Luxury Travel Retail Poised To Rocket With China’s Reopening

The luxury industry is poised for another strong year despite the recent economic turmoil in the banking world. While some experts believe that the US consumer is “taking a breather” (in the words of Kering’s CFO, Jean-Marc Duplaix) valuations for luxury brands remain high, notably because of China’s reopening after three long years.

Travel Retail Is Big Business

Travel retail, in particular, looks like it will outperform this year, mostly due to China’s re-emergence. Even though the travel industry is still in recovery mode, the International Air Travel Association (IATA) estimates that by 2024, traveler numbers will reach four billion, exceeding 2019’s figures by about 3%. “Travel retail” refers to businesses designed to capture sales from consumers in transit or outside of their home countries. This segment of the luxury industry was valued at $104 billion in 2021 and is projected to grow to $233.5 billion by 2030, with a 9.38% CAGR from 2023 to 2030. Chinese nationals’ pent-up demand for travel, as well as the accumulated savings gained from three years at home, has buoyed luxury purveyors’ spirits for a robust 2023.

Travel retail can be found anywhere there are international travelers, including cruise ships, train stations and onboard aircraft. However, the most lucrative travel retail destinations include major airport hubs worldwide, such as London’s Heathrow, Singapore’s Changi, Seoul’s Inchon, and newly-opened Istanbul International. Even landmark shopping destinations, such as Paris’s Galeries Lafayette or London’s Selfridges, are also considered to be part of the travel retail ecosystem. These stores dedicated teams entice international travelers with high-touch amenities such as chauffeur service to and from their hotels, personal shoppers, beauty concierges, multi-lingual sales associates, and the ease of completing their VAT refunds on premises.

Immersive Experiences Bring Big Rewards

Travel creates an optimal scenario for brand discovery, and the top brands are deploying highly immersive experiences for their travel retail shops. Not only are travelers more likely to splurge on high-end luxury “personal gifts” such as handbags, shoes, and fragrances when outside of their home countries, they also have more time on their hands. Brands can also use this to their advantage to engage younger consumers in person, especially the Millennials who fuel the travel industry. Millennials typically prefer online shopping to physical retail, but airport departure terminals provide luxury brands with captive audience who often have several hours long dwell times at their disposal. The recent Chanel No. 5 AR-powered spaceship which appeared in Heathrow’s bustling T5 during the holidays is just one example. This engaging multi-layered activation included a scavenger hunt and luxury gift wrap to celebrate the iconic fragrance’s centenary. These pop-ups allow brands to capture new, potentially life-long international customers without incurring huge customer acquisition costs.

Digitization Is The Key to the Future

The next wave of luxury expansion will come through the digitization of travel retail. Prior to the pandemic, many of the biggest travel retail groups were experimenting with options for travelers to buy online, then pick up their purchase in the airport. World Duty Free offers travelers the ability to shop online to reserve their purchase anywhere from between 24 hours to 30 days before departure. Much of this rush to digitization cooled down when the entire industry came to a standstill in 2020, but expectations for a more omnichannel approach to travel retail are high. Brands can lead the way by treating travel retail as another of their owned consumer touchpoints. One of the biggest limitations to the size of the travel retail business is the limited amount of product options each shop can support. Why not open a brand’s full catalog to travelers who purchase a few days in advance for instant brand expansion? Special travel-only collections, which most luxury beauty brands already create, could be expanded to more doors. Clienteling to high-net-worth frequent travelers through loyalty programs, like Heathrow Rewards, dedicated sales associates, and partnerships with airlines can also help take this industry into the 21^st century.

Overall, the immediate future of the travel retail market looks very promising. Luxury brands have long taken advantage of the significant opportunities the channel represents to establish life-long relationships with new, international consumers, experiment with targeted and immersive experiences, and, of course, increase their global presence.