Time to move, experts tell duty-free shops

Duty-free shops, a staple at most holiday destinations across the country, have traditionally depended on tourists and visitors to rake in the profits.

From Langkawi in Kedah to the Berjaya Waterfront Complex in Johor, they are a tourist magnet for locals and international visitors alike who flock to their outlets to find bargains on luxury goods, perfume, cosmetics, alcohol and cigarettes.

But with international borders closed and travel restricted for many countries in the wake of the Covid-19 pandemic, hordes of businesses have been forced to establish an online presence and duty-free businesses are no exception.

Economists who spoke to MalaysiaNow said it is time for these tax-free havens to make the move online, too.

“There is a need to create a new concept of duty-free shopping by finding a principle for virtual duty-free because the future is about promoting online businesses,” Barjoyai Bardai from Universiti Tun Abdul Razak said.

And with sales collapsing by two-thirds last year, this need is becoming more pressing by the day.

But making the shift could be tricky for duty-free shops as being online would mean nearly universal access.

“The future is about promoting online businesses.”

“So what will be the new qualifications to be eligible for duty-free privileges?” Barjoyai said.

For years, duty-free shops have catered to tourists looking to enjoy low prices from tax exemptions or seeking goods that are unavailable in their home countries.

But Covid-19 is threatening their traditional brick-and-mortar presence, pushing them towards digitalisation and online business platforms – go online or go home is the message accompanying the pandemic.

According to Swedish consultancy firm Generation Research, global duty-free and travel retail sales peaked at RM353 billion in 2019. By 2020, that amount had collapse by more than half, down to about RM118 million.

But while going digital may be the only lifeline at present for duty-free businesses, the move brings with it its own challenges.

For example, the advantages of duty-free shopping are on the wane as import duties are lowered and products become increasingly available online. This makes it hard for duty-free businesses to compete with other online shopping platforms.

Economist Yeah Kim Leng however says they may have no choice as they can no longer rely on a brick-and-mortar presence.

“Duty-free business owners will need to have staying power for two to three years if they are fully dependent on airport traffic.”

His advice for owners and operators is to invest in online marketing channels and to keep overheads low enough to make up for the lower level of duty-free shopping due to subdued international tourism.

“They can capitalise on their in-shop customer database by offering similar online access and niche or specialty product offerings,” he added.

Yeah, who lectures at the Sunway University Business School, said duty-free businesses might see some light at the end of the tunnel when Malaysia reopens its borders for business and tourist travel.

Noting the vaccination programme currently underway across the country, he said 2021 would likely be taken up to achieve herd immunity. This means that international travel and tourism will only pick up momentum and normalise the following year.

“Duty-free business owners will need to have staying power for two to three years if they are fully dependent on airport traffic,” he told MalaysiaNow.

Barjoyai however questioned the extent to which business travel would remain a lifestyle in the days to come, saying most business meetings and transactions can be done online.

If tourism is the only major form of travel hereafter, he said, it would affect the overall sale of items in physical duty-free shops.

But both he and Yeah agreed that airports would remain a popular destination for duty-free shopping.

“International tourists and business travellers are largely in the middle and upper-income categories. So, airports will continue to be the place for businesses to target well-off shoppers and consumers,” Yeah said.

Barjoyai meanwhile said airports might be able to sustain duty-free businesses if they set up new attractions to lure travellers since travel itself is difficult these days.

He said hotel complexes can also be used as delivery centres for online duty-free shopping as many are unoccupied at the moment.