The Future Of Travel Retail In A Changing Landscape

The future of travel retail will hinge on understanding and meeting the evolving needs of modern travellers, creating seamless, personalised experiences that resonate in an increasingly digital world. Through these strategic moves, the sector can navigate its way toward a thriving and resilient future

The travel and tourism (T&T) sector stands at a pivotal moment, poised for transformative growth and innovation. The Covid-19 pandemic caused unprecedented consequences, leading to an estimated drop of over 70 per cent in international tourist arrivals and a global drop of over 50 per cent in total travel spend equivalent to over $3 trillion.

However, it has also presented a unique opportunity for reimagining and reshaping the sector. Moving forward, as the sector recovers and expects further acceleration, with an estimated annual growth in spending of 7 per cent in the next decade, its resilience and adaptability have come to the forefront, re-positioning it as a key driver of global socioeconomic growth, environmental stewardship and sustainable development.

Historically, the travel retail industry's growth has mirrored air passenger traffic. As traffic increased, so did the industry’s sales. But, as a result of new challenges and evolving consumer behaviours, that pattern has been broken in the post-Covid recovery era.

Today, passenger growth (30 percent) far outpaces travel retail sales (18 percent in 2023, reaching $72 billion).

However, a more significant challenge lies in the long-term erosion of travel retail's historical perceived price advantage. Price is still a crucial concern for consumers, especially given ongoing inflationary pressures. Thirty percent of respondents cited price as a barrier to purchase and 27 percent are using price-comparison tools to see if a “deal” really is as good as it looks. Consumers aren’t just challenging price. Twenty-nine percent of respondents cited unsatisfying assortment as a reason not to purchase.

To adapt, brands and retailers need to rethink marketing, investment strategies, and partnerships, focusing on understanding and catering to air travellers' evolving preferences and designing experiences that compliment them. While some today might view the industry’s outlook as bleak, there are positive trends.

New airports are being built, older ones are undergoing renovation, and passenger dwell time at airports remains steady at around two hours, with 69 per cent of respondents viewing it as an opportunity rather than wasted time. With 75 percent of dwell time not spent shopping, transforming this time into travel retail shopping—and hopefully spending—is both a key challenge and significant opportunity.

The future of travel retail will depend on technology, collaboration among stakeholders, and a deep understanding of the modern travellers. There's no one-size-fits-all solution but exploring key areas can help solve the industry’s challenges.

Ensuring a positive future requires the industry to take three decisive actions:

Boldly innovate, not only by embracing a leading position on adoption and implementation of advanced technologies, but also by transforming economic and operating models.

Fast-track data-sharing initiatives to fully leverage data analytics, unlocking the potential of future AI innovations.

Prioritize efforts to address critical issues in North Asia.

As we enter the AI era, I’m excited to see entrepreneurs reimagine the sector. AI is not just a trend – it’s a revolution, projected to contribute between $15.7 and $19.9 trillion to the global economy by 2030, with generative AI alone adding $2.6 to $4.4 trillion annually. This transformative potential makes AI the future of tourism – and the future of tourism is already here, says Natalia Bayona, Executive Director - UN Tourism.

Physical retail will be similarly transformed, with retailers using customer data to understand their needs before shoppers enter the store. Hinting at this future, one American sports retailer has opened a concept store that adjusts its product mix based on the shopping profiles of its members living in the area. Styles change every two weeks, ensuring the store experience is hyper-relevant.

Blockchain technology will prove instrumental too. The blockchain supply chain market is forecast to reach USD 9.85 Billion in value by 2025.5 Solutions like those from a leading traceability platform, which issues digital tokens related to the physical shipments of certain materials to generate a unique fingerprint that can be traced across the entire supply chain, will be key drivers for this growth.6

Beyond digitization, other retailers are shrinking their supply chains and decentralizing manufacturing to facilitate flexible responses to consumer demand. One leading retailer has created a hyper-local manufacturing model that can operate from a shipping container. These ‘nano-factories’ are designed to respond faster to local market changes and can be deployed quickly across specific areas or locations.

Digital transformation has enabled many retailers to weather the storm created by the pandemic, but innovation will continue as businesses seek to harness pent-up demand in the post-pandemic landscape. Retailers must prepare for 2025 by harnessing data and analytics, strengthening supply chain resilience, prioritizing compelling content, embracing circularity and driving ecosystem evolution.