Is Travel Retail Addicted To Premiumisation?

In order to grow Retail sales, the options are pretty straightforward:

• Get more shoppers
• Convert more shoppers into buyers
• Get buyers to spend more
• Get buyers to buy more frequently

Within Travel Retail, there are some limitations. It is a very different market. Passenger numbers are not within our control but we may be able to get more shoppers across the threshold. Walkthrough stores are good for that.

Those that have worked with Travel Retail numbers for many years will know that growths or declines are often largely in line with passenger numbers. This points to an industry that is highly dependent on passenger numbers growing. To move the needle on Spend Per Pax (and drive incremental revenue) takes some smart thinking and decisive actions.

The question then is this…. Which is easier to do? Get more shoppers to buy or get those that shop to spend more?

Trading Up

I remember listening to a conversation many moons ago. Key themes within this conversation were as follows…. “Well, why are we bothering with Confectionery….. One bottle of Spirits is the same as 10 bags of sweets….. and you do not need to replenish Spirits as frequently so you need less staff…… we do not want people to trade down….”

As the shift moved from high volume / low price strategy to high price / low volume, the Travel Retail landscape began to change. The rise and prominence of higher value items began. The traditional Liquor and Tobacco focus gave way to Beauty and their higher price points. Store standards improved and whilst the fundamental ways TR does business hasn’t changed much, some stores are far more beautiful than they once were. It certainly feels like you are entering a high end department store.

There is a slight problem though. Typically (based on discussions and talks given at trade shows) conversion remains a challenge. This suggests that although passenger numbers rise (excluding the covid situation), sales increases are still at the mercy of price increases or number of items in the basket to drive sales growth above pax growth.

In short, more premium products, fewer shoppers.

There are some stores in airports that I have seen where I have yet to see a shopper in them whenever I pass through…. But I assume that they do turnover an acceptable amount because they are still there. When you consider the value of some of the watches in an airport store for example, a couple of high end watches sold is the equivalent of a lot of bags of sweets!!

The Harry Potter Store

I remember travelling through Heathrow T5 and I saw the small Harry Potter store was packed and people were buying. The shopper turnover was consistent and so I was curious. I did a head count and set off to the more premium stores to see how many shoppers they had. The Harry Potter store had more shoppers in it than all of the high end stores put together. What does that say about the airport experience for the average traveller?

So… if we are dependent on passenger numbers rising and or people trading into more premium brands…. Where is this heading for the core Travel Retail offer? Will we end up with super premium stores that appeal to a smaller and smaller niche? What will that do for the airport experience? Will your everyday passenger just have the book shop as their only option to spend? Where is the tipping point when conversion is hit to a level that price rises will not be able to keep up?

Am I suggesting Premiumisation is wrong?

No. Airport shopping has beautiful stores thanks to premiumisation.

It isn’t a pile it high, sell it cheap experience anymore. That said, I cannot remember the last time I bought anything airside. I do believe however, that as a channel, we need to get smarter about segmentation of shoppers and making sure that each group has something relevant to them. I don’t mean the usual segmentation that gets rolled out…. “Gifting”, “Self Treat”, “Millennials”, “Gen Z” etc etc.

We need to start serving multiple segments and appealing to them and communicating with them in different ways.

So is Travel Retail Addicted to Premiumisation?

If Travel Retail becomes dependent on higher prices to drive growth, there is an issue. Greater focus needs to be placed on increasing conversion.

The real question I suppose should be…. Are we intentionally appealing to a smaller and smaller audience? Is that right? Where is the tipping point before sales starts the decline?

What are your thoughts?

As ever, thanks for reading, commenting and sharing.

Kevin

I am the Founder and Managing Director of One Red Kite. We support our clients with Data Management, Analysis, Dashboarding & Reporting, Category Management, Bespoke Mystery Shopping and Recruitment. We proudly support our clients to deliver better.