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TFWA China Reborn 2020

TFWA China Reborn – TFWA President Alain Maingreaud

In his opening speech to delegates at this morning’s TFWA China Reborn virtual event, TFWA President Alain Maingreaud highlighted the importance of coming together as an industry, as the business adapts to what he described as a “changed world”.

He said: “Virtual meetings have been a lifeline for many, enabling businesses to continue and families to stay in touch. They have allowed our industry to overcome the communication challenges posed by COVID-19, but we know that direct human contact is the basis on which our business is built and prospers.

Maingreaud reminded delegates of the progress made by the duty free and travel retail industry in recent years, with sales continuing to grow up until the outbreak of COVID-19.

“It seems an age ago, but 2019 finished on a positive note for duty free and travel retail, with total global sales reaching US$86.4bn based on the latest data from Generation Research. That represents an uplift of +9.9% versus 2018.” This is absolutely remarkable.

However, this growth swiftly turned negative as coronavirus spread at the start of the year, with few predicting a fast recovery following weaker demand for air travel in August and September,

Maingreaud said: “The extent to which our world has changed would have been unimaginable 12 months ago. The disruption to international travel brought by the pandemic has already been covered extensively in the trade press, and the resulting impact on our industry is something we have all faced directly since March of this year.

“The International Air Transport Association recently revised downwards its passenger traffic forecast for this year, predicting a drop of 66% versus 2019. That seems entirely possible based on the Airports Council International assessment that international passenger traffic fell by 64.5% year on year during the first half of 2020.

“In October, US aircraft maker Boeing, usually more optimistic in its forecast than European rival Airbus, lowered its expectation for global passenger jet demand over the next decade by double digits, as airlines around the world cut their fleets and bring forward the retirement of other planes. Boeing’s vice president of commercial marketing is quoted as saying it will take five years or longer to recover to the long-term trend. And when demand returns, will airlines still have the capacity to satisfy it fully?”

Despite the “considerable commercial and human pain caused by COVID-19”, Maingreaud said it is clear that new possibilities are emerging in the duty free and travel retail sector. He highlighted new developments in China, which has seen the fastest economic recovery of all global regions since the start of the pandemic.

“China’s duty free and travel retail market is prime example of what can be achieved when stakeholders proactively embrace change in a supportive, regulatory environment. The Chinese government’s success in bringing the pandemic under control and the strength of the subsequent economic recovery has helped fuel the substantial rise of sales to Chinese travellers in off-shore and downtown duty free stores.

“The surge in domestic tourism has increased footfall at these outlets. But it is the government’s new duty free policy for Hainan island, added to the development of new free trade ports, that is playing a decisive role. In July, the annual shopper allowance was more than tripled to around US$14,000 for purchases made on the island. The range of goods available there has also been expanded to include wines & spirits and tobacco, along with smartphones, laptops and other high-demand items.

“In addition to these changes, the award of three new duty operating licenses this year, two of them for Hainan, is encouraging an element of competition among operators. The results have been impressive. In the four months ending 31st October, more than 1.7 million people visited Hainan’s duty free stores, a rise of 59% on the previous year. Total duty free sales were over three times the 2019 figure at US$1.81bn.

Maingreaud highlighted the success of China Duty Free Group as further proof of China’s economic resurgence, with CDFG becoming the world’s largest travel retailer by revenue for the first six months of 2020. He added that the group’s CDF Mall in Sanya had benefited from several high-profile summer activations by prominent luxury and duty brands, including Ray-Ban and Shiseido, which had used strong digital elements to amplify their effect.

Maingreaud said: “Interactivity, virtual reality and live-streaming, have all served to boost shopper engagement on the ground and, just as importantly, extend the reach to wider audiences of potential travellers online. While not new to travel retail, these digital tools have become essential at a time when our global industry urgently needs to attract and inspire shoppers. Brands and retailers operating outside China will be keen to learn from this experience.”

With the pandemic bringing e-commerce to the fore in markets around the world, Maingreaud said China will be at the epicentre of the next stage of development within duty free and travel retail. However, while online and digital would be “crucial” to the industry’s short- and long-term development, Maingreaud said bricks-and-mortar will continue to play a vital role. Over recent weeks, a number of leading brands have chosen to open new boutiques in Sanya, clearly seeing the benefit of a physical retail presence at high traffic destinations like the CDF Mall.

Maingreaud said a similar blend of physical and digital elements will likely be the formula for future TFWA events, including the forthcoming TFWA Asia Pacific Exhibition & Conference taking place from 9th to 13th May next year.

“Given the present uncertainty affecting international travel, we are keeping an open mind about the format of this event. We will take into account the wishes of our own members and the wider industry, as well as local conditions throughout the region as we make our plans. Yet Asia Pacific’s importance to duty free and travel retail makes a regionally focused event essential, whatever shape it takes.

“More than ever at this difficult time, TFWA’s role is to bring our industry together, whether in person or virtually, as part of our mission to provide the business with the platform for growth.”

While the pandemic is having a devastating impact on duty free and travel retail business, Maingreaud said operators must continue to adapt and “not retreat from the progress made over the last decade” in order to prosper when passengers finally return to the skies and seas.

“Once seen as channel only capable of selling a limited selection of high rotation products at a saving to domestic markets, our industry has in recent years managed to build vibrant retail environments that can rival the best on the high street. Our stores now offer an eclectic mix of brands. The increasing use of technology is creating a more engaging shopper experience.

Maingreaud made a powerful statement by sharing that “Our appeal to travellers when international traffic resumes depends on our ability to generate excitement in store. We must harness that ability to emerge stronger than ever from the pandemic.”

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