Travel retail is big business. Despite often having limited promotion by brands, it’s estimated that shopping in airports, duty-free stores, and on cruises and ferries represents 40% of global spending on personal luxury goods, from jewellery and perfume to tobacco and alcohol. The sector is such a significant market that L’Oréal, in an article for shareholders, described the sector as the company’s “sixth continent” – an adage that has entered the broader nomenclature as more companies jump on the travel-retail bandwagon.
Much of the travel-retail boom can be attributed to the rise of the increasingly well-travelled Chinese consumer. Such spending by Chinese guests is set to reach $422 billion by 2020 (almost double 2015’s spending of $229 billion); and with China’s government estimating that 4.5 million will go cruising yearly by then, cruise operators can’t ignore this potentially enormous source of revenue.
Import tariffs on luxury goods coming into China can mean that buying on the mainland is up to 50% more expensive than goods bought at a duty-free store, making spending on jewellery, alcohol, and other high-end goods irresistible for a cash-conscious passenger. The devalued currency, too, means savings can be huge.
“Generally, we see spending patterns more than double in retail in comparison to other markets, but this can vary depending on which homeports our ships are sailing from in China,” says Erin Rafter, who runs on-board revenue and projects at Royal Caribbean International, which has sent its latest Quantum-class ship, Ovation of the Seas, to be homeported in Tianjin.
“It is one of the main attractions for travelling to foreign countries,” agrees Simon Weir, COO for China at Royal Caribbean. “They seek quality products at lower prices than the taxed items available on the mainland. For many, shopping is part of the fun of travelling and vacationing, making it an area of the business that can contribute significantly to the overall revenue generated on board during any given cruise.”
The retail experience
Everyone has their own plan for how best to capture this market. In July, Starboard Cruise Services, a specialist in on-board shopping run by the Moët Hennessy Louis Vuitton group, announced it was going into business with Dream Cruises, the Genting-owned brand specifically tailored for the Chinese market.
“We are delighted to be working in collaboration with Starboard Cruise Services to deliver an inspirational, entertaining shopping experience at sea for Dream Cruises guests,” Dream Cruises president Thatcher Brown said on the news of the deal. “Starboard’s renowned expertise in luxury retail will enable us to offer an incredible range of top luxury and lifestyle brands, along with highly tailored offerings including in-cabin shopping and dedicated personal-shopper concierge services.”
Genting was not the first cruise operator in the region to partner up with Starboard, however. RCL also works with the group, as do many others, but this newest combination of a luxury brand and a company with well-established expertise in the Chinese market should make competitors feel that they need to up their game.
When Norwegian announced last year that it would be launching its first ship purpose-built for the Chinese market, Norwegian Joy, the question of how the company would approach retail was on everybody’s lips. When the announcement came, it was clear that the Norwegian Joy would be centred around the retail experience. The ship, the company said, would feature an upscale shopping venue – the largest in the company’s fleet – stocking duty-free and international brands in fashion, jewellery and electronics.
The shopping-ship redesign
These shifting priorities could also be shaping the way cruises are organised. In a market where consumers are so retail focused, it is no surprise that this emphasis is impacting the way ships are put together, often meaning that areas used for entertainment or fine dining are reduced in favour of shopping space.
“We’ve really looked to see where we could expand in our top three categories, which are Swiss watches, fashion watches and beauty,” says Rafter. “We’re always looking at whether we are allocating space the right way: is there a venue that is under-utilised in the Chinese market that we want to make into a retail space, for example?”
“With our experience in the market, we can often evaluate spaces on the ships that will be deployed to the region and make decisions based on that,” agrees Weir. “For example, the number of retail locations may be increased to allow an even greater diversity of merchandise on board.”
Convenience is of the essence if operators are going to stay ahead of the competition. RCL recently diversified its sales channels by adding a digital catalogue of destinations’ local items, for instance – an attempt to facilitate the shopping process and make it even easier for passengers to shop.
“Guests can conveniently browse and select items from the comfort of ‘their home away from home’ – it’s a form of e-commerce,” says Weir. “We then have the items they’ve purchased delivered to the ship, providing travellers with a seamless retail experience, allowing them to spend more time enjoying the destinations on their itinerary and less time carrying around shopping bags from the duty-free shops ashore.”
There are also significant differences between the ways that European, North American and Chinese guests shop. For European and North American customers, on-board purchases are limited to a small number of quite costly items, whereas for Chinese guests, shopping is often utilitarian; it’s a way to save money on products that would otherwise be prohibitively expensive.
“Our retail expectations are definitely higher in the Chinese market,” says Rafter. “What we tend to see more of are luxury sales at higher volumes – so, for our ships in the Mediterranean or the Baltics, we still see high-end sales, but guests will purchase just one item. In China, we’ll see multiple of those items, so that’s where we see a big difference.”
With this new emphasis comes the need for new marketing and advertising, and cruise operators hoping to break into the Chinese market will need to significantly change the way their holidays are sold to customers.
“One of the reasons Chinese guests enjoy cruising is the opportunity for shopping, so it’s important to communicate our offering effectively,” says Weir. “Naturally, we have targeted marketing that primarily highlights the shopping options guests have at their fingertips and the many exciting ways they can enjoy them.”
A fine balance
These spending patterns mean that operators have to be more conscious of offering a broad range of options. Guests can’t be expected to spend just on luxury goods; there has to be an understanding that different passengers will want different things.
“It’s important that we have the right mix of moderate, fine and luxury,” says Rafter. “We’ve captured that very well, especially with our watch collection: looking at the assortment we have, there’s everything from high-end Cartiers to entry-level pieces. We really have spread it out so that there’s something for everyone.”
Staying on top of trends is essential to understanding these patterns. Chinese guests, particularly the younger clientele, tend to be acutely aware of what is currently fashionable – a status that can change in a matter of weeks. In contrast with the cruise customers typical of Europe and North America, these tourists tend to be younger, on average – a testament to the rapid growth of the country’s middle class in recent years and its increased spending power.
“We look at what the trends are in China itself, and then we look at what our guests are shopping for when they’re in Korea,” says Rafter. “There are also different studies we can look at that show us the popular items for Chinese guests when they’re shopping abroad, so that certainly factors into our decision, too.”
Discussion with the brands involved is also crucial to understanding what new customers are interested in. China is seen, Rafter argues, as “the hot market”, and RCL is often approached by potential clients keen to sell their products on board.
With shopping seen as such a critical part of the cruising experience for a whole new generation of customers, it is possible that routes and destinations could change as demands shift, pushing out more well-trodden locations and transitioning to those that better facilitate the retail experience.
“I think decisions could be made about where to cruise based on what we’re offering from the shopping experience,” says Rafter. “As shopping is part of the destination itself for a Chinese guest, it’s also part of the experience. So offering variety in the fleet we have in China might help guests decide which ship they want to cruise on.”
The world of shopping on cruises is certainly expanding. What were once the one-time purchases of only the wealthiest passengers are shifting, thanks to the Chinese market’s appetite, to a more affordable and simple model, where high-end luxury brands rub shoulders with the more modest and practical options. Seeing what cruise operators will do to keep up with the trend over the next few years – with the Chinese market not set to slow any time soon – will be fascinating.
