Running into thousands of square metres, duty-free areas in airports have become attractive retail hubs sporting the who's who of luxury. In terms of sheer size and range offered, the duty-free retail areas at Dubai International Airport, London's Heathrow, Singapore's Changi, Incheon International Airport in South Korea, or even at Indira Gandhi International Airport in Delhi, are nothing less than high-end malls.
The first duty-free store was established in 1947 at Shannon airport in Ireland. Since then, the global duty-free market has grown to $76 billion (as of 2018). What's more, it is estimated to grow at a CAGR of 6.5 per cent and reach $112.5 billion by 2025, according to Pune-based Adroit Market Research. India's duty-free market is estimated at $200 million. Harsha Razdan, Partner and Head - Life Sciences and Consumer Markets, KPMG, says it is expected to quadruple to $800 million by 2025 with sustained CAGR of 20 per cent till that year. "A large part of this growth will be driven by the propensity of Indian consumers to shop for alcohol (80 per cent of all airport shopping) at airports, along with growing and increasingly affluent middle class, greater tourist arrivals and expansion in number and size of Indian airports."
Apart from the variety, it's the promotional and other offers that attract people - two bottles of Johnny Walker Black Label for Rs 3,990 at the Delhi Duty Free or Stella McCartney Pop Eau de Parfum 100ml for 237 AED at the Dubai Duty Free. Rupali Dean, a food and travel writer, prefers buying MAC cosmetics at Delhi Duty Free as "they are 20 per cent cheaper".
While liquor remains high on the to-buy list, sales of fragrances and cosmetics have left it behind. The story goes that the best seller at the first duty-free shop was Irish whiskey. For long, liquor was a hot favourite among buyers all over the world. But in the recent past, the scales have tilted towards perfumes and cosmetics. The category grew 23.5 per cent in 2018 to $31.5 billion, while wines and spirits grew 7.2 per cent to $12.2 billion. This was followed by fashion and accessories growing 7.7 per cent to $10.8 billion, according to Generation Research.
At Dubai Duty Free, one of the biggest in the world, sales of perfumes crossed $196 million in 2019, contributing 15 per cent to total sales. "Cosmetics recorded an increase of 9 per cent in sales at $143 million, accounting for 11 per cent of total sales," says Colm McLoughlin, Executive Vice-Chairman and CEO of Dubai Duty Free. Perfumes, liquor and tobacco are its top three bestselling categories. In India, too, a similar trend can be seen. Mumbai Duty Free, which is operated by Flemingo Travel Retail, has seen growth in fashion and luxury as well as watches segments over the past two years. "Tumi, Michael Kors, Mont Blanc, Hugo Boss, Bally and Swarovski, we offer some of the most popular brands across categories," says P.K. Thimmayya, CEO, Flemingo Travel Retail. "We also have an exclusive store for watches. TAG Heuer, Tissot, Ulysse Nardin and Omega are some of the biggest names available," he adds.
At the core of what buyers are looking for are range and offers. At the same time, the shopping experience is important too, something that the duty-free stores in India need to work on, especially with luxury products. Delhi Duty Free has made an effort to change this perception; it recently invested $10 million in renovating stores at the airport. The new walk-through shops are spread over 1,190 square metres at the arrival terminal and more than double of that (2,778 square metres) at the departure terminal. "It's not just about pricing but also the shopping environment. Our pricing is indeed competitive but we have been focusing on having beautiful shops and trained staff with in-depth knowledge of products," says Philip Eckles, India CEO, Delhi Duty Free.
Dubai Duty Free, while being among the top names, is making sure it retains its position. "We invest significantly in retail operations to improve offerings and overall customer experience," says McLoughlin. The plan includes special concept stores, concierge shopping services, refurbished Food Plus shops and a new gold shop. Dubai Duty Free now has 38,000 square metres retail space at Dubai International Airport and 4,000 square metres at Al Maktoum International Airport.
