The twists and turns of the travel retail industry

Martin Moodie

By Martin Moodie, Founder & Chairman of The Moodie Davitt Report

I’ve been covering the travel retail sector for 30 years — a three-decade rollercoaster ride of reporting that has never lost its fascination for me.

Besides being an intriguing, complex business in its own right, travel retail is rendered eternally compelling by its often precarious relationship with geo-political affairs. There can be few sectors so directly impacted by external circumstances, from currency fluctuations to natural disasters, political upheaval to terrorism.

How many industries have encountered so many “black swans” (unpredictable events that devastate an organization or sector) as travel retail? Remember the Eyjafjallajökull volcano cloud of 2010 that paralyzed air travel in much of the Western Hemisphere? What travel retailer could have possibly predicted that their business would be ravaged by a seismic eruption thousands of miles away in Iceland? Or the terrible events of 9/11 and the resulting first Gulf War that so devastated world tourism? Do you recall a health crisis called SARS in 2003 that meant if you sent a bowling ball down the concourse of many an Asia airport, your chances of hitting anyone would have been neglible? And, more recently, the deployment of a U.S. anti-missile system in South Korea that has prompted a potentially catastrophic tourism and shopping boycott by the Chinese?

That constant vulnerability to events that not even Nostradamus in his prime could have predicted makes travel retail’s reliance on a blind auction model for its commercial concessions a very dangerous game. The unrelenting advance of e-commerce in the 21st century has only added to the perils of projecting spending levels through the term of a contract. What happens if traffic goes up and spending comes crashing down, especially if a contract MAG grows more onerous in the former circumstances? Ask DFS at Hong Kong International Airport, which bid at the top of the Chinese spending wave in late 2011, yet was forced to watch haplessly as President Xi Jinping’s joint crackdown on corruption and conspicous consumption eroded high-end sales with a ferocity that sent the business into a disastrous tail-spin.

Whether it’s San Francisco or Shanghai, Hong Kong or Houston, contract bidding is a notoriously parlous game. And it’s getting tougher all the time. There are more black swans out there. The trouble is, by definition, we cannot see them.