DFWC releases Economic Impact Study on the DF & TR industry in the Americas

The Duty Free World Council has published a report on the Economic Impact of the duty free industry in the Americas. The report outlines the important contribution that duty free makes to the travel industry and the broader economy.

The key figures revealed in the study are

• In 2016, US$12.9 billion was spent on duty free and travel retail in the Americas. The principal components were:

•Duty free and travel retail sales in the aviation sales channel estimated at nearly US$1.9 billion in the U.S. and Canada and US$4.8 billion in Latin America and the Caribbean, most of which was generated within airport terminals.

•Land and maritime duty free and travel retail sales amounting to approximately US$6.2 billion.

•Duty free and travel retail spending in the Americas directly accounts for an estimated 61,400 jobs and US$8.2 billion in GDP.

Together with the businesses that supply the goods and services (indirect impacts) and spending of employees in the wider economy (induced impacts), duty free and travel retail in the Americas is estimated to support a total of 110,000 jobs and US$10.6 billion in GDP.

DFWC commissioned InterVISTAS Consulting Group, a leading management consulting company with extensive expertise in aviation, transportation and tourism to compile this independent report on the industry in The Americas.

Publication of this study follows release of a similar study on the industry in Europe published in 2016 and will in turn be complemented by a study of the impact of the industry in Asia Pacific in 2019.

Frank O’ Connell, commenting on the publication of the study said “Economic Impact Studies are critical tools for DFWC and our regional association members when outlining the importance of our industry and the contribution we make to airport, and other travel infrastructure, the tourism industry and the general economy.

“When engaging with regulators or other parties contemplating decisions which may impact on our industry, we must have independently verified data, not just on the sales generated by duty free and travel retail, but, which also quantifies the employment impact and the positive contribution to airport revenues etc. in order to promote and defend our industry’s interests.”

TMI here presents a detailed analysis of some key parts of the report.

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Aviation Sales Channel

The aviation sales channel is approximately half of the estimated total duty free and travel retail sales in the Americas. In 2016, total duty free and travel retail sales in the aviation sector across the Americas were estimated at US$6.7 billion, of which US$1.9 billion of sales occurred in the U.S. and Canada and US$4.8 billion in Latin America and the Caribbean, most of which was generated within airport terminals.

Duty free purchase rates and average spend tend to be lower in the U.S. compared to other countries in the Americas, as well as most other regions in the world. The average spend per departing passenger in Latin America is roughly three to four times the average spend per departing passenger in the U.S. This is partly due to higher tax rates in South America which encourage greater spending on duty free, coupled with higher exemption rates. In Brazil, for example, purchases are made mostly by locals due to high purchase exemptions and duty free allowances when traveling internationally. Importantly, most purchases are made at arrivals duty free shops.

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Concession revenue per pax

For North America, the concession revenue per passenger is much lower than that generated in other geographies. European airports average US$3.32 of concession revenue per passenger while Asia-Pacific airports average US$2.28 per passenger. Latin America and Caribbean airports average US$2.51 of concession revenue per passenger, which is in the same range as airports in Europe and Asia Pacific regions.

In North America, the retail revenue per passenger is roughly one-quarter of the global average and this is largely driven by the performance of airports in the U.S. The lower allocation of retail space and shorter dwell times in North America impacts retail-specific spending compared to other world regions.

Duty free retail in North America accounts for roughly half of airports’ concession revenues, compared to 74% globally. Airports in North America derive a greater share of revenue from car rental and parking in their portfolio of non-aeronautical sources of revenue.

Unlike North America, Latin America and the Caribbean more closely approximate the worldwide average, with duty free sales contributing 70% of total airport concession revenue. In particular, duty free retail in Brazil comprises 60% of total concessions revenue, while duty free retail in the Caribbean makes up larger share of total concessions revenue (84%).

Canada & U.S. 

Looking at revenue per passenger, Canada’s airport duty free shops tally more than three times the sales per passenger than U.S. airport duty free. In Canada, airport retail concession revenue per passenger is just over US$1.60, compared to US$0.47 in the U.S. The major airports in Canada that serve international passengers, with generally lower levels of passenger traffic than their U.S. counterparts, also generate higher average airport revenue from duty free sales (US$0.61 per passenger) than the largest international U.S. airports (US$0.17 per passenger).

