For more strategic insights and compelling content, visit TheRobinReport.com, where you can read, watch, and listen to content from Robin Lewis and other retail industry experts, and be sure to follow us on LinkedIn and Twitter.
For more strategic insights and compelling content, visit TheRobinReport.com, where you can read, watch, and listen to content from Robin Lewis and other retail industry experts, and be sure to follow us on LinkedIn and Twitter.
Robin Host 00:00
Hi everybody and thanks for joining our weekly podcast. I'm Robin Lewis, founder and CEO of the Robin Report, which, by the way, is much more than a daily report. It really is a knowledge platform from which we communicate thought leadership on various strategic topics. Yes, through the daily reports, but also these podcasts and webinars. We may get into some live events a little later, along with our Chief Strategist, Shelley Cohan, also a professor at the Fashion Institute of Technology. We welcome you to our conversation on the topic of travel retail.
We have our special guest today, Roula Helaway, associate Partner at Columbus Consulting International, which also is a sponsor of the Robin Report. She is a real expert in the travel retail experience. By the way, travel retail has been on the rise for the decade leading up to the pandemic, growing from a $43 billion industry back in 2010 to $86.4 billion in 2019, doubling its size. Then, of course, as we all know, the pandemic shut down most travel, ironically, taking back those 10 years of growth. In 2020, travel retail was back down to $45 billion. Now, however, cloud has lifted and consumers have started traveling, but it's a new day, really, and a new age for travel retail. Roula, let's start by describing for our listeners just what travel retail encompasses, what it is, and then understanding the growth of the total travel retail market.
Shelley Co-Host 02:15
Thank you, Robin, for having me on the podcast. So, to answer your question, travel retail really refers to any retailers who cater more specifically to tourists, visitors, travelers in general, be it in the leisure business or, like the group, traveler market. This can be retail outlets at venues such as airports, train stations, metro stations, cruise ships, maybe hotels and casinos, and department stores that cater mostly to travelers, as well as some entertainment venues who really specifically target out-of-town visitors. In terms of the growth of the travel retail market, there's significant amount of research and several events and forums that are out there that are projecting the market size at this moment, especially post-pandemic. So, to give you just some idea of some stats, the global travel retail market size, as you said, was valued at $55.74 billion in 2022, and it's projected to end 2023 at $60.72 billion.
03:30
So the view of some of the key research consulting firms, such as Fortune, business Insight, straits Research, Ayata, the Kearney Report and several others, is that the market's expected to grow from that $60.72 billion in 2023 to an estimated value between a low of $117.18 billion and a high of $176.27 billion by 2030. So it's incredible. That, of course, is dependent on which one of these consulting firms you listen to. So, depending on that projection, there's a big spread there, but really the spread is really anywhere from a 9.85% to a 16.45% compounded annual growth rate Tremendous.
Roula Guest 04:21
Wow, that growth rate is crazy, unbelievable. I want to go back to something Robin said about the pandemic just for a second, because I think future strategies that retailers employ will be impacted by resources, and I'm really referring to human capital. So during that drop of like 48% in revenue for travel retail, companies doing business in that space had no choice but to cut the workforce pretty significantly. So if you look at as an example, Dufry, one of the largest I think it sits around number four in travel retail had to reduce its staff by 50, 50%, 50% Now, as the business is now ramping up and one of the challenges is getting the right talent to support the travel retail industry, which is a changing dynamic in terms of consumers and retailer operations. So, just starting from an operating perspective, what are some of those challenges for retailers? Roula?
Shelley Co-Host 05:24
I think, Shelley, you make a great point. During the pandemic, you were damned if you did reduce your workforce and you were damned if you didn't. So, regardless, you just didn't know which side of that you had to be on. But, as you said, getting that right people, getting people in general and then getting the right people in the door who are looking to build a career but who are also very customer centric, is probably one of their biggest challenges right now. Add to that the challenges of every retailer, not just traveled retail. They're really not too dissimilar.
But for travel retail, you've got traffic, so foot traffic in general everywhere has declined due to many factors, and so you've got passenger traffic. In the case of travel retail, it hasn't recovered to 2019 levels. In some markets, such as North America, it's surpassed 2019. But in other markets it's not expected to come back till 2024 or 2025, depending on which of those you look at. And then, of course, add to that business travel. Right, it's changed drastically post pandemic and you've got video conference and capabilities in place and therefore that business traveler is just not expected to come back anytime soon at the level they used to travel before. You've got customer needs that have changed drastically. They're just not looking to travel to a destination and get the same product as what they used to get in their home country. What's the point? So they're looking for that uniqueness and experiences.
