Will resilient travel retail combat a tough year?

Lois Pasternak

Lois Pasternak

Lois Pasternak, editor/publisher, Travel Markets Insider

Unfavorable currency exchange. Corruption in Brazil. A new government in Argentina. Falling commodity prices. Mosquito-borne diseases. Internet competition. From all accounts, it has been a tough year in the travel retail business in the Americas, with not much relief in sight.

The strength of the U.S. dollar has driven up the cost of American-made brands on overseas markets, and made travel to the United States and neighboring Caribbean more expensive for European and Asian tourists. The higher costs are translating into lower travel retail sales.

Brazil’s political crisis has spilled over into the economy, with the International Monetary Fund forecasting that South America’s largest nation could face two more years of recession and one of stagnation — its worst performance since 1901.

The impact is hard on travel retail sales in the region — especially on the border with Brazil, where sales are said to have fallen between 20-40 percent.

On top of this, the year has started off with warnings from the World Health Organization declaring that the mosquito-borne Zika virus was an international health emergency, with the U.S. Centers for Disease Control and Prevention urging pregnant women to avoid traveling to affected regions. These include large parts of South America and the Caribbean islands of Aruba, Barbados, Bonaire, Curaçao, Dominican Republic, Guadeloupe, Haiti, Jamaica, Martinique, Puerto Rico, St. Maarten, St. Vincent, Trinidad & Tobago, and the U.S. Virgin Islands.

A Reuters/Ipsos poll released in mid-February reports that 41 percent of respondents who are aware of the Zika virus now say they’re less likely than before to visit the Caribbean or Latin America.

Obviously, it is not the best of times for travel retail, but neither is it the worst of times. Passenger numbers at North American airports are breaking all previous records — Atlanta’s #1 ranked Hartsfield-Jackson, for example, was the first airport to serve over 100 million passengers in a year. Significantly for travel retail, U.S. airport authorities continue to upgrade and expand terminals and shopping opportunities as non-aeronautical revenues become ever more critical to operations.

Overall Caribbean arrivals increased by a healthy 7 percent to 28.7 million visits this past year — much higher than the 4-5 percent growth officials had originally predicted. While retailers tell TMI that the added traffic has not translated into more sales, shopping is still a major activity among Caribbean visitors. Widespread hotel and infrastructure expansions should bode well for the future — and tourism and health officials are working hard to bring the Zika threat under control. The opening of Cuba is also bringing unprecedented attention to the region from American travelers.

In South America, Argentina’s new government hit the ground running, immediately loosening currency controls, freeing up foreign exchange, and working to settle the country’s long-standing dispute with the U.S. hedge funds. Central America, connected as it is to the U.S., is also reporting healthy business and tourism arrivals.

The Americas travel retail business has weathered similar storms — and worse — in the past, and with patience and foresight, it is sure to come through this cycle as well.