The demise of duty free has created a huge hole in the pockets of many in the travel sector. Last week, P&O Stena Line revealed its profits tumbled 43 per cent from &£25.5m to &£14.6m for the third quarter of this year. The company blamed the slump of its summer season’s profits on the end of duty free in the European Union.
What is normally a lucrative time of year for P&O Stena took a downturn after its passengers opted to stay out of its onboard shops.
But the biggest loser has been airport operator BAA. Its retail revenue slumped 74 per cent in the quarter, compared with the same period a year ago. Consumers have shied away from its airport retail shops because they no longer believe they can pick up a bargain.
In 1990, three years after being privatised, the company started a worldwide expansion drive for its retail operations, led by chief executive John Egan, who has since left. Six years later, the European Commission announced its plans to end duty-free shopping for cigarettes and alcohol in the EU.
BAA has been slammed for investing much of its time fighting the abolition, instead of concentrating on imaginative marketing schemes to lure consumers into retail units.
The fight proved fruitless and on July 1 this year duty-free cigarettes and alcohol within the European Union disappeared.
Because the abolition had been so widely covered in the media, BAA struggled to convince consumers that they could still buy cheap goods when travelling abroad.
In BAA’s defence, Customs & Excise dragged its feet in informing the company what it would and would not be allowed to sell at duty-free prices. But companies such as BAA and P&O, which offer a similar proposition, have been caught on the hop.
All that effectively went was duty-free cigarettes and alcohol, but British consumers, which see duty free as a perk, thought they could no longer buy other duty-free products.
P&O has fought back. The ferry crew now makes an announcement as soon as the ship is in French waters to tell consumers that they can buy cigarettes and alcohol at the much-reduced French prices.
BAA has been less nimble. “We were surprised at the confusion,” says BAA retail director of UK airports Colin Hargrave. “People didn’t realise they could still buy gifts and perfume – which weren’t affected.”
One analyst comments: “BAA has been slow to inform consumers about the benefits of shopping at the airport.”
Industry observers also criticise BAA for building its retail brand on the duty-free premise, and failing to make consumers understand its shopping proposition.
The company may still offer duty free to customers travelling outside the EU, but few consumers are aware that because duty is now included in what you buy at an airport, there is no limit on what you can purchase.
Hargrave says BAA has advertised within airports with simple messages to get consumers in to the shops. It also produces its own daily tabloid-style newspaper, given out to travellers to explain what they are allowed to buy.
The company has launched a series of other initiatives to encourage travellers to spend. Its “Buy more. Carry less” scheme, which launched four weeks ago, enables travellers to buy goods on the outbound journey and pick them up on the way back. BAA claims this is particular benefit for day-trip business travellers.
It is also launching an arrival shop at London’s Gatwick Airport in December, which will allow customers to shop once they have gone beyond baggage collection.
One other big problem for the company is that its shops are called World Duty-Free. Consumers are confused. If they are unable to buy duty free, then why should they go into the shop?
BAA has retaliated by trailing a separate shop for cigarettes and alcohol at Gatwick North. It has rebranded its other outlet World Shopping. BAA hopes this will simplify the situation for travellers.
The company claims it is reacting to travellers’ complaints. “We talk to more than 300,000 passengers a year,” adds Hargrave. “As a result, we have different offers in different terminals.”
Included in this wish-list is a golf studio and beauty centre in Terminal One at Heathrow. The company is looking at adding the beauty centres to other terminals and airports.
It also wields huge buying power and sells many items, not just the stereotypical products such as perfume and make-up, but also luggage and clothing, at a discount.
But analysts criticise the company for not pitching itself properly to consumers. And one advertising agency source says: “BAA fails to capitalise on the euphoria of travellers once they have checked in their baggage. They have an hour or two to wander around and spend money.”
BAA has also been slammed for concentrating most of its advertising over the summer, thereby neglecting regular travellers. The company says it is rectifying this and plans to run a series of advertorials in consumer magazines later this month.
The company has suffered a jolt, and is learning quickly. But unless it can make the public understand that it is not just about cheap perfume and Gucci handbags, next year’s profits will take a further nosedive.