You have airfare and hotel rates that have skyrocketed just to keep up with interest rates and labor rate hikes, as well as just higher overhead costs, so that travel for an average couple or a family is just much less affordable than ever before. And then I would say the last few are higher base rents and minimum annual guarantee rents that landlords are expecting. They've just impacted how a travel retailer really operates. They now have to decide does it make sense for me to stay at this location? Can I afford it? And that flexibility around rents from the landlords has just lagged significantly behind that. Passenger traffic recovery. You've got also the dynamic sort of an AI driven technology that's coming about, as well as just passenger data transparency, and that's going to be a challenge for travel retailers because they need to project accurately and they need to be able to pivot quickly, and that has never really been more important than now. And, if I have to add another layer, lastly, really the ongoing geopolitical issues across the globe.
They've just impacted everybody's sense of security. So the vast majority of travelers are questioning why travel If I have that some retail offerings near my home and close by? And is there a value proposition in traveling? I'd rather stay close to home. I don't want to be stuck somewhere where I can't come back home, be it because of pandemic, be it because of war, be it for something else. So a lot of different things going on.
Roula Guest 08:49
Well, I think those are all great points, and let's talk for a second about the changes in the consumer and their buying behavior. I mean, if you look at travel retail consumers customers who are shopping in these retail environments they do it to either shop duty free or to gain access to brands that they otherwise can't get in their home areas. But here's the thing that's really important to understand and consider this consumer that shopped travel retail back in 2019 and before it is not the same consumer shopping today. So what it means it's time for retailers to rethink travel retail in a major way.
Shelley Co-Host 09:31
Absolutely. I think, Shelley, you're spot on To get to that growth and they really need to appeal to a new and discerning customer. It's not the same generation. They don't have the same likes. There are a lot of differences, be it that the pandemic has pushed some of those or it's just really growth that's happening faster than expected.
But in order for retailers to really get to that growth and appeal to those customers while boosting conversion and spend and protecting their margins and remaining profitable, they've got to do a lot. They have to reinvent their offerings. They have to optimize their operating models, invest in people, as we said earlier, and definitely in technology and data, and just revisit the way they look at things long term. Their whole long term strategy needs to get a really good look and whatever they did do as a five year strategic plan a few years back, that's out the window. They need to rethink and think differently.
I did touch on some of those key challenges earlier but, of course, one that really warrants some time is that rise of AI. It's upending how retailers forecast, how they operate, how they remain relevant and profitable and still juggle all these other variables and challenges and stay really true to themselves and remain healthy as a company be able to operate. As I said earlier a little bit about the passenger traffic, it's not expected to return in most markets till 2024 and maybe in some cases 2025. But what's interesting is, while the average spend per passenger exceeded traffic in 2018 and 2019, what we're seeing now is that that average transaction value is ahead of 2019 levels, but the average spend per passenger and the conversion are still below 2019 levels. So what that really means is that consumers are buying higher priced items, but they're spending less on an overall per passenger basis. So that begs the question is price the main motivator for all these consumers to buy?
Robin Host 12:08
Oh boy, yeah, what a point you're making here. Well, you carry this whole pricing issue over into the mainstream retail and, as I have said over and over again for several years, it's like a race to the bottom. I mean, it gets ridiculous. And I'm always in the mindset, by the way, that retailers cannot build sustainable strategies based on price Agreed, agreed, that should be a no brainer, it should be absolutely. I've often said that common sense is the definition of brilliance. So the key, I think, for all brands in this kind of omnichannel, omnipresent environment is to offer a unique value proposition that can't be easily copied and offered by its company Competitors, and that, of course, is a no brainer too. So when we add in the travel component of retail, the whole experience of travel has changed, as you guys have been pointing out, since the pandemic. Of course, less flights right, more cancellations, fewer choices and, as you rule, as you threw in the geopolitical issues, the wars and everything going on. Now that's going to do other things to that part of traveling.
