Growth opportunity across borders

IAADFS Board Member Enrique Urioste offers his take on the border duty free industry in yesterday morning’s education session.

In yesterday morning’s education session, “Border Duty Free — Crossing the Frontier,” leaders in the border duty free industry shared their insights into the unique challenges and opportunities presented in border duty free stores. Peter Mohn, Owner and CEO of m1nd-set, moderated the panel, which included Simon Falic, Chairman of Duty Free Americas, Inc. (DFA); Abe Taqtaq, Vice President of Windsor-Detroit Tunnel Duty Free Shop Inc.; and Enrique Urioste, Chief Executive Officer of Neutral Duty Free.

Each speaker addressed his unique viewpoint on issues affecting the industry as a whole. All Canadian border duty free stores are independently owned and operated and represented by the FDFA. According to Taqtaq, Canada is seeing a rise in tourism from the U.S. as more people have passports and the currency exchange rate increases. The country has a captive market for border duty free stores, as the majority of travelers cross the border by car.

Border duty free stores offer a unique opportunity for suppliers to showcase their products in a manner consistent with their brand image, backed by highly trained sales staff. “Value is critical to the success of a channel, relative to market conditions,” Taqtaq said. “Showcasing brands with a value proposition offers a significant opportunity to encourage experimentation and premiumization within stores.”

The region has faced challenges over the years, such as falling currency exchange rates and the fact that some items are available in multiple channels, such as big-box retail stores. The market has faced those challenges and is now gaining strength as it engages current and potential customers by using social media channels to keep duty free shopping top of mind and continuing to source unique, local products to create a point of difference.

In Latin America, people drive in their cars with their families to a border duty free store. The shop itself can be a destination, not just the country, which presents its own set of challenges. The industry there suffered cuts to margins when it moved to match U.S. duty free prices, and its stores also compete with big-box stores in Brazil, which offer some of the same products. “We’ve faced the need to prepare stores, our product mix, and our staff to differentiate between a domestic and Brazilian tax point,” Urioste said.

Times of crisis, which Latin America has seen plenty of over the past few years, lead to change and opportunity. Border duty free stores have gotten creative, forming alliances with bus and hotel companies to force traffic to stores. “The region is on a footpath to recovery. It’s a healthy channel that’s not maximized, but it should be. I’m optimistic that 2017 will be a comeback,” said Urioste.

Representing stores on the U.S. side of both the Canadian and Mexican borders offers a mixed view of the industry. For these stores, issues such as traffic levels are key. When passing through rigorous border customs procedures, if people notice shorter lines to drive through, they’re more inclined to stop at a duty free store, according to Falic.

There is a focus on value, on exclusive products, and souvenirs with a local flair in these shops. “Border shoppers are frequent buyers,” Falic said. “That makes them very price sensitive.”

Abe Taqtaq concluded with a message that echoed the sentiments of all three speakers: price. In order to get people into stores, it’s about constantly working with suppliers to be able to give consumers the best deals and stay competitive, as products are continuously offered through other channels.

“Think about articles you’ll see with titles like, ‘Is duty free really a value?’ If that’s the message, there’s no reason for people to come to our stores. Think about all the steps a consumer has to go through to buy duty free. Price will always be the number one factor for me,” Taqtaq said.