What lies ahead for duty free in 2019?

04 February, 2019

Now that my christmas decorations have been packed away for another year, it’s time to dust off my crystal ball and try to predict what 2019 has in store for the travel retail liquor business.

Last year was a mixed bag. There was strong international air traffic growth and good sales results in Asia on the one hand, but on the other there were currency fluctuations and economic problems in other markets, which marred an otherwise positive year. So, what lies ahead for 2019?

In Europe, you don’t have to be Nostradamus to see that Brexit will be the year’s headline event. With under three months to go, an impenetrable fog of uncertainty surrounds the UK’s departures from the EU on March 29. Theoretically, every option – an agreed exit, a hard exit and even remain – is still possible. However, only a hard Brexit would mean the immediate resumption of duty free sales for those travelling the EU from the UK.

There appears to be no majority in the UK House of Commons to vote for the UK crashing out of the EU without a deal, so an agreed period of transition seems the most likely course of events. In that eventuality, the UK would abide by the EU’s current Customs regulations until a long-term trade deal is put in place. In that scenario, duty free wouldn’t return until December 2020 at the earliest.

Last year saw the duty free industry get serious about ‘digitalisation’ – a spirited, rearguard action was mounted to move a bricks-and-mortar retail sector into the digital realm, not just through high-tech in-store promotions replete with 3D printers, touch-screen displays and VR headsets, but also through out-of-store and back-end services such as click-and-collect, smartphone apps and targeted marketing on social media.

Low penetration rates remain a key industry concern so I can only see this digitalisation continuing and intensifying. What leading executives have repeatedly told me, however, is that the power of digital Big Data will only be fully realised in travel retail when information is shared more fully between industry stakeholders. Whether this most secretive of industries can learn to be more open is a moot question.

“If you can’t beat them, join them” is, of course, one possible solution to the current challenge facing duty free and, at first glance, this is what appears to have opened in China. In late November, China Duty Free Group, the country’s largest travel retailer, signed a strategic agreement with Chinese e-commerce giant Alibaba to develop a “strategic cooperation” to build a “new tourism retail ecosystem”.

It’s hard to underplay the significance of this deal. The landmark partnership will likely allow CDFG to develop a mobile-driven, integrated marketplace that harnesses Alibaba’s in-depth customer knowledge, logistics capability and enormous buying power.

Whether such a tie-up could happen between a western tech giant such as Amazon and the like of, say, Dufry or DFS, is an interesting question. The Alibaba-CDFG partnership should be seen in the context of the Chinese government’s aim to keep more Chinese tax-free spend at home, but it would be naïve to ignore the growing threat of online retail to the duty free sector, especially in the liquor category.

Last year saw several spirit brands, such as Highland Park, Bowmore and Kraken rum, introduce Amazon-exclusive variants, and if this trend continues into 2019, I can see the whole concept of travel retail exclusives running into trouble. Travel retail has belatedly woken up to the digital revolution, but as 2019 begins, we’ve yet to see whether this seismic, global change will breathe new life into the industry or finish it off for good.





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Philip Duff

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