Roula Guest 13:39
Well, I also think that everything you just described, Robin, plays into the psyche of that consumer and their shopping behaviors. So, Roula, I'm going to ask you what key changes have traveled retailers seen in this customer behavior, shopping habits, demographics, post pandemic?
Shelley Co-Host 14:03
So again, is it really due to the pandemic?
Is it really due to just the market being faster, growing faster than we expected and changing faster than we expected?
It's hard to say, but the travel retail habits of social media influencers and Gen Z have certainly changed the way your average consumer travels.
I mean, now you've got people who are going out there looking for experiential offerings that you can't get somewhere else versus just a transactional offering, similar to what Robin was saying, that value proposition cannot be just based on a price and you shop around. Now you've got lots of opportunities to shop around online and find that good price, but you want to really find that different experience, that unique experience. And you've got all these social media influencers who are going out there traveling, doing these unique experiences and then sharing it out there to their influencer peers, influencer followers and people want to do what other people do, so everybody wants to copy Like I want that experience. So if you look at some statistics, only 30% of Gen Zs are really saying that price is the reason they buy, compared to 42% of boomers, which is quite a big variance between the two. That's 12 percentage points right there, and you've got 40% of Gen Z saying that the shopping experience is the main driver to buy and only 14% of boomers buy because of that shopping experience.
Robin Host 15:44
And there you go, that huge gap there.
Shelley Co-Host 15:48
So one of these statistics out there is that Gen Z is expected to represent more than 50% of passengers by 2025. So it's really important for travel retailers to really wake up and start to think differently and think of ways to cater to these guys sooner rather than later, because they have just tons of options they don't have to purchase where they travel. So it's really important to think about all these things. And, of course, sustainability is a big topic at the moment Sustainability of products and experiences. It's affecting all generations. They all look at it in a different way, they all care about it to a different level, but everyone's talking about it. How do we preserve our planet? So they're looking for those curated offerings that reduce the carbon footprint while still giving the travelers a unique and personalized experience. So travel retailers have to think of how do we give them that experience. How do we give back in? Not a way, that's either cash or just showcasing a product that was sustainably curated.
How else do we give back?
Robin Host 17:05
Well, this whole Gen Z phenomenon culture really is like a tidal wave over all industries, and that on top of the pandemic, I mean the major changes of all types, many of them you've been talking about. It's really got to be a huge challenge for retailers across the board and I don't care what industry to be able to understand where the arc is, where is the growth, and one of these Gen Zers want that we have. You know, travel retail of the past was very much kind of a cookie cutter approach, right, nominated by a few big companies, like how the legacy brick and mortar brands once owned the retail market. I mean, I think back in the 80s the department stores, probably the 70s, the department stores had the major share of general merchandise, and that percentage of their share has gone down remarkably. So I don't know if the travel retail is going to follow that path or not.
One thing, however we do note that the once eyes fits all approach doesn't work anymore. I mean, customers want individualized offerings, right and attractive experiences, and of course those experiences can be anything from hand touching items in the garments or whatever, or just a wonderful experience in the entire travel thing, whether they're going across country or into Europe for some reason. But anyway, you're the expert here, and so how are companies kind of differentiating themselves to regain customer loyalty, personalize their offerings to each customer and how to boost their spend while at the same time improving margins in the bottom line?
Shelley Co-Host 19:29
So yeah, Robin, I mean you said it one size does not fit all anymore. You just can't offer the same thing over and over and that cookie cutter approach has long gone and it's not coming back. And I think the key is that travel retailers really have focused more on transactional in the past, because most of those customers they've had are quite wealthy, don't need much convincing into buying in some cases they're coming, they know what they're looking for, they've done some research and they just want to go for the product and it's a rather easy way to sell them. Well, that's not the case anymore and they're now looking for different ways to be appreciated. So, aside from the fact that they're looking for unique offerings, exclusive offerings, they're looking for different ways to get appreciated.
So travel retailers have to come up with ways to provide that instant reward benefit versus that traditional, old fashioned loyalty program where you have to buy a lot, you have to accumulate points, you come back at a later date, you redeem those points. In some cases some of the travel retailers they offer like concierge services and they offer sort of lounges and things of such. Those are appreciated, but those are also old school ways to really appreciate the customer in some cases. So it's important to give them that sense of definitely a customer centric approach. Having more staff on the floor is not as important as having the right staff, who's going to cater to their needs, who's not following them around and looking to make sure they're not stealing something or eyeing them up and down to see how wealthy they are and how much they can spend. Those are all things that have happened, so it's important to get the right people.
