TFWA President Erik Juul-Mortensen.

This morning, TFWA President Erik Juul-Mortensen issued a rallying call to trinity partners to rebalance the mechanics of duty free’s concession model to prevent an ‘unsustainable future’.

In an impassioned speech on the first day of the TFWA World Exhibition & Conference in Cannes, the President stressed the need to relieve ‘pressure’ on the business model between brands, landlords and retailers that ‘at its worst, leads to unsustainable commercial agreements’, which in turn he said, could lead to the loss of future business as brands potentially walk away.

Juul-Mortensen then clarified that while the concession model is not fundamentally at fault, the terms need ‘to be more fairly balanced’ to meet the expectations of all parties in order to prosper indefinitely.

“Turnover is not the issue, margins are,” he warned. “With concession fees climbing and all parties tasked with creating ever more stunning stores and brands expected to deliver ever more exclusive partners, airport retailing is becoming ever more expensive for retailers and brands.

“As the saying goes, turnover is vanity, but profit is sanity; brands are not in this business for vanity’s sake and at the moment the expected share of costs can test our sanity.”

As the industry celebrates its 70th anniversary this year, the President urged delegates to take the industry’s ‘destiny into our own hands’ by aligning interests to tackle this challenge.

Q1 2017 SALES +4.2%

In his traditional state of the industry address, Juul-Mortensen revealed ‘encouraging momentum’ in first quarter 2017 sales, up by 4.2% year-on-year to total $17.7bn, according to preliminary figures from Generation Research.

Fragrances and cosmetics remained the regional front-runner with revenue of $6.33bn (+11.6%), followed by wines & spirits at $2.9bn (+2.5%).

Sales growth from other shops recorded impressive momentum in Q1, as revenue from airlines suffered. Source: Generation Research Q1 2017 preliminary figures.

Growth was also witnessed in electronics and gifts at $1.28bn (+1.3%), watches, jewellery and writing instruments at $1.68bn (+0.9%) and confectionery and fine food at $1.31bn (+0.2%).

Meanwhile, tobacco sales posted a decline of -1.5% to $1.81bn alongside fashion and accessories at $2.44bn (-0.7%).

ASIA PACIFIC STILL LEADS THE PACK

Asia Pacific led all other regional zone sales at $7.94bn (+7.8%), followed by Europe at $5.04bn (+2.9%) and the Americas at $3.03bn (+1.3%). Africa recorded the greatest decline at $0.22bn (-3.9%), followed by the Middle East at $1.52bn (-0.5%).

Despite the harbingers, airports accounted for the lion’s share of sales at $9.86bn (+2.2%), but other shops at $6.69bn (+7.8%) outpaced airlines at $0.68bn (0.7%). Meanwhile, total duty free and travel retail sales in 2016 were confirmed at $63.5bn.

Juul-Mortensen continued by emphasising that the duty free and travel retail industry still desperately needs data that is as accurate and reliable as it can possibly be, adding that trade associations cannot expect to win the attention of government bodies around the world ‘if we cannot accurately say what we as an industry are worth. The need for meaningful, accurate data is something we at TFWA take extremely seriously and we have been frustrated by the fact that this need is not always universally acknowledged.’

DATA SHARING IS STILL DESIRABLE…

He did, however, recognise the fact that in a concession-driven industry such as duty free and travel retail, data is extremely sensitive, but a way around this must be found for the good of the industry.

Juul-Mortensen also pointed to the huge changes taking place around the world today: “Elections in the US, France, the UK and South Korea among others have produced results that were unthinkable just a short time ago. A climate of uncertainty reigns – and if there is one thing that economists and business leaders dislike, it is uncertainty.”

He said terrorist attacks are becoming increasingly frequent, and tourism, in some key and well-known locations, has been almost wiped out as a result.

“We have seen in East Asia and the Gulf this year how vulnerable our industry is to regional disputes that ultimately affect the free movement of travellers between nations. The tensions and the serious situation around Korea, north and south, could have grave consequences for us all.”

