SINGAPORE. The TFWA Asia Pacific Conference 2019 took place yesterday (13 May) with a new, plenary-only format covering a range of topics from new advances in retail, sustainability, regulation and people development.

The first plenary session, moderated by TFWA Managing Director John Rimmer, kicked off with an upbeat opening address on travel and travel retail in the region by TFWA President Alain Maingreaud.

Citing traveller data from ForwardKeys’ TFWA Monitor studies, he said that international inbound tourism in Asia Pacific grew by 6.0% in 2018, more than double the total worldwide growth of 2.9%. Asia Pacific’s share of international inbound tourism for the same year stood at 31%, second behind Europe at 34%.

TFWA President Alain Maingreaud: “The Financial Times has declared this the dawn of the Asian Century, predicting that by next year, more than half of the world’s GDP will be generated here.”

Global sales in the duty free & travel retail industry grew by +9.3% to reach US$75.7 billion in 2018, according to preliminary figures from Generation Research. This performance was driven by the Asia Pacific region, which saw sales grow by 14.2% to US$35.2 billion. [Note: We broke news of the latest annual figures last week through The Data Circle, a new research joint venture formed by Generation Research, The Moodie Davitt Report and m1nd-set, which this month launches its full-year 2018 Travel Retail State of the Industry Report.]

“At the current rate of progress, Asia Pacific will account for more than half of the business worldwide within the next two years,” said Maingreaud.

Within the Asia Pacific, the perfumes & cosmetics remained the most buoyant product category with US$18.2 billion in sales, representing growth of 19.9%.

“Over 50 cents of every dollar spent on duty free and travel retail in this region goes towards a fragrance and cosmetic purchase,” he said. “The next largest product category, fashion & accessories (US$4.7 billion in sales), claimed a little over 13 cents by comparison and showed only half the growth (10.6%) of fragrances & cosmetics.”

Wines & spirits came in as the third largest product category with US$4.2 billion in sales at growth of 4.2% – a comparable performance with fashion & accessories.

In spite of this positive performance, Maingreaud said that the industry’s biggest challenge is staying relevant to the consumer. Consumers should no longer be referred to as a “captive audience” as they have choices on where and how to spend, increasingly so today. With price and convenience becoming less important as reasons to shop in travel retail, the customer experience is where the channel can truly differentiate.

“The best retail experiences come when we find a great product, at a competitive price, presented in a unique, inviting environment, by staff who are sensitive to our needs and who make us feel special. This last point is crucial – in an age of algorithms, chat bots and artificial intelligence, it is the human beings that still make the difference between a disappointing retail experience and a great one,” he said.

Sustainability and corporate social responsibility (CSR) are topics which resonate with today’s consumers, and the industry can do more and communicate more to consumers about efforts in these areas.

“We have a lot of good stories to tell but we are not always the best storytellers,” he noted. “We need to become more vocal and underline our relevance, especially to the younger passengers with whom we often struggle to connect.”

Maingreaud also highlighted TFWA initiatives and collaborations that help drive the industry forward, such as the TFWA Innovation Lab and its investment in the Duty Free World Council (DFWC) Academy.

In a Q&A session with TFWA Managing Director John Rimmer, Asia Pacific Travel Retail Association (APTRA) President Andrew Ford underlined the role of APTRA in helping to protect the interests of the region’s industry. He spoke about the association’s latest efforts in four key focus areas: advocacy, research, training and networking seminars. Besides tobacco, other categories that have come under threat by regulation and labelling restrictions include alcohol and confectionery.

Airports are becoming more engaged in APTRA initiatives, said APTRA President Andrew Ford (right) in a Q&A session with TFWA Managing Director John Rimmer.

The Economist Foreign Editor Robert Guest noted the vast improvements in airports, with the trend towards faster service, better facilities and more efficiency. “This is driven by the demand of passengers, with international passenger numbers going up by 5% to 10% per year. This is also driven by private investments in airports and infrastructure. Privatisation has shot up from 22% to 50% in a decade.”

He raised concerns about the impact of the US-China trade war, as well as other regional developments, such as Brexit, tourism in China, growth in India, investment in the Gulf, and life expectancy in Japan.

The Economist Foreign Editor Robert Guest offered insights into global and regional dynamics.

The TFWA App encouraged audience interaction.

GDR Creative Intelligence CEO Kate Anckethill started off her presentation by reassuring the audience: “It’s not the end of the world for retail – it’s just a period of significant change.” She identified experience and convenience as the new battlegrounds for retail; rarely do the two overlap: “It’s either fun or fast.” One concept that successfully combines the two is Jack Ma’s Freshippo store in China, an example of ‘New Retail’ which merges data-driven experiential retail, e-commerce and logistics in one space. As GDR defines it, New Retail is “fun when you want it to be, fast when you don’t.”

In order for travel retail to catch up and compete with ‘New Retail-ers’, collaboration, partnerships and data-sharing are crucial, stressed Anckethill.