Retail space at airports, while growing in magnitude, is generally less developed and less utilized in the Americas relative to other regions. The average number of retail outlets at airports in North America (39) exceeds most other regions (perhaps due to the overall average terminal space being larger than in other regions). However, North American airports exhibit a lower allocation of physical retail space relative to the level of passenger traffic. Conversely, airports in Latin America and the Caribbean contain 23 retail outlets on average, but they allocate more than double the amount of physical retail space relative to passenger volumes, compared to North America. In particular, the average number of retail stores at airports in Brazil is 16, while the average number of retail stores at airports in the Caribbean is 20, with a relatively high allocation of retail area relative to passenger traffic.

Maritime Sales Channel

Total estimated duty free and travel retail sales in the global maritime sales channel is $3.4 billion.

Maritime transport in the Americas is well-supported by duty free and travel retail. This includes duty free purchases made by passengers on cruises (at shops either onboard the ships themselves or onshore at ports of call) and ferries. Duty free and travel retail is particularly well-integrated within the cruise industry in the Americas, and forms a substantial part of the cruising experience, as evidenced by the high conversion rates for duty free shopping on cruises.

Overall, purchase conversion is high among cruisers, as 88% of those who browse duty free shops also end up making a duty free purchase either on-board or on-land. Duty free spending by cruise travelers is consistently high across the global cruise industry and tends to outpace other sectors, such as airports, because cruisers are exposed far more frequently to duty free opportunities throughout the duration of their trip, and are likely to make multiple purchases.

In the Americas, duty free and travel retail sales on ferries amounted to only US$34 million in 2016.

International travel by ferry is less prevalent in the Americas relative to other regions, such as Europe, with the bulk of cross-border services offered among the island nations of the Caribbean and in some South American countries.

Passengers on routes between Buenos Aires, Argentina and Uruguay, which range in duration from one to three hours, show a preference for purchasing duty free perfume and cosmetics, as well as food and beverage items while onboard. Other duty free items are offered onboard, including toys and electronics, but these make up a minority of duty free sales generated by the ferries.

Duty free retail can be offered on-board the cruise ship as well as in duty free shops available onshore at ports of call. In the Americas, on-board duty free retail represents a key part of the cruise vacation for passengers. Based on a 2015 passenger survey from Counter Intelligence Retail Ltd. (CiR), on-board duty free shopping is highly valued by passengers on cruises in the U.S., Canada and the Caribbean. Over half of surveyed passengers consider on-board duty free retail to be “very important” to their cruise experience

In terms of passenger traffic, the North American and Caribbean regions together comprise the largest market for cruise travel in the world. North America was the source region for around 14 million (57%) of the nearly 25 million total cruise passengers in 2016.  In terms of capacity, cruises in the Americas account for over 40% of global cruise capacity, .

Specifically, the Caribbean was by far the top cruise destination in the world in 2016, contributing 35% of global ocean cruise capacity. The market is served by a large source of suppliers, with roughly 65 cruise liners deployed within the North American and Caribbean cruise region, though passenger traffic and cruise revenues are predominantly concentrated in a handful of companies.

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Land Sales Channel

Total estimated duty free and travel retail sales in the land sales channel is $2.8 billion. Alcohol shows the highest purchase conversion rates (51%) at U.S. land border duty free stores. At Canadian land borders, alcohol accounts for about 50% of all duty free sales, followed by tobacco (22%) and beauty products (14%). Duty free spending along the Brazilian-Uruguayan border in 2016 is estimated at approximately US$109 million.

Other forms of international transport in the Americas, such as land travel, tap into a broader consumer base of leisure, business, and local travelers who make more frequent and comprehensive use of duty free and travel retail. Land border travel typically involves transportation by private or commercial vehicles, as well as foot traffic. Prior to undergoing screening by customs and border security, eligible travelers can often stop at duty free shops situated en-route to the crossing itself.

The Americas sees a large amount of duty free-eligible land border crossers relative to other regions. Duty free and travel retail is therefore a major sales generator near land borders and captures spending by customers who would otherwise be underserved by full-price retail in high-tax jurisdictions.

The majority of shoppers (70%) browse for duty free alcohol, while 51% of shoppers ended up actually buying duty free alcohol. Canadians show a higher incidence of purchasing alcohol and tobacco – goods often subject to relatively higher taxes within Canada – compared with Americans and Mexicans. Although limited data is available for duty free spending in South America, one study estimated approximately US$109 million (3.5 billion Uruguayan Pesos) in duty free spending along the Brazilian and Uruguayan border alone in 2016, indicating that duty free is even more popular in South America.

Alcohol, the most frequently purchased duty free good along U.S. borders, generates an average of nearly US$90 per purchase. Fashion items and jewelry, which generally command a higher price per unit but are purchased less often than other goods, top out the average spend at US$280 and US$470 per purchase, respectively.

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