Juul-Mortensen said: “The global economy today, although recovering, is still uncertain and fragile, with huge variations depending where you look.”

CURRENCY EXCHANGE VOLATILITY

He said the industry is also at the mercy of the global economy and the resultant impact on currency values and exchange rates. “The global economy today, although recovering, is still uncertain and fragile, with huge variations depending where you look.”

However, the latest World Economic Outlook update in July revised its projection for global growth this year from 3.4% to 3.5%, and holds its projection for 2018 at plus 3.6%. “Overall the broad economic story, as told by the IMF, is that most of the projected global growth will come from stronger activity in emerging markets and developing economies.”

He also pointed to currency exchange rate volatility as the most significant factor impacting on the DF&TR business, both ‘very directly and very immediately’. He said Brazil’s currency is showing remarkable recovery and the Euro is also gaining strength. However, the weakness of the UK pound against the US dollar has led to a huge increase in the number of US visitors to the UK during the summer, with the pound falling to its lowest ever exchange rate against the euro last August.

TRAFFIC OUTLOOK IS POSITIVE…

Turning to international traffic numbers, Juul-Mortensen said: “The economic backdrop will always feature winners and losers, but as far as air passenger traffic is concerned, the outlook is universally positive.”

He said ACI predicts 8.1bn passengers this year, representing year-on-year growth of 5.7%, while the first five months of 2017 saw total global international passengers rise by 8.8%. In Europe in the same five-month period, growth was 10.4%, and within the global figure he pointed to individual countries generating far higher passenger growth.

Trends in consumer behaviour and attitudes also naturally have a huge impact on the business, but while the millennials are an influential group he cautioned against the industry mistakenly focusing on this group to the exclusion of others.

Juul-Mortensen pointed out that the majority of 60-year olds today are healthier and wealthier than any previous generation and as such, many of these active and affluent mature people are travelling the world like never before. (Statistics source shown on screen: Generation Research Q1 2017 preliminary figures).

A PIVOTAL 18 MONTHS AHEAD…

“The fact is the single fastest-growing group of potential customers is the older baby boomer generation nearing or just into retirement. Globally, the population aged 60 or over is growing faster than all younger age groups, and population ageing is occurring throughout the world. The majority of these people are healthier and wealthier than any previous generation of 60-year olds that has ever lived.” As such, he said many active, affluent mature people are travelling the world like never before.

Juul-Mortensen then reviewed the success of the TFWA campaign to mark the 70th anniversary of duty free, which has been used by a number of retailers and landlords around the world. “Through this campaign, we hope to build positive public opinion by conveying messages to travellers and opinion formers about just how much our industry contributes to the world of travel, and to the richer experience of the traveller.”

The next 18 months will see pivotal challenges for the industry, he said, especially and importantly in terms of assuring that its voice is heard by governments in the UK and Europe, as Britain’s departure from the European Union takes shape. “Whatever your thoughts on the wisdom of Brexit, it is an opportunity for us to ensure that travellers between the UK and the EU once again enjoy the benefits of shopping duty free. But this is not a given. It requires painstaking work behind the scenes.”

FUTURE ‘DESTINY’ LIES IN THE INDUSTRY’S HANDS…

He added that thanks to the efforts of the UK Travel Retail Forum, ETRC, its national associations and its member companies, progress is now being made to try to ensure that a duty free regime between the UK and EU will be restored. However, he rightly acknowledged that there is still a long way to go and a united approach is required.

He said: “We can achieve much when we work as one industry. When we defend one product category we are fighting to defend the entire industry. Similarly, when we promote the benefits of duty free shopping in one location, we help drive awareness of the business across the world.

In conclusion, Juul-Mortensen added that there is a lot to hope and work for in the years ahead, although external factors beyond the industry’s control will continue to have an impact. As such, he said it is all the more important that the industry keeps on top of working on what it can control: “We have to take our destiny into our own hands. To paraphrase the great 19th century American orator William Jennings Bryan, ‘Destiny is not a thing to be waited for. It is a thing to be achieved.’”

[With additional reporting by Doug Newhouse].