For many business travellers it can become a routine: there’s an hour to kill at the airport, and before heading to the lounge you use up some of your exchanged money by last-minute shopping for gifts or a bottle of whisky. The term “duty free” is ubiquitous in the traveller’s world, but do we really know how much we have saved?
The first duty-free shop opened in 1948 at Shannon Airport in Ireland, and it is still in operation today. Its original purpose was to serve transatlantic passengers whose flights had to stop for refuelling on both the outbound and inbound legs of their journey. The concept was simple: between passport controls you were between countries, so you would not need to pay sales taxes. It was an instant hit.
Unsurprisingly cigarettes were popular in those days – everyone was addicted to nicotine and knew little about the health risks smoking posed. It was a similar case with alcohol. Perfumes also became popular, but for an entirely different reason – it took much longer to travel from one place to another then, and there were few, if any, chances to bathe, so travellers needed to do whatever they could to smell a little nicer. Times have changed and many more types of merchandise are now available from duty-free shops, but tobacco products, alcohol and fragrances remain three of the main pillars of revenue.
Today, improved aviation technology has allowed people to travel to more places with varying tax regimes, and what “duty free” really means seems to have become blurred.
“Duty-free shopping has gone through a major evolution in the last couple of years,” says Harold Brooks, president of global merchandising at Duty Free Shopping (DFS) Group. “A number of years ago it was certainly a savings proposition… What’s happened today in all major airports worldwide, is that shopping has become a luxury experience.”
The modern behemoth of airport consumerism features many characteristics, including exclusive products, services and luxury brands – with savings becoming a secondary factor. But fear not penny-pinchers, there are still ways to distinguish the deals from the duds when shopping at terminals.
What difference does tax make?
It depends. If you come from a country where the value-added tax (VAT) applied to goods by the government is high, such as Sweden (25 per cent), Portugal (23 per cent) or the UK (20 per cent), you are likely to find that the price of items at airport duty-free shopping is cheaper than in shops on your local high street, since at the airport such taxes do not apply. The same goes for travellers from mid-range tax countries such as China (17 per cent), Russia (10-18 per cent), India (13.5 per cent) and South Korea (10 per cent).
As a result, Heathrow’s duty-free shopping area, one of the most successful in the world, boasts some of the highest savings on products when compared to domestic high street prices. Savings of between 20 and 50 per cent are quoted on numerous products, with the high street price indicated alongside the airport price for the shopper’s reference. A 7.5ml bottle of Chanel No.5 perfume, for example, costs £61.30 (US$99) at Heathrow Airport, compared to the “UK high street price” of £76.64 (US$124), which constitutes a saving of 20 per cent.
According to UK-based World Duty Free Group, price differences are monitored regularly by an independent company called ESA, which physically visits a wide range of UK stores and checks prices on the shelf. Fragrance products, for example, are surveyed four times a year and include stores such as Selfridges, Harrods, Boots, John Lewis, Debenhams, House of Fraser and The Perfume Shop, among others. For each product an average price is calculated and used as a benchmark at the airport shops.
At Incheon Airport in Seoul, which was voted the world's number one airport in terms of duty free sales last year (US$1.53 billion), all four duty free operators at the airport have the same price for their products – prices which are controlled via regular price comparisons with downtown shops, according to an airport representative.
But in countries where taxes are low or even nonexistent, savings are not as high. Hong Kong’s Goods and Services Tax (GST) stands at 0 per cent, and in Singapore GST is only 7 per cent. Duties on goods in the United Arab Emirates meanwhile are 4-5 per cent (though extra duties are often imposed on alcohol).
Even in low-tax markets however, coordinating with suppliers allows prices to be kept competitive with domestic ones, according to airport representatives. “We conduct our own research with regular downtown store visits,” says Saba Tahir, vice-president of purchasing at Dubai International Airport. “We also work closely with our suppliers to ensure that our pricing offers excellent value for money.”
Duty-free shopping in Asia has also seen a recent trend where the main focus of duty-free shopping is shifting to the experience itself, rather than the possible savings. Variety, exclusivity and convenience are gaining importance. Cathay Pacific (CX) in-flight duty free and DFS Group, for example, both now offer home delivery of purchases and special-edition versions of products.
“We do not just provide the typical items that people think of when you say ‘duty free’ such as alcohol, cigarettes and beauty products; we also provide watches and electronics that are useful for travellers,” says Billy Cheung, assistant manager of in-flight business development at CX. One such item, for example, is the Lifetrons Switzerland Dual USB Digital Display Portable Charger Deluxe Edition, which is a CX Group exclusive product that can power your iPhone for 33 days.
