Duty-free shop’s crisis in Covid-19 epidemic, digital transformation may be the Bible

 Synopsis

Global duty-free industry analysis

How Chinese consumers buy duty-free products

Duty-free shop’s struggle in 2020 & 2021

Digital transformation, the new Bible of duty-free shops

 

 

The wonderful concept of duty-free shopping began in 1947, when the first airport duty free shop opened at Shannon Airport, Ireland.

After more than 70 years development, the duty-free industry has formed a unique tourism consumption market. There are currently three common duty-free shops in the world: airport duty-free shops, city duty-free shops and outlying island duty-free shops.

The economic benefit of collecting taxes or duties is not justifiable in terms of the effort required to collect a small amount of tax from each arriving travelers though many countries have established limits on the dollar value of these exemptions, commonly known as ‘customs allowances.’ Consequently, international travellers have the opportunity to benefit from sensational deals that are not available in any other circumstance. Usually, the price of duty-free shops is 20% lower than that in the domestic market (taking cosmetics as an example).

 

 

Global duty-free industry analysis

 

During the period from 2011 to 2019, except for the short-term fluctuations that occurred under the influence of the MERS epidemic in 2015, the sales of the global duty-free industry generally maintained a good growth trend. By 2018, the global duty-free market has reached 77.4 billion U.S. dollars, a year-on-year increase of 12.8%.

2011-2020 the scale and growth condition of global duty-free shop

 

However, the duty-free and travel retail market was hit hard in 2020 due to the sudden fall in tourism amid the COVID-19 pandemic. The tourism sector has already felt the negative impact of the pandemic on its performance much earlier. Globally, travel restrictions and measures started as early as January 2020. Domestic and international tourists limited their travel due to fear of contracting COVID-19, which reduced the number of domestic and international customers for this retail channel.

From the tourist number, we can see, in 2019, the number of global tourists was 12.3 billion, of which about 1.4 billion were travel abroad, and about 10.9 billion were domestic tourists. By 2020, due to the global impact of the new crown epidemic, travel will be restricted. The total number of global travelers were only 7.3 billion, a year-on-year decrease of 40.8%, and the total global travel revenue will drop to US$2.95 trillion, a year-on-year decrease of 50.9%.

 

2016-2021 global tourist arrivals and total income changes (unit: trillion US dollars, 100 million person)

 

Asia and the Pacific (-84%) - the first region to suffer the impact of the pandemic and the one with the highest level of travel restrictions currently in place - recorded the largest decrease in arrivals in 2020 (300 million fewer). The Middle East and Africa both recorded a 75% decline.

The shrinking global tourism has further caused the global duty-free industry to suffer a heavy blow. According to the statistics of Generation Research, the global duty-free and travel retail market will fall by more than 65% in 2020.

 

How Chinese consumers buy duty-free products

 

Before the epidemic, the number of Chinese outbound tourists increased year by year. According to data released by the Ministry of Culture and Tourism, the number of Chinese outbound tourists reached 155 million in 2019, a year-on-year increase of 3.3%, and overseas travel expenditures reached $254.6 billion.

 

According to Oliver Wyman's China Outbound Travelers Survey Report, duty-free shops are one of the main channels for Chinese overseas consumption. About 37% of Chinese consumers' overseas consumption occurs in duty-free shops, including domestic and overseas airport duty-free shops and overseas city duty-free shops.

The shopping channels of Chinese outbound tourists

 

Duty-free shop’s struggle in 2020 & 2021

The global duty-free retail industry has been hit hard by the epidemic in 2020. Take Korean duty-free shops as an example. Because of their high profits, they have been hailed as the “goose laying the golden egg”. However, since the epidemic, the sales of Korean duty-free shops have decreased by about 90% year-on-year, and many airport duty-free shops have also been closed, Duty-free shops in the city have also closed or adjusted their business hours.

Compared with high rents, duty-free shops have a trouble because of their huge inventory. This sudden epidemic has caused the Korean duty-free shop industry to accumulate billions of yuan worth of duty-free goods. Worse, in South Korea, it is stipulated that duty-free goods which have not been sold for more than three years must be incinerated and destroyed in other treatments.

When no one leaves the country, duty-free shops will have no customers, and no sales.

 

 

Digital transformation, the new Bible of duty-free shops

Affected by the Covid-19 epidemic, the footfall of global duty-free shops has significantly dropped. Some duty-free shops have closed or adjusted their business hours, which has a greater impact on the normal operation of duty-free shops. Under this crisis, duty-free shops, which have always relied on offline stores, have also started new sales channel.

In August 2021, both the Paris Milan Duty Free Store and the OLARA Duty Free Store in Paris have reached cooperation with LinkieBuy, the world's largest cross-border digital service provider in China. Relying on LinkieBuy’s “SAAS platform + E-commerce supply chain + online marketing” model, Milan and OLARA gain favorable sales performance in China market, effectively make up for the decline in their offline business.

For overseas duty-free shops who lack cross-border e-commerce experience, the cooperation with LinkieBuy is an effective way for their entering Chinese online market. With the Mini Program on WeChat, Chinese consumers can directly order online through the important breakthrough for their online business in China. Chinese consumers can directly order online, and the duty-free shops direct mail to customer home.

From the establishment of the most basic SAAS store to the customization mall according to the specific conditions of overseas duty-free shops, LinkieBuy provides a full range of cross-border digital business solutions for all duty-free shops. In the future, LinkieBuy will also work hard to assist more overseas duty-free shops to complete the digital transformation of their business in China.