Despite the many pressures on the aviation industry, the global duty-free and travel-retail market has more than doubled in the last ten years, from $19bn in 2001 to $46bn in 2011, according to industry analyst Generation, with China and South-East Asia in particular outpacing other regions.

"Europe, the birthplace of duty free, has been the largest player in travel-retail for over 60 years but in 2011, for the first time ever, Asia overtook it," says Sunil Tuli, president of the Asia Pacific Travel Retail Association (APTRA). "Of the $46bn in global sales in 2011 – nearly 61% earned in airport shops and 6% on airlines – Asia and Oceania account for 34.8%, with Europe notching up 33.9%. Just five years ago, the comparable figures were 29.8% for Asia and 41.8% for Europe, of a total pot worth $29bn."

For 2011, the figures show a remarkable change, with Asia and Oceania amassing sales of $16bn, Europe $15.6bn, the Americas
$10.5bn, the Middle East $3.2bn – mainly in Dubai – and Africa, the only region not to show growth, at $600,000. For Asia, a jump of 26% on 2010 makes it the fastest growing market. However, Tuli adds a note of caution that there are signs of these growth rates cooling. IATA reported global traffic expanding by just 1.2% from January to August 2012.

"So, while there is still growth worldwide, it has been affected by the continuing problems in the eurozone and slow recovery from recession in other markets," he says. "Demand for air travel obviously feeds through directly to the duty-free and travel-retail market."

Ideal consumers

Asian travellers are big spenders, for which Tuli believes there are many compelling drivers.

"Most people love to shop, especially when they have time and money at their disposal," he explains. "Air travellers are, relatively speaking, among the more affluent people in the world and, once through security, they generally have time to browse, so they tick two of the boxes of keen shoppers. Asian people, and in particular those from China, are also keen internet users, and they are well informed about international brands. So, when they travel, they take the opportunity to shop in duty-free and travel-retail stores.

"In many of the major hub airports, they find a tremendous selection of luxury and premium products, aspirational brands that represent a cosmopolitan style of life, which they believe will demonstrate their new affluent status and create a glamorous aura. Perhaps these brands are not yet present in their country."

There is also a strong concern among consumers in markets like China that the products they buy domestically may not be authentic.

"Travellers know that duty-free shops maintain an extremely high standard, and they can therefore purchase their luxury goods or other goods in duty-free shops fully confident that they are purchasing genuine brands."

Unleashing the potential

With the market already so large, the challenge for Asian airports is to expand it further, and the continued economic growth of one nation in particular – China – is likely to make this possible.

"When we discuss the potential for duty-free and travel-retail, we must focus on the Chinese traveller, who is driving growth in travel and sales," says Erik Juul-Mortensen, president of the Tax Free World Association (TFWA). "Other nations including Malaysia, Taiwan and Korean are also important, but China in particular is significant because of its sheer size and the fact that its economy is booming. It has grown despite recent recessions and is projected to top the US, the world’s largest economy, by 2016, according to the IMF."

According to TFWA’s latest research, Chinese travellers constitute the fastest-growing group within duty-free and travel-retail, and are likely to remain so for the next ten years. In the last year, their spending rose by 63%. Two thirds travel for leisure purposes, which is noteworthy because it is the business traveller who spends the least.

"Around 57% of organised leisure visitors to duty-free and travel-retail will purchase," adds Juul-Mortensen. "Higher levels of purchasing are also seen in non-China locations compared with China locations. Overall, organised leisure travellers travelling abroad spend the most – $220 on average – while business travellers in non-China locations spend the least – $156."

Terminal development

In Asia, the large hub airports in Bangkok, Hong Kong, Kuala Lumpur, Singapore and Tokyo have well-established duty-free facilities, but other regional airports are building their capacity to tap into this lucrative market.

"Some of the most exciting projects we are seeing in retail terms are in places like Macau and Seoul, which are developing huge and very glamorous travel-retail zones," explains Tuli. "The airport infrastructure in China and many parts of South-East Asia is being transformed with new airports, terminals and fabulous retail facilities opening up across the region. Airport landlords recognise the enormously important role that duty-free, travel-retail and other streams of non-aeronautical income play in the airport finances. For some, it is at least half their revenue, and they rely on that revenue to maintain and develop the airport."

Mumbai Airport is also undergoing extensive terminal development, including an innovative travel-retail offering. Other airports across India, such as Chennai and Kolkata, are also expanding. Yet China remains the main centre of development.

"There is the new airport being built in Beijing to service the growth in China’s capital city, where the existing airport does not have the capacity to sustain future demand," says Tuli. "In addition, there are 72 new airport projects that will be undertaken in the next eight years."

China is undoubtedly the main market with growth potential, not only because of rising passenger numbers, but also because of their relatively low use of duty-free facilities.

"With tremendous growth projected in the Chinese outbound travel market, it is that market that companies are targeting," says Juul-Mortensen. "So, they are looking at where Chinese travellers are going – mainly Asia, Australasia, Europe and the US – and developing product lines that will be attractive to them in these destination airports. Business travellers spend the least per head, with organised leisure travellers spending the most; however, business travellers obviously fly more frequently, so they must not be overlooked in the product mix.

"Of the 40% of Chinese travellers entering duty-free and travel-retail shops, just one in four makes a purchase, so there is a clear opportunity to not only drive more traffic into the store, but also to increase the conversion rate and generate sales to those who are already in there. Retailers and suppliers are targeting both groups. Tailoring the product, the assortment and the presentation to appeal to the consumer is guaranteed to improve sales."

A guiding hand

The TFWA and the APTRA play important roles in developing opportunities for duty-free shopping and helping the industry to address key sectors of the market. The TFWA, for example, organises an annual conference – TFWA Asia Pacific – for stakeholders in the region, the next scheduled for May 2013 in Singapore. There will also be an Industry Conference on China in March in Beijing.

"With our research, which both TFWA and APTRA commission on behalf of their respective members, we are providing valuable tools to help industry stakeholders understand consumer behaviour and grow their business as a result," says Juul-Mortensen.

APTRA, which comprises suppliers, airlines, retailers and operators, exists to support the stakeholders developing business in the region.

"We are energetic in our defence of the sector in the face of challenges from regulatory authorities such as governments and WHO, which wish to restrict duty-free sales of, for example, alcohol and tobacco in the misguided belief that they lead to smuggling and health issues," says Tuli.

"We also conduct research on behalf of our member companies. In the past year, there has been a series of monthly surveys of consumer shopping behaviour in airports throughout the region pertaining to a different product category or topic. This year, we have also embarked on an extensive qualitative research on the low-cost carrier market in Asia, which has proved extremely popular."

Such research is vital to addressing the challenges that constantly arise, one of which proves that further development of the Asia-Pacific duty-free market will require much dedication and effort.

"Moves by airlines, particularly the low-cost airlines, to charge passengers for bringing their duty-free purchases into the aircraft cabin will discourage passengers from purchasing, decimate the duty-free and travel-retail business, cut revenue to the airport and ultimately result in higher fares – the airport has to replace the lost revenue by increasing passenger taxes," says Tuli. "Such moves should be opposed at every opportunity."