By: I M Smith
In 2009 I founded the website: ”dutyfreeonarrival”. The idea came to me after visiting Dubai for their golf tournament and discovering that I was able to buy cigarettes in their baggage hall store. Three years later I found myself sat in the Strasbourg office of Euro MEP, Philp Bradbourn, trying to convince him that Arrivals Duty Free was the best and most eco-friendly route to follow.
Sadly, Mr Bradbourn has since passed away, but at that time he was the EU lead for a policy related to regional airports which included the protection of airport retail. One initiative was legislation to stop airlines blocking the carry-on of outbound airport shopping bags (better known as ‘the one bag rule’).
At that time, the consensus Travel Retail view was that the traditional modus operandi of outbound sales should be protected. But, Mr Bradbourn didn’t really seem to understand how the market functioned. In fact he told me ”airlines just want to stop airport sales, so that they can sell their own cigarettes and liquors on board”. Actually, for intra-EU flights, airlines had already stopped all bulk sales of these (excise) dutiable goods on board because there was difficulty accounting for the (excise) tax on these real duty free product lines. So airlines had just stopped selling them.
Whereas, perfumes, cosmetics, electronics, confectionery, watches, jewellery etc. were never and have never actually been ”Duty Free Sales”. Only ”Tax Free”, with just the local Value Added (Sales) Tax levied on them, but not the special excise duties.
How times change. Almost a decade on and after the Covid Pandemic crisis, which has hard hit Travel Retail, Europe’s Travel Retail Association, ETRC, has recently announced that it will pursue a major push for ”Arrivals Duty Free Shopping”.
This initiative will be a major change in policy for Europe and it will encounter many complexities for all stakeholders – not least the Health, Ethical, Legislative and Fiscal issues.
As someone who spent a decade advocating the retail of Duty Free goods on Arrivals, it might seem somewhat odd when I now say that this is not necessary for EU airports, because the long haul that the ETRC will need to follow will be an endless, fruitless, bureaucratic battle, going nowhere fast.
Arrivals Stores: the key facts. Why ETRC and partners are likely missing a trick
- Flyers firstly want their baggage to move quickly on to their destination – regardless of whether they have checked or hand baggage.
- Arrivals duty free stores are not about conventional leisure shopping and browsing. They are all about convenience and last-minute or pre-ordered purchases.
- All this lends itself to fast turnaround retail, convenience and speedy fulfilment. An entirely different concept to outbound ”dwell time” stores. Certainly not applicable to ”walk-through”.
- Arrivals stores are the perfect location for digital, pre-ordered, e-commerce sales delivery, with fast checkout, well organised collection desks, lockers and swift ordering from mobile phones – right after disembarkation.
The Fiscal Rules for these Products are Simple
- ”Duty Free Sales” in the EU only actually consist of two categories: Alcohol and Tobacco
- All other lines are not ”Duty Free”, just Taxable, with Value Added Tax (the percentage level depends on each territory) – let’s assume around 20% of the retail price.
- Many EU airports already have Arrivals stores selling perfumes, cosmetics and confectionery at ”Tax Free” (equivalent) prices. Retailers do this by absorbing the local VAT Sales Tax , so to sell legally on arrival. In fact, no different to what digital calls ”Home Delivery”, where the local VAT is absorbed by the retailer and the goods are sent to your home.
- Therefore, all EU sales on arrival are currently Tax-paid goods.
- Some airports in the EU, like Spain or Portugal, already sell liquor or tobacco on arrival, even though these products are not actually allowed to be ”Duty Free”. They can only do this competitively because the local taxes and duties on these categories are low. This makes it viable to sell them on arrival – even with the tax included in the retail price.
Liquor and Tobacco: the two issues that inhibit Duty Free Sales on Arrival
- Tobacco is already highly restricted. Many retailers already refuse to sell this category online, and in some countries the sale of these products needs to be shielded behind closed doors. For sure, within a decade, tobacco will disappear from sale in Duty Free Shops. So that is effectively one category gone from any new Arrivals stores.
- Liquor will probably follow a similar route – slower, perhaps, and perhaps over a 20 year period. But the carry-on weight will become a much greater issue, due to sustainability requirements for airlines.
- Already Google and other search engines have restricted the online content marketing of these two sectors. This will inevitably affect digital sales.
So, the real Duty Free sales – be it outbound, but especially inbound – are on a declining and disappearing path.
This leaves us with all the other products that only attract Sales Tax, the largest sector being Perfumes & Cosmetics, followed by Electronics, Gifts, Confectionery and Food.
At present all these goods are retailed at the same price, regardless of the passenger destination – intra-EU or non-EU. In effect, there is no actual consumer price benefit for those who qualify as non-EU ”Duty Free” travellers. They pay the same as those moving within EU territories, and Travel Retail is not likely to create a dual price structure anytime soon, so to relinquish their VAT drawback.
Of course, what is already sitting there, waiting to be exploited, are all those potential fulfilment depots in Airport Baggage halls.
There is an industry-wide omni-channel just waiting to happen, but not so much about the wide range of products – more about the wide range of airport locations that airline passengers can use as collection depots for their digital purchases.
In essence, because the ETRC initiative would be more practical and productive, if they directed their efforts to integrate airport arrivals retail with their core consumers – airlines passengers – to find a way to create a genuine global EU omni-channel with delivery in any of 200+ airports.
Meantime, the customer just wants to buy, and he is not going to get a better price on that Calvin Klein – even if the ETRC win their battle in the years to come. If Arrivals Duty Free does get approved, the VAT will just go into the pockets of the retailers, doing nothing to stimulate greater sales.
Simply put, the airports have the stores with a massive range of products, whilst the airlines have the customers digitally captured in advance. To date, never the twain have met.
Essentially, this could easily be a pan-EU marketplace with all the facets just waiting to be put in place. All that is required is some lateral thinking and coordination.
I am quite sure that the likes of AirTraffix, AOE or many other digital players could easily get their heads around it. But can the industry and their trade body think outside the square and actually collaborate?
It’s a perfect innovative digital strategy which would capture all the traffic, whilst helping to save that rainforest! Buy online, deliver on the ground, less in the air.
Who knows, one day someone agile might just do it, realising that sublime fulfilment is the key criteria, and then use a brand name illustrating this vast expanse……… Amazon. As if?
Postscript by I M Smith: Dutyfreeonarrival didn’t work in the end. Killed by lack of support, SEO and COVID-19. But the convenient conglomeration of all the inbound outlets for consumers was our route. Eventually someone will do it and succeed. We are sure of that.