Duty-Free and Travel Retail Market

Market Overview

The global duty-free and travel retail market size was valued at USD 40 billion in 2021, and it is anticipated to reach an expected value of USD 277  billion by 2030 at a CAGR of 24% throughout the forecast period (2022-2030).

The duty-free and travel retail market is a tool for economic and social development, including infrastructure and employment creation. Businesses mainly use this channel for marketing their product overseas and expanding globally. The need for luxury and premium goods, promoted by numerous retail chains that offer a variety of goods, is the prominent parameter driving the rise of the worldwide duty-free and travel retail business. Sales in the market may increase due to the growing emphasis on digitizing the retailing process for businesses to optimize their earnings.

The growing attractiveness of the tourism and travel industry is another factor in the duty-free and travel retail market increasing the trend. The market studied provides a temporary space that offers extra time to the end users after security check-in and allows the consumers to indulge in buying the products, along with the ambiance and experience of shopping for international products. The increase in the footfall of travelers at various international destinations is a primary cause driving the industry. Factors like the rising middle-class population and affordable air travel are expected to drive the industry.

Market Dynamics

Global Duty-Free and Travel Retail Market Drivers

Rapid Urbanization

The global duty-free and travel retail markets are expanding due to the middle class and quick urbanization. The middle-class population is traveling more and shopping at these duty-free shops thanks to rising disposable income, rising living standards, and the affordability and convenience of air travel. To increase the size of the travel retail industry over the coming years, the top vendors are creating consumer-focused businesses specifically for this end-user market. Middle-class consumers are the main drivers of economic growth in developing nations like China and India and have the purchasing power to support the expansion of the global duty-free market.

The rise in middle-class median income will also affect middle-class consumers' spending patterns, modes of transportation, and demands for luxury goods, which will boost the growth of the travel retail sector. Rapid urbanization and development will speed up infrastructure construction and provide access to greater amenities on the global market. The construction of new ports and airports will increase revenue.

Growth in the Tourism Industry

The tourism industry has increased recently as the newer generations travel more frequently. The majority of the activities in the tourism industry allow people to shop and dine while traveling. The increasing demand for differentiated and value-added products is enhancing the desire to travel among the population in the APAC region, leading to high demand in the duty-free industry. The growing number of international tourists, new air routes, low-cost carrier (LCC) airlines, and a rising number of middle-class families will fuel the growth of the retail-travel industry. Travelers are increasingly predisposed to spending more money online, leaving less for airport shopping. Therefore, many airlines and airports have started digitalizing their business. The tourism industry is innovating to provide customers with a unique and enhanced experience due to the increased number of travelers. Downtown duty-free stores have become more prevalent, particularly in South Korea. These stores enable customers to buy things anytime during their journey rather than just before departure. The rise in international tourist arrivals is anticipated to present lucrative chances for the market under study in developing nations like Asia-Pacific and LAMEA.

Global Duty-Free and Travel Retail Market Restraint

Logistics Pose Challenge to Airport Retailers

Airport retailers have unique supply chain challenges.

Security: Liquids have a problem with extra product screening at the airport, but it is also done to stop smuggling.

Longer opening hours: Shops are open earlier and later, which means longer shifts and odd-hour shifts. On the other side, short staffing is needed because the shops are small.

Onboarding time: Because employees must undergo more security checks to work within the airport, hiring and onboarding take longer. Some retailers and airports require multilingual employees.

Replenishment: Stock replenishment is more challenging when there is less onsite storage. Some stores don't have stock rooms, while others have modest ones that may be off-site and difficult to access. If the consumer wants a different size or color, this may directly impact their experience. Therefore, using primary stock ranges and one or two of each item is only practical. Digital and physical integration are crucial.

Strict delivery times: According to airport regulations, supply schedules must be arranged long in advance, and delivery deadlines are rigorous. Therefore, there isn't much room for impromptu resupplies.

Difficult returns: Once a customer leaves the airport, it is difficult for them to return an item. Returns must be delivered to be processed and refunded, which adds time to the procedure and negatively affects the customer experience.

Hence, all the factors mentioned above hamper the market growth.

Global Duty-Free and Travel Retail Market Opportunities

Technological Advancements

Augmented reality (AR) and robots with artificial intelligence (AI) will be crucial in enhancing airport customer experience. AR offers the chance to use a product in an alternative setting. Duty-free and travel retailers have created applications to draw and persuade clients to purchase goods by providing discounts and other incentives (e.g., Red by Dufry). To better serve its consumers, airports have well-developed internet and e-commerce platforms. For example, several airports allow customers to shop online and pick up their purchases at the airport.

Regional Analysis

By region, the global duty-free and travel retail market: is segmented into North America, Europe, Asia Pacific, the Middle East, and Africa

Asia Pacific accounted for the largest market share and is estimated to grow at a CAGR of 21.9% during the forecast period. Outbound travel is one of the significant drivers of duty-free consumption in China. The country is one of the world's largest outbound travel markets regarding the number of tourists and spending. Increasing wages, laxer travel visa policies, a greater awareness of the world, improved internet access to travel information, and a rise in international airlines are some of the key factors contributing to China'sChina's expanding outward travel sector. Additionally, the establishment of new airline routes, the general increase in consumption capacity, non-first-tier cities, and the rapid growth of outbound tourists have all become significant growth engines enhancing the demand for duty-free shops in the nation. Chinese duty-free consumption continues to be driven by the explosive growth of international travelers.