Collaborative partnership is needed to understand the data available, and imagination is needed to deliver creative solutions to optimise the retail experience. One way to reimagine retail is through multi-tracking – the creation of one space that caters to many different kinds of customer needs. These are dynamic retail spaces that can be continuously customised and augmented according to customer data.

GDR Creative Intelligence CEO Kate Anckethill examined what makes a successful retailer and how New Retail can be incorporated in travel retail.

The second plenary session, moderated by The Moodie Davitt Report President Dermot Davitt, focused on the future of travel retail in Asia Pacific.

3Sixty Duty Free Executive Vice Chairman Roberto Graziani noted that retail is evolving from being channel-focused to being consumer-focused, necessitating the need for an omnichannel approach – something that travel retailers have not been successful in adopting so far. With 51% of travellers making purchasing decisions before arriving at the airport and 65% before entering the duty free store, there is a clear opportunity. A successful omnichannel strategy requires the participation of all stakeholders, but the industry’s Trinity model has overlooked the only stakeholder with knowledge of the consumer: the airline.

3Sixty Duty Free & More Executive Vice Chairman Roberto Graziani stresses the need for the travel retail industry to be omnichannel with consumers at the heart of the strategy.

The omnichannel opportunity in travel retail.

“Airlines have been undervalued in terms of their potential contribution to the development of the travel retail business,” he said. “Our industry could really achieve its potential only if all stakeholders would partner together effectively – having the consumer at the centre of their strategy.”

Acknowledging that this ideal model might take a long time to come to fruition, 3Sixty created its own business model based on a strong partnership with the airlines. This model leverages data analytics to develop curated offers and engage passengers; integrates the different channels; offers multiple shopping touchpoints, fulfilment options and payment options; and optimises inflight training and direct selling onboard.

3Sixty is already working with several airlines – including Singapore Airlines and its KrisShop offering – to “bring omnichannel to life”. Singapore Airlines Senior Vice President Sales & Marketing Campbell Wilson joined Graziani on stage in a Q&A to talk about their partnership and how they are working together to better serve, target and engage customers.

Singapore Airlines Senior Vice President Sales & Marketing Campbell Wilson (middle) joins Roberto Graziani (right) and The Moodie Davitt Report President Dermot Davitt (left) on stage to talk about how Singapore Airlines’ partnership efforts with 3Sixty.

Lagardère Travel Retail Pacific CEO Przemyslaw Lesniak said that Lagardère’s customer-centric approach has been shaped by Pacific hospitality. It is about going out of your way to look after people, making sure everyone is having fun and creating lasting memories.

“Our global strength is our obsession with the customer journey. We have a unique global insight into how our customer interacts with each touch point throughout their journey in the airport,” he said.

The ability to create memories creates “amazing opportunities” for the travel retail industry. “Retailers must give their customers clear reasons to buy at airports and not in high streets.”

He urged the industry to step out of the role of brand or retailer and into the shoes of the customer in order to be inspired and to become truly unforgettable hosts.

Lagardère Travel Retail Pacific CEO Przemyslaw Lesniak on Lagardère’s hospitality approach in becoming an unforgettable host.

Incheon International Airport Corporation (IIAC) Director of Concessions Planning Team Dong-Ik Shin said that sales at Incheon Airport grew by 14.8% to an all-time high of US$2.4 billion in 2018, making it the top-performing airport duty free location since 2016. This performance was driven by the opening of Terminal 2 in January 2018 and a 9.9% rise in international passenger traffic to 34 million.

The sales potential of international passenger growth is underlined by Incheon’s upcoming opening of the country’s first arrivals duty free shops on 31 May, run by SM Duty Free and Entas Duty Free. The contract period is for 10 years (until 2028) with a concession fee based on percentage rent (no minimum annual guarantee).

Incheon International Airport Corporation Director of Concessions Planning Team Dong-Ik Shin underlined Incheon Airport’s growth potential as the T1 concessions come up for tender.

About 51% of duty free sales are contributed by foreigners, with Chinese generating the highest spend per passenger at US$188. Cosmetics & perfumes was the top product category in 2018 at US$948 million, with a 40% share of the mix, followed by fashion at 17%.

Terminal 1 represents 71% of total duty free sales and 74% of total passengers, and several five-year concessions are set to expire at the end of August 2020. As reported, the contracts vacated by Lotte Duty Free in July 2018 (DF1, DF5 and DF8) due to the retailer’s concerns over excessive rents are unaffected as replacement retailer Shinsegae subsequently took up a new five-year tenure.

IIAC will hold a duty free tender in November, Shin confirmed [The Moodie Davitt Report reported on the tender in March, with more details in our May Print & Online Magazine]. It will comprise eight concessions, spanning 8,749sq m and 48 outlets. Significantly, the contract period has been increased from five years to 10 years, running from 1 September 2020 to 31 August 2030.

