Travel retail’s future will hinge on rapidly evolving luxury shopping

The world is on the move again. But amid this resurgence, travel retail — a long-standing symbol of luxury and exclusivity — finds itself at the crossroads.

One might assume that this resurgence would naturally translate into a boon for travel retail, yet the reality is more complex. Recent reports have shown that major luxury brands like Gucci are experiencing significant declines in sales, with Kering — the parent company — reporting a nearly 20 per cent drop in Gucci’s revenue for the first quarter of 2024 compared to the previous year. The broader luxury market is also feeling the strain, with shares of European luxury stocks falling sharply following Kering’s announcement. The company’s stock alone plunged 14 per cent, erasing over $8 billion in market value in a single day. This dramatic downturn is particularly concerning given the timing. While some luxury brands like Hermès and conglomerates like LVMH have reported strong performances, buoyed by their appeal to ultra-wealthy consumers, the overall picture for travel retail is bleak. The divergence in performance highlights a growing divide in the luxury sector: brands that cater to aspirational consumers are struggling, while those with a solid base of ultra-high-net-worth individuals are holding steady. A significant part of this story unfolds in Asia, a crucial market for the luxury sector. China, once the engine driving luxury sales, is now showing signs of slowing down.

Yet, it’s not all doom and gloom for the travel retail sector. While challenges abound, particularly in Asia, there are also significant opportunities. The global travel retail market is expected to grow to $152.61 billion by 2033, driven by innovations in digital and omnichannel strategies. Airports are increasingly investing in infrastructure to enhance the traveler experience, making them more attractive as shopping destinations.

Luxury brands are also adapting by way shifting focus on creating immersive and personalized experiences within airports. For instance, Bulgari’s new fragrance counter in the airport at Rome offers travelers not just products but a journey through Roman allure, complete with custom gift-wrapping and fragrance-flacon engraving. This shift towards experiential retailing is a crucial strategy for engaging today’s travelers, who seek more than just products—they crave experiences that resonate with their aspirations and lifestyle. Moreover, the west remains a bright spot. While Asia struggles, markets in the U.S. and Europe are showing resilience. The Estée Lauder Companies, for instance, reported a strong performance in the EMEA region, with a 32 per cent rise in organic sales driven primarily by an increase in travel retail business. This suggests that, even as Asia stumbles, there are regions where luxury travel retail can thrive, provided brands are willing to adapt and innovate.

To navigate these turbulent times, collaboration between brands, retailers and airports will be essential. Airports are no longer just transit points; they are evolving into destinations in their own right. This transformation is evident in places like Singapore’s Changi Airport, where significant investments have been made to create luxurious retail spaces that offer more than just shopping—they provide an experience. European airports are also catching on. Amsterdam’s Schiphol Airport is redesigning its Lounge 2 to prioritize luxury offerings, with brands like Louis Vuitton and BVLGARI leading the charge. This trend is not just about selling products; it’s about creating an environment that caters to the desires of modern travelers, blending convenience, luxury, and experience into a seamless journey. Brands must also rethink their approach to inventory management, especially in volatile markets like Asia. The Estée Lauder Companies’ recent decision to exit the heavily discounted travel retail channel for its Dr.Jart+ brand in favor of more profitable avenues is a case in point. This strategic pivot highlights the importance of agility and responsiveness in today’s fast-changing market landscape.

The future trends:

As global travel continues to recover, the future of travel retail will depend on its ability to adapt to new consumer realities. The sector must move beyond its traditional model, embracing innovation, exclusivity, and collaboration to remain relevant in an increasingly competitive market.

The coming years will be critical for travel retail as it seeks to redefine itself in a world where luxury shopping is rapidly evolving. Those who can successfully navigate this transformation will not only survive but thrive, capturing the loyalty of a new generation of global travelers. For those closely watching the industry, it’s clear that travel retail is at a pivotal moment. The challenges are significant, but so too are the opportunities. In this new era of travel, those who are bold enough to innovate and adapt will be the ones who lead the way forward.