But with 52,000 square metres of retail space, London's Heathrow claims the top spot in size. Other European airports such as at Copenhagen and Zurich are also popular with luxury shoppers and offer a culturally rich and aesthetic environment.
At the backend of these changes is collection of real-time data, which is analysed to understand trends and demands so that personalised choices can be delivered at various touch points to improve customer experience and increase monetisation opportunities for concessionaires, explains Harsha Razdan, Partner and Head-Life Sciences and Consumer Markets, KPMG.
For example, Mumbai Duty Free trains its front staff at arrival and departure terminals to take feedback from customers on a list of questions to collect data and accordingly devise marketing strategies. "Each shift has to take about 10 samples in a day. On an average, we collect 600 samples in a month, which we analyse to figure as to which campaigns are working. For example, we did one such research after we started showcasing prices in INR or after the launch of our flagship campaign Mumbai Duty Free For Free," says Thimmayya of Flemingo.
Best On Offer
The quiet hum and soft glow of duty-free stores hide the fierce competition that goes on in the $76 billion global market. Operators across airports do their best to woo customers with not just the biggest names but also discount offers, launches, gifts with purchases, celebrity visits and VIP memberships. Limited edition products are a common way to deliver value.
Categories such as liquor, perfumes, confectionery and electronics respond well to promotional offers, says McLoughlin of Dubai Duty Free. An 8 per cent discount on all XO (extra old) Cognac varieties, including Bisquit, Remy Martin and Louis Royer, in June-July 2019, led to all 1,339 bottles valued at a total of $344,000 being sold, mostly to Chinese customers, the biggest buyers at Dubai Duty Free. Theme promotions are also run around festivals such as Chinese New Year, Mid-Autumn Festival, Diwali and Onam, apart from Dubai Summer Surprises, UAE National Day and others. Then there are category-specific promos such as on perfumes, watches and liquor which are popular among frequent travellers.
Membership offers are a powerful pull too. South Korea's Lotte Duty Free, the second-largest duty-free operator in the world, has a VIP membership that includes a 5-20 per cent discount based on online and offline purchases over two years in a tiered format. Another major South Korean operator, Shilla Duty Free, which started operations in 1986, offers membership benefits of 5-20 per cent discount and has expanded it to its Singapore and Hong Kong international airport stores. It gives new members $200 mileage to pay for any duty-free products it offers.
In India, 'Mumbai Duty Free is Now Free' is an annual shopping festival held between May and June every year. "With gift cards, discounts and cashbacks, the product you buy could effectively be free," explains Thimmayya of Flemingo. Delhi Duty Free's 'Shop and Collect' plan offers an extra 10 per cent discount to those who pre-book orders at the airport on the outbound journey and pick up on return. Cashback programmes are fast gaining popularity. For instance, Citibank India, in association with duty-free stores in Mumbai, Delhi, Chennai and Kolkata, offers customers up to 15 per cent cashback.
Rise of Online
Online channels have added a layer of not only convenience and ease but also a wider range of promotions and offers. "The growth in online duty-free sales has been boosted by online exclusive product ranges and high congestion in physical stores at airports," says Razdan of KPMG.
At Dubai Duty Free, for example, pre-order items are increasing, and the average pre-order value is $508. Their year-to-date online sales have reached $12.86 million. Lotte Duty Free has seen higher growth in average online sales for the last three years versus offline sales.
India, however, lacks in the online experience, mostly due to the fact that advertising and promoting liquor is prohibited even though 80 per cent of the duty-free purchases are in alcohol. Delhi Duty Free allows you to look at the latest products and prices on its website, but you cannot place an order. At Mumbai Duty Free, one can pre-order products and pick them up at the arrival terminal. "The online and in-store duty-free sales are two distinct models with different pricing and discounting strategies. The online platform also provides data that is useful in understanding buying behaviour," says Thimmayya of Flemingo.
In his book Non-Places, French anthropologist Marc Auge calls airports as spaces lacking a sense of history or culture. But the duty-free shops at airports are fast turning into a destination themselves.