It's also very important to look at offering these exclusive private label offerings and you have sort of these exclusive events which will distinguish them from their competition.
You've got some of these brands that are represented within a square mile two or three times, in some cases in a traditional retail, in some cases in a travel retail format and why will I buy here than buy over there is going to be important and it's going to be really based on this experience you're going to give them that's exclusive within your store.
So they're being more discerning, I think, in their employee selections and they're dedicating more resources to training and enhancing their skill set of their employees, just so that they can cater to the right customer needs. I worked for Ritz Carlton for many years and it's very true that you've got to get that right level of employee who cares enough that they treat that customer like their own home and they're welcoming that customer to their own home. So, and I think you know, definitely a big investment, but a very much needed piece is investing in technology and data to just support that more agile business analytics and that ability to project and model and, you know, be ahead of the game versus constantly being in reaction mode. So those are also some of the key areas that they really need to focus on to continue to differentiate themselves.
Robin Host 23:14
Yeah, I'd like to jump in here. One example, Roula, and I'm really glad you brought it up in terms of retail and Blake Nordstrom told me that you know, and they, of course, are the poster child in terms of service, I'm sure, absolutely in the industry. Blake Nordstrom told me it made it very simple for me. I said Rob, and he said we can teach anybody the business of retail. We can't teach them how to be just a nice person.
Shelley Co-Host 23:48
Now, you know, you know, 100% yeah 100%, that's it I mean.
Robin Host 23:53
so they do away with all of these different qualifiers in terms of getting a job. They you just I think we all know when we meet somebody, that's just a nice person. They're full of empathy, you know, whatever. But I had to throw that in there because Absolutely.
Shelley Co-Host 24:12
I think, empathy right Having that natural empathy, that care, that desire to how others is absolutely critical.
Roula Guest 24:21
Yeah, Robin. In my early 20s, one of the first things I ever learned was hire for attitude, train for skill.
Shelley Co-Host 24:30
There you go, 100 percent. Yeah, can't say it better.
Roula Guest 24:35
But so these millennials in Gen Z are actually doing more traveling than the plus 50 age group. According to some survey data that I recently read on US travelers, this is United States and 42 percent of frequent travelers are millennials and nearly 70 percent are male in the US market, which I found really fascinating.
Shelley Co-Host 24:58
Here are some other interesting facts.
Roula Guest 24:59
Here are some fun facts on the target audiences of frequent travelers. In the US, frequent travelers typically have a higher annual household income. You already hinted to that already. Success and career advancement are relatively important to frequent travelers. Here's a good one Twenty-one percent of frequent travelers are innovators or early adopters of new products, so that's a key for travel retail to understand that. I think that's really interesting. The two other last stats are a relatively low share of frequent travelers thinks that rising prices, inflation and cost of living are issues that need to be addressed. It's probably not a good thing on that one, but frequent travelers remember seeing ads that are on editorial websites or apps more often than the average consumer. So that's a little marketing tip out there about frequent travelers.
So, based on this younger demographic and growing use of technology among these frequent travelers, how are traveler retailers leveraging technology to provide a seamless experience or interactive customer shopping experience? How are they using it to improve their service offering? Boosting, as you said earlier, they got to boost spend and conversion. How is that happening and how is technology playing a role?
Shelley Co-Host 26:29
No, absolutely Shelley. To address one of the things that you actually said, just a little bit off topic before I answer your question, is that 21 percent of frequent travelers being innovators or early adopters, it's really that sense of curiosity. They have that tremendous sense of curiosity that they want to explore, they want to experience and they want that to be a relatively easy experience. They don't want to deal with lines and waiting and they don't want to take away from the experience. So, taking that a little bit and looking at how a traveler retailer is leveraging technology, it speaks to it right Like touchless payments, touchless payment solutions, self-checkouts, buy now, pay later. All that is an ease of an experience. It's way to make it easier for those travelers, while it's more logistical than really giving them something unique or anything. That's perfect for these new generations, because all they really want to do is get in, there, get out, do what they need, move on to the next thing. Their sense of, and desire to stay in one place to do one thing is slim compared to older generations.
