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The Evolution of Duty-Free Retailing: Past, Present and Future

Global duty-free retailing market to see strong growth in coming years

With a CAGR of 7%, the duty-free retail market has delivered consistent strong growth since 2000. This success has been despite major terror incidents, regulatory changes in the EU and the worst recession since 1929. With further investment planned and traveller numbers expected to rise, duty-free retail is forecast to grow strongly to 2016.

The duty-free retail model is different to most retail business model because so many airports adopt minimum annual guarantee (MAG)-based rental structures. This results in landlords having a larger role in delivering footfall than ordinary retail landlords do.

Whilst duty-free retail occurs through a multitude of channels, including inflight retail, the vast majority of duty-free sales occur through airports. The indications are, however, that on-board duty-free is likely to be one of the fastest growing channels due to a boom in the luxury cruise market.

The mix of travellers flowing through airport terminals is changing. Bolstered by a rising middle class, affluent travellers from across the developing world are beginning to form a much more important segment for duty-free retailers to cater to, and Chinese consumers, in particular, are of great interest given the growing importance of luxury in the duty-free retail world.

Having been the bastions of the duty-free world for so many years, both tobacco and alcoholic drinks are beginning to lose their appeal. The abolition of intra-EU duty-free trade and the rising importance of emerging market consumers has meant luxury goods have gradually started to replace them.

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