearney has released a damning report revealing that only 5-10% of passengers make purchases at airports. In total, GTR spend per passenger fell 29% in 2022 to just US$17.
Conducted for the Tax Free World Association (TFWA), the report was developed from industry data spanning 3,500 customers across 10 countries.
Titled Travel retail faces its moment of truth: strategies to reinvigorate the marketplace, the paper also found that 64% of passengers are dissatisfied with pricing or the assortment.
Kearney notes that the slow pandemic recovery and the end of so-called revenge spend has resulted in a “disconnect” between price-centric models and shopper expectations.
According to the report, the onset of Covid-19 disrupted a decade of rapid growth across travel retail, which averaged 9% year-on-year.
While 2022 saw a global recovery of 75%, it won’t be until 2023-24 that all ground is made up.
Kearney notes that this will mostly be supported by passenger growth. While numbers reached 75% of 2019 figures last year, full traffic is expected to return in 2024.
Spend per passenger reductions: the reasons why
Traditionally, value has been a key purchase driver in travel retail. Yet the report found that 50% of travellers no longer perceive the channel as price competitive compared to domestic retail.
The drop in spend could also be due to inflation, the document notes.
One third said they did not buy because product assortments don’t meet their expectations.
Around 40-60% of those questioned said they will buy in traditional domestic shopping centres, compared to just 5-10% in airports.
Gen Z and Millennial consumers are becoming a larger segment of travellers, forecast to represent over 50% by 2023.
Over three quarters (77%) of passengers who said ‘experience’ as a key reason to buy in duty free were millennial or Gen Z consumers. Older travellers are more willing to prioritise cost over experience.
Data also showed that personalised engagement, tailored shopping experiences and high service levels are also highly desired by shoppers.
Over half (55%) said they would buy if prices were more competitive, 37% if there were more exclusive products, and 17% if delivery was available.
Addressing the challenges
According to Kearney, while the pandemic certainly set the industry back, there are other underlying issues, too.
“The pandemic was clearly a significant shock to the travel retail industry – and one it is still recovering from,” said Charles-Etienne Bost, Kearney Partner and Europe Head of Consumer Goods, Retail and Luxury Business.
“However, while the pandemic was a black swan, the underlying factors that have necessitated a rewiring of global aviation and travel retail were lurking even before the first headlines from China.
“The important thing will be to recognise how passenger behaviours and trends around travel have changed.”
Vincent Barbat, Kearney Partner and Europe Luxury Business Lead, added: “The ‘trinity’ model of airports, retailers and brands worked for years. Now it’s time to update our thinking around travel retail.
“A pentarchy model, adding in carriers along with digital and media partners, now better describes the distinct forces that need to be present to best serve air travellers and their needs.
“This isn’t to suggest some rosy cliché that we all simply need to work together. It’s a pragmatic, profit- and growth-driven approach to keep the new trends that are influencing duty free consumers at the centre of business models for a new age.
Outgoing TFWA Managing Director John Rimmer commented: “As with any retail industry, the priority for duty free and travel retail is to understand current and future customer behaviours, anticipate their needs and expectations, and tailor the retail offer and assortment accordingly.
“It is difficult to promote our industry when we are unable to accurately definite the level of sales it generates, and therefore the contribution we make to the travel industry worldwide.
“Initiatives such as this report from Kearney and the European Travel Retail Confederation Index are steps in the right direction, but it requires a coordinated global approach with the cooperation of all stakeholders.