DFS Group also demonstrated their diversification into high-end goods recently when they hosted the Master of Spirits II spirit, wine and champagne event to kick off a month-long exhibition on the theme in Changi Airport. The endeavour seems to be popular: bottles sold for up to S$300,000 (US$240,973) at the event, clearly demonstrating that savings are not a top priority for every duty-free shopper.
Shop smart
The secret is to be selective. The best way to make the most out of the savings to be had in duty free is to head straight for the items you know are highly taxed in your home country. Frequent travellers are quite savvy to this, something that is clear in the nationality-specific tax-free shopping tendencies that duty-free providers see.
“The nationality of the passenger does make a difference, and we have noticed some trends. Chinese passengers, for example, purchase a lot of liquor in-flight, probably because the tax rate on it is high in China,” says Cheung. The fact that the Chinese government imposes an extra “consumption tax” on alcohol on top of VAT supports this theory.
As a result, the range of products in duty-free shopping areas at different airports is tailored to specific traveller demographics, and is designed to maximise the passengers’ experience, Brooks says. “We know for instance that European travellers who come into JFK are very strong fragrance purchasers. Part of it is savings to home country; part of it is our ability to have a much greater product assortment. So the amount of square footage devoted to fragrances is greater there than it is in San Francisco, for example.”
The status of the currency you deal in is also something to consider. “Exchange rates can affect a customer’s buying power. Whether an exchange rate is in a customer’s favour or not will dictate how he spends his money,” Brooks explains.
This too is reflected in in-flight sales on certain routes, according to the CX team, who report sales hikes on routes to destinations with a particularly strong currency, and a larger number of purchases being made in that currency.
Finally, buying locally made products from the country the airport is located in is also a smart move. The British museum shop at Heathrow, for example, sells souvenirs you would find at the museum itself that are unique, duty free and have not gone through the costly process of export. Similarly, pearl souvenirs and Cheong Kwan Jang, or red jinseng, are popular at Incheon Airport.
Costly customs allowances
Once you’ve identified the items that work in your currency and VAT circumstance favour, all you need to do is hold on to them. This is the final – and vital – step in securing your duty-free savings remain just that, and do not transform into costly blunders. You must know the customs allowances for the destination you are travelling to.
These vary from country to country. In Singapore, for example, you are not allowed to bring in cigarettes without paying the government tax, regardless of where they have been bought. You must also have been out of Singapore for more than 48 hours, and duty-free items bought in Malaysia are taxed at the border.
Even Hong Kong has surprisingly stringent customs allowances, limiting duty-free tobacco imports to 19 cigarettes (25g of tobacco) and liquor of alcoholic strength above 30 per cent to just one litre, although there is no import duty on wine.
So checking out customs allowances at duty-free checkout is recommended. Failing that, shop assistants are well informed of such restrictions, and should be able to inform (and alert) the shopper of them.
“Our staff are very knowledgeable about what a customer is allowed to take into another country and are able to guide them in terms of their purchase power,” assures Brooks of DFS, who have more than 200 stores in 15 countries.
Your duty to decide
Although the thrill of minor tax evasion might not be as relevant to the modern duty-free shopper as it was in the past, there are still bargains to be picked up – the value of which depends on the nationality-specific variables mentioned above. The fact that airports often offer different formats of products to those you find in high street shops – bigger sizes, unique presentations and so on – can make direct comparison of prices a less than clear-cut process.
But Brooks maintains that it all comes down to the shopper in question. “It would depend on the customer’s understanding of what the price is in their home country versus the prices available at the airport. Then they could make a valued judgement as to whether or not it is appropriate for them to make the purchase.”
Regardless of these factors, duty-free shops continue to diversify and evolve, maintaining their long-standing reputation as a place where products are cheaply priced (deservedly or not), and making the most of the fact that they have a “captive” customer base with time on their hands.
At the end of the day, modern duty free caters to a much wider range of customers than yesteryear. Savings-savvy travellers can still pick up a steal if armed with the right knowledge; bored businessmen with time on their hands are able to purchase a handy, specially designed gadget; while those with a penchant for the finer things in life can get themselves an exclusive luxury item. It’s a personal thing, and in order to get what you want out of duty-free shopping, understanding this is your personal duty.
