Will 2015 be a year of contradictions in travel retail in the Americas?

pasternakBy Lois Pasternak
Editor/Publisher, Travel Markets Insider

Travel retailers in the Americas have started the year facing a slew of contradictory conditions.

On one hand, tourism numbers and airport traffic are soaring to record heights, traditionally a bright omen for duty free sales. And new and remodeled airports, as well as new cruise ships, made more room for bigger and better stores. But instead of ringing cash registers, operators in channels across the travel retail spectrum are reporting a growing number of challenges to their businesses.

Eroding margins, currency problems with Europe, intensifying competition between channels, Internet sales, and U.S. discounts top the list of market conditions plaguing the travel retail sector in the Americas this year. For South America, add in a down economic cycle and sporadic issues such as taxes added to credit card purchases abroad to see why retailers across the region are worried how the year will pan out.

America’s reputation as a super attractive shopping destination, caused in part by the strong euro versus a weak dollar, took an abrupt turn at the beginning of the year. The move by Geneva to remove the cap on the Swiss franc hit the value of the euro hard, while the healthy U.S. economy pushed the dollar higher. The consensus is that the weakening euro will certainly impact the travel retail business in the Americas in 2015. With prices up by as much as 20 percent, tourists from Europe might think twice before coming to the U.S., and might well hesitate before buying liquor or perfume or confectionery in duty free, observed a number of suppliers contacted by TMI.

The Caribbean welcomed more than 26 million tourists in 2014 — up more than 5 percent over the previous year — and these tourists spent a record $29.5 billion, reports the Caribbean Tourism Organization (CTO). And the Cruise Lines International Association said that 22.1 million people took a cruise last year, and predicts that number will grow to 23 million in 2015. In the Caribbean, the CTO reported that 21 of 24 island destinations reported cruise arrival increases.

“Traffic is up and the ships are coming,” confirmed one port retailer, “but the ships are learning to keep more of their revenue onboard with fewer port calls and more visits to private islands.” Meanwhile, the cruise industry said it is competing by upgrading its store and onboard offers.

As for competition from the Internet? Online selling has now reached the point where it is having an impact on our business, commented several store operators.

And margins? Retailers are scrambling to perfect their assortments as the price differential between duty free and local markets disappears: Some of our traditional best sellers are now more expensive than the regular price back home, argued one retailer.

But the travel retail/duty free industry is nothing if not resilient, and several of these issues may well be transitional. Travel Markets Insider examines the Americas market in great depth in our issue available at the IAADFS Show of the Americas. We invite you to take a look and get back to us with your input.