Business Takes Off at the Airport

When firms internationalize they must deal with limited human and financial resources. Thus they must focus their efforts on the limited number of markets where their competitive advantage can be more easily played upon. It's a slow process which gives rise to a market position whose strength is dependent on market size. The strong growth of travel retailing seems to make firms discard this approach to embrace new opportunities, especially in the fashion industry.
Purchases in airports and ports are growing fast. Airports have generated sales for a total of $34 billion in 2007. Many travelers just buy souvenirs or travel items, but there are also customers who plan expensive purchases to benefit from breaks in sales and customs taxes. Data concerning airport purchases are interesting. In the recent past, alcohol, chocolate and tobacco were the main buys (more than 60% of total purchases in 1997), while today purchases of perfumes and cosmetics (30% in 2007) and luxury goods (35.5% in 2007) dominate the market. Among the top ten items sold there are jewels, accessories, leather goods and watches, followed by purchases of fashionwear. Luxury companies have caught onto the trend and have opened numerous boutiques in the main airports of the world. Travel buyers display an interesting demographic profile: mostly it's consumers from all over the world that frequently transit through the major international hubs (London, Seoul, Dubai, Singapore, Amsterdam, and Paris). They have a strong propensity to spend during their trip, but this varies strongly depending on the nationality: North Americans are reluctant to buy aboard (they'd rather shop at their tourist destinations), while East Asians spend on average €800-900. Opening a point of sale in an airport frequented by Asians can be the first stepping stone to enter Chinese, Japanese or Korean markets. This is the reason such strategy can be a great, albeit challenging opportunity, for middle-sized firms which would find it hard to develop a policy to internationalize sales in all three countries at the same time.

For a company venturing into foreign markets, travel retailing can be the keystone of international expansion. For an established fashion company, it can strengthen the brand's internationalization strategy and help fine-tune it. Selling in airports helps to rationalize market positioning and rethink business strategy accordingly. Fashion brands have understood that it's easier to cater to the Indian luxury good consumer in Dubai or London than in Mumbai. And that setting up shop in South Korea is tantamount to a real option on Japan, since the inhabitants of the land of the rising sun love to do their shopping in Korea where luxury products are sold at lower prices.