In the aftermath of the pandemic, the surge in passenger volumes has significantly outpaced travel retail sales.
During its peak years, the travel retail sector enjoyed a seamless ascent: annual passenger traffic consistently increased, driving retail sales growth in tandem, often at even higher rates. This left domestic retailers gazing on enviously. However, that dynamic has changed dramatically in a post-Covid environment.
At the recent Tax Free World Association (TFWA) event in Cannes, France—a gathering of the top influencers in the duty-free industry—new insights challenged some long-held beliefs within the sector.
One of these misconceptions was the assumption that China would remain a reliable source of affluent travelers. The reality has proven otherwise post-Covid, even as their travel numbers rebound in key markets like South Korea. Various other factors are also hampering sales.
A recent analysis by Kearney, commissioned by TFWA, reveals that passenger numbers surged by 30% last year, surpassing the growth in travel retail sales, which saw an increase of only 18%. As noted by this global management consulting firm, the total market for retail reached a staggering $72 billion. However, this past year marked a significant departure from the historical trend of synchronized growth between travel traffic and retail sales.
One contributing factor to this shift is the reduced spending by Chinese travelers, which has notably impacted the Hainan market. Kearney highlights that the price benefits traditionally associated with travel retail are under threat from long-term decline. The firm emphasizes that while shoppers at airports still demonstrate strong enthusiasm, their buying behaviors and expectations are changing due to new circumstances.
Insights from m1nd-set, a specialized consultancy in travel retail, illustrate a shift in consumer attitudes from 2019 to 2024, indicating that pricing is becoming less of a priority for passengers. During this timeframe, surveys conducted by m1nd-set reveal that the significance of pricing advantage decreased substantially from 30% to a mere 13%. Additionally, the importance of promotions and value-for-money has also seen a decline over the same period, based on feedback from more than 230,000 shoppers.
It is surprising to see pricing lose its significance so rapidly, especially amid the global cost-of-living challenges faced in recent years. In July, the IMF maintained its 2025 growth forecast at 3.3%, which is consistent with expectations for 2024 and the previous year.
Price competition is clearly observable in airports. A travel retail research agency, Pi Insight, conducted a price assessment of the gin brand Bombay Sapphire and discovered significant price discrepancies across 14 airports. The study noted a variation of +23% at Istanbul Airport compared to -29% at London Heathrow, using Frankfurt Airport as the baseline (0%).
According to Gebr. Heinemann, a retail operator at both Istanbul and Frankfurt airports, “The price varies across airports because Bombay Sapphire is a globally popular product that often features in promotional sales.”
A report by Kearney highlights that price remains a “significant concern” for consumers, particularly in light of ongoing inflation. In a survey involving 3,700 customers from 10 different countries, 30% of respondents indicated that price was a hindrance to making purchases, while 27% are turning to price-comparison tools to verify the authenticity of ‘deals’.
In addition to high prices, 29% of participants pointed to inadequate product assortments as another reason for not buying. The firm’s analysis reveals that passenger spending has been consistently declining, with the average expenditure in 2023 dropping to $16 per passenger, a figure below pre-Covid levels. The average spending from 2009 to 2018 was $17.50.
Expenditure per traveler has been steadily declining since 2020.
Younger travelers, specifically Millennials and members of Gen Z, are increasingly favoring unique experiences over merely low prices, making them the largest demographic segment. Unfortunately, travel retailers have not adequately catered to these generations, according to Kearney, which noted that there is an excessive focus on discounted transactions, overshadowing the importance of storytelling, innovation, and tailored offers.
The firm’s primary recommendation for enhancing sales conversion includes swiftly embracing technology, offering more personalized deals, and fostering collaborative partnerships among key players in the airport ecosystem.
Engagement driver: Captivating pop-up experiences, such as the one from L’Occitane for Sol de Janeiro at London Heathrow, are playing a significant role in increasing engagement.
Vincent Barbat, a partner at Kearney, expressed that the industry should transition from being focused primarily on pricing to adopting a more traveler-centered approach. He pointed out that the disconnect between revenue and air passenger growth serves as evidence that the changing consumer dynamics within the rapidly shifting travel retail environment are not being sufficiently addressed.
Barbat added, “Although technology alone won’t ensure a bright and prosperous future for the industry, it definitely offers significant potential. Certain tools can enhance customer experiences and enable greater product personalization. The main challenge will be finding the right equilibrium between advanced technology and personal interaction, ensuring the industry remains both effective and approachable.”
There is a shared agreement on the pivotal role of technology: airports are actively automating and digitalizing each phase of the travel process, as demonstrated at Abu Dhabi International. Accelerating these processes will provide travelers with additional time to explore shopping options. A notable portion of passengers, around 45%, frequently utilize in-store tools to enrich their shopping experiences, presenting retailers with an opportunity to increase sales through augmented reality, virtual reality, and eventually AI-driven personal shopping assistants.
To explore the comprehensive Kearney report on travel retail, visit this link.