Europe is the second largest region. It is estimated to reach an expected value of USD 75 billion by 2030 at a CAGR of 22.3%. Duty-free and travel retail (DFTR) is a distinctive retailing channel that markets to international travelers. It is a significant source of revenue and marketing opportunities for European businesses. It calls for specialized legislative and regulatory solutions and an alternative strategy used in domestic European markets. The growth of international travel and tourism is directly related to the DFTR channel's success, resulting in its development of unique qualities.

North America is the third largest region. The duty-free and travel retail (DFTR) market worldwide is governed by various authorities, such as the International Association of Airport Duty-Free Stores, that have global reach and various authorities that cater to a specific region like Europe or the Middle East. The International Association of Airport Duty-Free Stores (IAADFS) is an international trade association with nearly 400 company members. The IAADFS was established with the goals of promoting the airport duty-free industry as an important sector of the global business community, providing opportunities for operators of airport duty-free stores and their suppliers to exchange information on goods and their potential for the duty-free market, and acting as a collective voice for the airport duty-free industry on matters that affect all of the membership. About half of the estimated total duty-free and travel retail sales in the Americas are thought to be accounted for by the aviation sales channel. The performance of US airports differs significantly from those in Canada and, even more so, from those in Latin America and the Caribbean, according to an analysis of the various sales channels. The retail scene at airports in the latter region resembles that of airports in Europe and Asia more closely. For instance, the average amount spent per leaving passenger is around three to four times higher in Latin America than in the US. This is probably a result of higher tax rates in South America, which, combined with high exemption rates, stimulate more spending at duty-free stores.

Segmental Analysis

The global duty-free and travel retail market: is segmented by product type, distribution channel, and region.

By product type, the global duty-free and travel retail market: is segmented into beauty and personal care, tobacco, eatables, wines and spirits, fashion accessories, and hard luxury and other types. The beauty and personal care segment dominated the market and is estimated to grow at a CAGR of 26.3% during the forecast period. There has been remarkable growth in the sale of cosmetics and perfumes among travelers in the Asia-Pacific region. In addition, there has been a rising need for natural and organic personal care products (NOPC) by customers in the same region due to the growing concern about the harmful effects of chemically made products among the population. Cosmetic brands are moving toward the adoption of new trends in the industry, such as the implementation of AR for face and skin mapping so that customers can try products virtually before visiting a physical store or trying on the products. This saves them time, making it more convenient to buy products. Such factors propel the market growth.

The fashion accessories and hard luxury segment are the second largest. It'sIt's crucial that premium brands create a welcoming atmosphere at airports. Modern, brand-conscious consumers demand excellent customer service and will not accept anything less than the best. They are looking for a fantastic selection of goods from luxury brands and want to enjoy the purchasing process. Not to mention, offering individualized and unique products will be the cherry on top. On the other side, travel shops are working to understand consumer expectations and recognize changes in consumer behavior. With their most recent collections available at travel retail stores, luxury labels work extremely hard to win over their customers. Additionally, E. Gluck'sGluck's acquisition positions the WITHit brand for growth by giving access to underutilized distribution channels like travel retail stores, international expansion opportunities, operational synergies, scale, and marketing, which in turn drive the market studied.

By distribution channel, the global duty-free and travel retail market: is segmented into airports, airlines, ferries, and other channels. The airport's segment accounted for the largest market share and is estimated to grow at a CAGR of 21.8% during the forecast period. Duty-free shopping and other travel-related retail activities account for 50% of an international airport's revenue. Regular travelers have undoubtedly been forced to walk through their fair share of airport duty-free stores. Changing traveler demographics have brought in different shopping habits. Air travel is more affordable now that low-cost carriers like EasyJet and Spirit have joined the market, but luxury goods—even duty-free—are not. Travelers have become far more deliberate shoppers, making fewer spontaneous purchases. This shift in attitude has opened up new possibilities for how airport operations are carried out. Travelers can now reserve a product in advance, allowing them to quickly pick it up on their way to the gate. During the pandemic, more travelers have used the "Reserve & Collect" program at Vancouver Airport, which uses a similar program administered by Dufry.

Recent Developments

• October 2022 - The Nescafé Plan 2030, the company's comprehensive plan to support more sustainable coffee cultivation, was unveiled by Nescafé, Nestlé'sNestlé's most prominent coffee brand and one of the most popular coffees in the world. The company is speeding up its decade-long efforts under the Nescafé Plan by collaborating with coffee farmers to assist them in making the switch to regenerative agriculture.
• February 2022 -Large-scale adjustments must be made in how agricultural raw materials are produced and sourced to fulfill Nestlé'sNestlé's net zero roadmaps and transition to a regenerative food system. Nestlé announced the establishment of the Nestlé Institute of Agricultural Sciences to integrate cutting-edge agricultural research into practical applications and find the most promising agricultural innovations.