The Duty-freeretail industry
By Sonia Kolesnikov,UPI Business Correspondent
SINGAPORE, (UPI) -- Though the duty-freeretail industry was not as badly affected as expected by the fallin tourism post-9/11, it still faces numerous challenges rangingfrom calls to abolish duty-free cigarette sales to the long-termcommitment of many governments to lower taxes and duties.
In this uncertain future, China appearsas a bright and long-term spot, which will help boost revenues.
According to data by the Swedish researchfirm Generation Group, duty-free retailing sales totaled $19 billionworldwide last year, down from $20 billion the previous year,mainly reflecting the effect of the terrorist attacks of Sept.11.
This year, Generation Group forecast saleswill slightly recover to $19.5 billion, although this figure couldbe revised upward if the trend encountered so far this year continues,said Jan O. Nygren, Generation Group vice president.
While duty-free retailing in the UnitedStates is still sluggish since last September, and showing somesmall signs of recovery in Europe, the industry remains strongin Asia, at $6.1 billion last year, up 6 percent over the previousyear. In fact, while tax-free sales in the region represent 32percent of the world market, this share is expected to rise to40 percent in less than 10 years.
Speaking on the side of Tax Free World AssociationAsia Pacific conference, Andrew Ford, the TFWA chief executiveofficer, told United Press International that the rebound in theindustry has been faster than expected, especially in Asia.
While Japanese tourists put off their travelto the Americas, they turned to intra-regional travel and theirspending remained steady. The association represents over 320luxury brands ranging from perfumes to wine and confectionery.
In fact, while average load factors at someof the key Japanese airports were still down 13 percent in thefirst quarter, monthly sales results of the key duty-free operatorsat these same airports were up an average 5 percent. Further reinforcingthis recovery of the Japanese market was the decision by the Ministryof Finance in April to allow a number of new categories of productsto be sold in duty-free outlets, as well as the opening of a secondrunway at Tokyo's Narita Airport (also in April), freeing up slotson the main runway for additional long-haul departures.
Speaking at the conference, Masato Takamatsu,vice president of the Japan Tourism Marketing Co., noted thatthe recovery started in December, although Japanese travelershave been slower to return to flying than most other nationalities.
Still, he estimated that departures shouldrise to 20 million travellers by 2005, from around 17.4 millionlast year. Takamatsu also forecast that over the next five to10 years, the faster growing segment of duty-free shoppers inJapan would come from seniors, families and singles in their 30s,thus warning retailers to adapt to those shoppers' requirements.
Although the duty-free retail industry appearsto be on a good recovery track, the near-term outlook remainsclouded by the World Health Organization's proposal to abolishtobacco in duty-free shops or vendors from 2003. Such a move wouldhave major implications for the rest of the duty-free shops' performance,TFWA President Erik Juul-Mortensen said, because tobacco salesattract potential buyers who might not otherwise visit the stores.
Retailers were obviously concerned aboutthe WHO proposal, and they said duty-free tobacco sales only represent1 percent of the total industry
Nygren said some studies have shown 40 percentof duty-free shoppers wouldn't go in the shops if there were nocigarettes offered for sale.
Another more long-term threat is the continuingtrend by most governments toward lower taxes and duties. Thiswill in time make duty-free irrelevant, some industry expertsbelieve, pointing to the lack of duty-free culture in the UnitedStates because of the low taxation on goods.
Amid these uncertainties, there appearsto be one bright stop on the horizon: the rise of the Chinesetourism market, which Victor Gubareff, a director for intelligencefor Strategic Forecast, called the "last, greatest untouchedtourism market in the world."
While Indian and Russian tourism have alsobeen rising, the sheer size of the Chinese market makes it theone with the biggest potential, Gubareff argued.
"We believe that over the coming year,the industry will see less of Japanese tourists, and more of Chinesetourists," he said.
According to official statistics from China,outbound tourism totaled 12.1 million last year, up from 10.5million in 2000. Gubareff forecast that this figure could riseto 16 million by 2005. "This will be the most significantfactor influencing positively our industry over the coming years,"he said.
Generation Group estimated that duty-freesales in China totaled $271 million last year, and could riseto $313 million this year and $362.1 million next year. "Ifthe current trend continues, sales could reach $1 billion by 2010,"Nygren said.
John Koldowski, managing director for thestrategic information center at Pacific Asia Travel Association,said most Chinese travelers remain in Asia, with only a smallamount moving on beyond regional travel. This partly reflectssome of the remaining restrictions imposed on traveling by theChinese government, which has given to only 23 countries an "approveddestination" status for its nationals.
But as the Chinese government is movingfast to transform China into a global power, the loosening oftraveling restrictions has already started to happen, noted Gubareff.At the start of the year, the government lifted the requirementon a $4,000 deposit for travelers to go abroad.
Gubareff estimated that within the nextthree years, possibly sooner, the government would open the Chinesetourism market to the foreign travel operator, which will bringanother boom to the industry.