Sergei Bozhok: The duty free market throughout Russia will change, prompting operators to adapt their business strategies, develop new approaches, and move into the digital sphere

Sergei Bozhok is the former Business Development Manager of DERA-Vladivostok Co, the biggest duty free retailer in the Far East of Russia. He held the role for over 13 years until August 2020, when the severe impact of the COVID-19 pandemic on travel cost his job. Few people know the sector in this region better than Bozhok, as he reveals in this candid yet ultimately hopeful article about prospects for business recovery. The author can be contacted through LinkedIn or The Moodie Davitt Report.

The year 2020 has brought an unprecedented challenge for the entire duty free industry worldwide, writes Sergei Bozhok.

The uniqueness and specificity of this business has been its hallmark for many years, giving it a special status. However, the pandemic has completely changed the game, turning all business processes upside down. As a result, now all participants of the travel retail industry are forced to adapt to the ‘the new normal’ environment (which is far from that ‘normal’ that we are used to, in fact).

I have been connected with the duty free business for over 15 years in total. Living and working in the Far East of Russia, I have seen the steady growth of this industry, making my contribution to business development. The future seemed more than bright and successful. There was an incredible and truly unexpected increase of international passenger traffic in 2018 and 2019.

Asian destinations showed booming intensive growth. Chinese, Korean and Japanese tourists have completely changed the tourism industry not only in the Far East of Russia but throughout the country as a whole. Outbound passengers’ traffic growth expectations for 2020 were about plus +20%. However all hopes and expectations collapsed very quickly and radically…

It is quite difficult to make forecasts regarding the recovery of international air traffic and closely related duty free business since this process depends on the number of factors:

  • The probability of new waves of COVID-19. Today we can see alarming signals from all over the world unfortunately. The World Health Organization fixes new records of the weekly growth in the number of infected worldwide.
  • The willingness of people to take risks and travel in new conditions that have become much less comfortable and friendly. Modern realities may require tourists to provide a certificate of the absence of coronavirus, or a two-week quarantine period. All these measures make travelling far less comfortable and desirable as before.
  • The so-called ‘delayed negative effect’ – this is a phenomenon that is more psychological in nature. This is reflected in the reformatting of the attitude and infection risk aversion.
  • According to the World Health Organization, the latest wave of COVID-19 is expected to grow in October-November and the upcoming spring will help in spreading the pandemic in 2021 unfortunately.

Tough times act as a stress test for the entire industry. Survival becomes a matter of adaptability, flexibility of the business model, the ability to find and implement non-standard ways out of complex situations.

Speaking about duty free business in the Far Eastern region of Russia, it is necessary to note the most important decisive role of Asian tourists. Chinese, Korean and Japanese tourists have transformed the entire travel business in the region over the past three years.

The active development of infrastructure, high growth rates, and the huge interest of esteemed Asian guests in the region and the whole of Russia allowed us to feel very optimistic about business development.

However, as soon as international air traffic stopped at the end of March 2020, all hopes were dashed, and a new reality hit the business environment really hard.

People involved in the aviation industry and duty free business in the Far East of Russia try to maintain an optimistic outlook about future prospects. But it is very difficult to remain optimistic seeing the current situation and understanding the trends of its development.

An optimistic scenario seems to be the start of business revival by the summer season 2021. This expectation puts the duty free industry in an extremely difficult position and raises the question of business survival.

The situation in the western part of the country is not so depressing. Moscow is slowly resuming flights with some countries (Turkey, Korea etc.). However these measures are definitely not sufficient without the steady flow of Chinese tourists. We can’t talk about the beginning of the industry recovery currently. Sad but true.

Obviously, the full recovery of the duty free industry is going to take several years of work in difficult and unpredictable conditions. The duty free market throughout Russia will change, prompting operators to adapt their business strategies, develop new approaches, and move into the digital sphere.

Tough times act as a stress test for the entire industry. Survival becomes a matter of adaptability, flexibility of the business model, the ability to find and implement non-standard ways out of complex situations.

Nevertheless I do believe that the duty free industry will be reborn like Phoenix from the ashes. What does not kill us makes us stronger.