Shin also said that IIAC encouraged overseas participants in the departures tender, despite concerns that South Korea’s controversial dual-assessment system, which sees Korea Customs Service (KCS) evaluate the bids after IIAC’s initial ranking, would make it very difficult for a foreign retailer to win.

Foreign companies are encouraged to bid in the Terminal 1 duty free tender in November.

Looking to the future role of retail in airports, Shin envisions a virtuous cycle where growth in commercial revenues leads to lower airport facility charges which in turn encourages airlines to bring in more passengers to drive retail. CSR will also be boosted with 1.2% of commercial revenues channelled initiatives related to local society and developing nations. IIAC’s vision is to be the world’s best shopping and dining location for air travellers. By 2025, it aims to achieve US$3 billion in sales and US$100 spend per passenger, while maintaining its top rankings in ASQ and Skytrax.

Incheon Airport’s vision for 2025.

In the third and final plenary, Duty Free World Council (DFWC) President Frank O’Connell introduced the DFWC Academy, an initiative that will create formal qualifications for duty free and travel retail through online learning. “It will be global in reach and across all staff levels. It can attract new people into the industry. It will be cost effective with access to many resources. And it will aid staff retention. We can build a community of loyal staff in the industry and that will help generate more returns,” he said.

Institute of International Retail Managing Director Derek Hughes said the course is compatible with global Continuous Professional Development requirements. Module one will focus on the duty free & travel retail industry; module two on driving customer engagement; followed by module three on delivering excellence. The DFWC Academy will have an information desk outside the TFWA Asia Pacific Exhibition entrance, providing further information on courses and how to enrol. The first course commences in September 2019.

Duty Free World Council President Frank O’Connell (above) and Institute of International Retail Managing Director Derek Hughes (below) outlined the industry challenges that could be addressed by the DFWC Academy.

Pernod Richard Headquarters Vice President of Global Sustainability & Responsibility Vanessa Wright emphasised the importance of putting sustainability at the heart of the travel retail business and brands. She highlighted Pernod Ricard’s efforts in this area, such as its new ‘grain to grass’ sustainability programme, and outlined its 2030 goals of creating “a more convivial world, w world without excess”.

“The key to sustainability is not doing it yourself. It is to doing it with others,” she added, suggesting that TFWA could encourage a joint solution to sustainability within the industry. She also proposed harnessing sustainability as a tool in addressing consumer concerns, and speaking out and sharing about sustainability efforts.

A check-list for sustainable development by Pernod Richard Headquarters Vice President of Global Sustainability & Responsibility Vanessa Wright.

JTI Worldwide Duty Free Corporate Affairs and Communications Director Gemma Bates examined how the travel retail industry can counter the effects of hyper regulation. “The industry is under threat from regulations designed for the domestic market,” she said, adding that excessive regulation can erode your brand. She maintained that this is not about opposing regulation, but about having better regulation that takes into account the uniqueness of the travel retail business.

There needs to be more pro-active and pre-emptive discussion of potential regulatory issues with governments and regulatory bodies, who need to be educated about the way the industry works. We need big names and big companies behind the advocacy effort, and we need to plan years ahead. “There is strength in numbers and strength in names.”

Increasing regulation will impact all categories, not just tobacco, and more needs to be done by all stakeholders across the industry to protect the industry’s interests.

“Stronger together”: The industry needs to make a collective effort to push for better regulation, said JTI Worldwide Duty Free Corporate Affairs and Communications Director Gemma Bates.

Nestlé International Travel Retail (NITR) General Manager Stewart Dryburgh outlined NITR’s vision to double the confectionery and fine foods category to US$10 billion in ten years. A recent research project undertaken by NITR has revealed three core needs – Deeper Connections, Better for You and Elevated Experiences – and 10 category growth drivers that can drive greater sales conversion and higher spend per head. Dryburgh believes that the goal can be achieved if coupled with NITR’s SOUL (Stories, Occasions, Unique, Local) framework, with support from retailers and other brand owners. There is also untapped opportunity in other segments of confectionery & fine foods such as coffee.

Nestlé International Travel Retail General Manager Stewart Dryburgh (right) identified a number of category growth drivers (below) which, coupled with its SOUL (Stories, Occasions, Unique, Local) framework, can double confectionery and fine foods sales to US$10 billion in 10 years.

Looking at technology from a practical point of view dcGTR Managing Director Alan Brennan assessed the role of virtual and augmented reality technologies can play in turning travellers into shoppers. These can help retailers and brands build and test virtual store environments and brand activations with targeted shoppers in a cost-effective way. The use of such technologies, frequently used in gaming, is a way to engage Chinese millennials, who make up the majority of the world’s gaming market. There is no limit to the technology being featured instore, but the key is in creating a store design that is insight-driven and shopper-centric.

dcGTR Managing Director Alan Brennan said virtual and augmented reality technologies can help retailers and brands build and test virtual store environments and brand activations.