Travel retailers are looking at those solutions. They're looking at the Amazon Go solution, where you go in a store, your credit card is already on file, you grab whatever you want, you walk out. It charges you. You don't really have to do much. You don't have to talk to anybody. You don't have to do anything if you don't choose to. Then they're doing things such as like digital shopping, partnerships with airlines and that's more specific to duty-free offerings, but they're still looking at ways to put themselves with partnering with other type of service offerings. Especially important is thinking about localizing their offering. It's not about anymore a brand taking whatever they sell in one place and distributing it everywhere else and not having some element of localization. That element of localization is key. It's important for me when I'm traveling, to feel like I'm getting a little souvenir or a little something beyond just a knick-knack that reminds me of this experience I had. Those are some of the technology and some of the things that they're looking to do.
Robin Host 29:13
Well, we've really touched upon a lot of the challenges and opportunities for retail travel. So, from a macro level, what do you think the future of travel retail looks like and what are the top challenges it will face to get there? Some of them you've probably already covered, but also, in addition to what we have discussed in terms of, well, labor costs and geopolitical issues, yeah.
Shelley Co-Host 29:46
I mean yeah, that crystal ball right, that crystal ball of, I think you know, aside from all the things that we already mentioned, you know, and aside from them needing to pivot fast enough to get ahead of all these challenges, you know that are coming down the pipeline and then you change, is coming down the pipeline, you know, I think probably a very key area that we'll be getting, you know that we'll be needing to happen, is all of these partnerships across, you know, a customer's journey.
Let's call it getting some holistic partnership between all those stakeholders who are really trying to attract the customers you know is going to be key. Sharing data across that like, for example, passenger traffic flow, passenger spending habits, what brands they like, what brands they don't like, how much does their average spend, you know, sharing that data, while a lot of the companies, you know, find that this is, you know, personal data. I'm not going to share this. This is confidential. It's going to help, you know, provide a betterment to the whole industry. You know, I think everybody will benefit, instead of just a specific stakeholders profitability benefiting and over time, you'll find that maybe one stakeholder is ahead of the other, but everyone is going to get faced with these challenges.
Robin Host 31:13
So if they can unite and find a way to collaborate, it's going to improve everybody's top line as well as everybody's bottom line, you know yeah, and I remember way back in the early 80s, when I was at the VF Corporation, we were given a presentation by a consulting firm I don't think it was Columbus at the time, anyway but I will never forget the one comment made by this consultant. He said in the future we will not be competing in price, we will not be competing on necessarily on style, on product. He said, we will be competing on information.
Roula Guest 32:06
Yeah, and that was what 50, 40 years ago.
Robin Host 32:11
Anyway. But so the, of course, the one dynamic which is still mind boggling because it still hasn't settled out in my mind, that has really kind of reshaped the whole strategic and structural elements across all consumer facing industries, you know, has been the pandemic and its after effects. Essentially, I believe, it resulted in changes in consumer behavior, certainly including the fundamental cultural shifts of the Gen Zs. So anyway, Roula, you've given us a lot of wisdom today and I am sure our audience learned a lot. I certainly did, and I'm sure Shelley did as well. So I'm sure you've learned a lot as well as your Shelley did as well. So you were terrific and thank you so much for your time.
Shelley Co-Host 33:05
Thank you both. Thank you for having me. I really appreciate the opportunity and I learned a lot from you guys as well, so thanks a lot Good.
Roula Guest 33:14
Well, thank you so much. By the way, how can people find you if they wanna reach out to you? What's the best way to get in contact with you?
Shelley Co-Host 33:22
Probably on the Columbus Consulting website, but they fits. You know, my email would be my first initial and my last name at columbusconsultingcom, so if they reach out there, they should be able to, you know, connect with me.
Roula Guest 33:39
Excellent. Well, thank you so much. It was great having you with us today and for our listeners. You can find more of our podcast on Apple, Spotify, Buzzsprout and therobnerport.com, and don't forget to follow us on social media. Link in with us for the latest thoughts about the industry.
Robin Host 33:56
Yes, Shelley and I just wanna add a final thank you note and, as I do every week, you know, if any of you out there has a topic that you would like Shelley and I to cover on these podcasts, just shoot me an email. It's RobinattheRobinreportcom and thanks. So much again. Thank you, Roula.