A seismic shift is underway in the fast-paced world of luxury travel retail. Digitalization has emerged as the key to ensuring the continued relevance of retail brands in this ever-evolving landscape.
Why a Consumer Centric Strategy is Needed
Before we embark on the journey of digitizing luxury travel retail, it’s crucial to understand the profound significance of this shift. The luxury industry has historically held a prominent role in the travel retail sector, with a substantial 30 to 40 percent of luxury sales attributed to international and transit travelers prior to the COVID-19 pandemic. As the return of Chinese tourists gains momentum, luxury brands are fiercely vying for the attention of the most influential shopping demographics, primarily Millennials and Gen Zers.
Yet, to navigate this changing landscape successfully, a fundamental rethinking of how luxury brands approach their operations and marketing strategies is imperative. Traditionally, travel retail has centered on airports, retailers, and brands, but the evolving retail environment places the consumer at its core.
A common mistake occurs when a retailer says:
- It would be fantastic if we could persuade our consumers to purchase Y product, as it would boost our profit margins and enhance our financial performance.
This approach, driven solely by business interests, often leads down the wrong path. A more effective approach involves company leadership asking a different set of questions:
- What distinctive capabilities and assets do we possess?
- What are consumers genuinely seeking, and where do existing offerings fall short?
- How can we leverage our unique strengths to create value throughout our ecosystem?
This shift in perspective places the consumer’s needs and desires at the heart of the decision-making process, ensuring a more consumer-centric and ultimately successful strategy.
Digitalization to Reach Millennials and Gen Zers
Travel retail is deeply impacted by the emergence of digitalization, primarily because the most prominent buyer groups, Millennials and Gen Zers, are inherently digitized. Airports have taken steps to digitalize the passenger experience, but retail has yet to fully integrate into these ecosystems. This integration is crucial because there has been a decline in sales in the industry despite increases in airports’ foot traffic, which means the traditional channels used to reach travelers are no longer working.
The digitization of the passenger experience has resulted in travelers spending less time at the airport, posing a challenge for travel retail sales to regain momentum. Luxury brands must now proactively seek ways to captivate a discerning audience within a limited airport time-frame, starting with meeting consumers where they are most comfortable: the digital realm. This not only presents a new avenue for opportunity but also a shift in strategy.
For instance, luxury brands operating in travel retail could proactively engage consumers at an earlier stage in their journey, as soon as they purchase tickets or visit travel-related websites. This approach entails guiding and enticing travelers throughout their entire journey, culminating in conversions once they arrive at the airport. It’s conceivable that by this point, users may have already preselected or even made purchases from a curated selection of products well before setting foot in the terminal.
Consider the Zero Consumer
Defined by McKinsey, the Zero consumer phenomenon emerges as a diverse and rapidly expanding segment with distinct shopping behaviors and preferences. These consumers seamlessly navigate both online and offline shopping, effortlessly balancing thriftiness with moments of extravagance. Loyalty to specific brands hardly holds their attention, as they prioritize health and sustainability, even when it means indulging in higher-priced products. This phenomenon although led by Asian countries knows no borders, making it an essential trend that global companies must not overlook.
- Modern consumers now demand a holistic “phygital” experience, where the physical and digital aspects of retail blend seamlessly. Media and technology giants have set an exceptionally high standard with their impeccable omnichannel strategies. Consequently, consumers now expect the same level of convenience and consistency from traditional retailers.
- Zero consumers are selective spenders, practicing restraint in some categories while indulging in others—a dynamic pattern of scrimp-and-splurge. This behavior exerts considerable pressure on mid range brands, as consumers increasingly gravitate toward either more affordable or premium options. For instance, in China, a remarkable 81 percent of respondents express intentions to either reduce spending or shift to lower-cost brands in categories like furniture and home improvement. Simultaneously, an impressive 69 percent plan to treat themselves to premium experiences and products, including fine dining, luxurious travel, high-end fashion, and upscale fitness endeavors.
- Zero loyalty—The era of unwavering brand loyalty has waned. When the COVID-19 pandemic disrupted supply chains and left consumers without their preferred products, many embarked on a journey of exploration, trying out new products and brands—and they’ve continued to do so.
In August 2023, a survey revealed that in Australia, a notable 63 percent of consumers had adopted fresh shopping behaviors within the previous three months. These behaviors included venturing to different stores or embracing new brands. This trend is even more pronounced in India, where an impressive 87 percent of consumers exhibited changed shopping patterns, along with 83 percent in China and 67 percent in South Korea.
While consumers initially sought product availability during the pandemic, their priorities have evolved. Today, they are on the lookout for value, quality, variety, and increasingly, a sense of purpose in their shopping choices. The quest for value holds particular significance. In India, a striking 82 percent of consumers switch to different retailers or brands when seeking better value, whether in the form of lower prices, enticing promotions, or reduced delivery fees. A similar trend is observed in China, where 61 percent of respondents follow suit, and in South Korea, where a significant 76 percent do the same.