Cruise ships have long been a magnet for big spenders, with the average passenger shelling out around $50 every day. While that figure includes the casino and bar, typically it will also cover at least some on-board shopping. From wines and spirits to jewellery and perfumes, cruise ships are one of the major peddlers of duty-free goods.

This tax exemption is undoubtedly a major draw for customers, who are charged up to 30% less for any given item than they would have been on shore. It’s an arrangement that works well for passengers and cruise lines alike. Many operators, keen to tap into this revenue stream, now include a wide array of boutiques, carefully positioned on the ship to lure passengers into a spending spree.

No surprises, then, that the global duty-free and travel retail market has more than doubled in the last ten years, from $19 billion in 2001 to $46 billion in 2011, according to industry analyst Generation Research. Along with airports, airlines, ferries and ports, the cruise sector is well supported by commercial retail turnover.

One of the more striking facts to emerge from the report is that Asia and Oceania – in particular China and South-East Asia – are now outpacing other regions for the first time.

"Europe, the birthplace of duty free, has been the largest player in travel retail for over 60 years, but in 2011, for the first time ever, Asia over took Europe," says Sunil Tuli, president of the Asia Pacific Travel Retail Association (APTRA). "Of the $46 billion in global sales in 2011, Asia and Oceania account for 34.8%, with Europe notching up 33.9%. Just five years ago, the comparable figures were 29.8% for Asia and 41.8% for Europe, of a total pot worth $29 billion."

For 2011, the figures show a remarkable change, with Asia and Oceania amassing sales of $16 billion, Europe amassing $15.6 billion, the Americas $10.5 billion and the Middle East $3.2 billion (mainly in Dubai), with Africa, the only region not to show growth, at $600,000. For Asia, a jump of 26% on 2010 makes it the fastest growth market; however, Tuli adds a small note of caution that there are signs that these growth rates are cooling.

"So, while there is still growth worldwide, it has been affected by the continuing problems in the eurozone, and slow recovery from recession in other markets," he says.

Ideal consumers

Asian travellers are high spenders, for which Tuli believes there are many compelling drivers.

"Most people love to shop, especially when they have time and money at their disposal," he explains. "Asian people, and in particular those from China, are also keen internet users, and they are well informed about international brands. So, when they travel, they take the opportunity to shop in duty-free and travel-retail stores.

"China is significant because of its sheer size and the fact that its economy is booming."

"They find a tremendous selection of luxury and premium products, aspirational brands that represent a cosmopolitan lifestyle, which they believe will demonstrate their new affluent status and create a glamorous aura. Perhaps these brands are not yet present in their country."

There is also a strong concern among consumers in markets like China that the products they buy domestically may not be authentic.

"Travellers know that duty-free shops maintain an extremely high standard, and they can therefore purchase their luxury goods or other goods in duty-free shops fully confident that they are purchasing genuine brands."

Unleashing the potential

With the market already so large, the challenge is to expand it further, but the continued economic growth of one nation in particular – China – is likely to make this possible.

"When we discuss the potential for duty-free and travel retail, we must focus on the Chinese traveller, who is driving growth in travel and sales," says Erik Juul-Mortensen, president of TFWA, the Tax Free World Association. "Other nationalities, including Malaysians, Taiwanese and Koreans, are also important, but China in particular is significant because of its sheer size and the fact that its economy is booming. It has grown despite recent recessions, and is projected to top the US, the world’s largest economy, by 2016, according to the IMF."

TFWA’s latest research depicts Chinese travellers as the fastest-growing group within duty-free and travel retail, and predicts that they’re likely to remain so for the next ten years. Over the last year, their spending rose by 63%. Looking across all sectors, two thirds travel for leisure purposes, which is noteworthy because it is the business traveller who spends the least.

"Around 57% of organised leisure visitors to duty free and travel retail will purchase," adds Juul-Mortensen. "Higher levels of purchasing are also seen in non-China locations compared with China locations. Overall, organised leisure travellers journeying abroad spend the most – $220 on average – while business travellers in non-China locations spend the least: $156."

"If operators continue to pay heed to shifting patterns of expenditure, there is no reason that present rates of growth cannot continue into the future."

China is undoubtedly the main market with growth potential, not only because of rising passenger numbers, but also because of their relatively low use of duty-free facilities.

"With tremendous growth projected in the Chinese outbound travel market, it is this market that companies are targeting," says Juul-Mortensen. "They are looking at where Chinese travellers are going – mainly Asia, Australasia, Europe and the US – and developing product lines that will be attractive to them in these destinations.

"Of the 40% of Chinese travellers entering duty-free and travel-retail shops, just one in four makes a purchase, so there is a clear opportunity to not only drive more traffic into the store, but also to increase the conversion rate and generate sales to those who are already in there," he continues. "Retailers and suppliers are targeting both groups. Tailoring the product, the assortment and the presentation to appeal to the consumer is guaranteed to improve sales."

A guiding hand

TFWA and APTRA play important roles in developing opportunities for duty-free shopping and helping the industry to address key sectors of the market. TFWA, for example, organises an annual conference – TFWA Asia Pacific – for stakeholders in the region, the next one is scheduled for May 2014.

"With our research, which both TFWA and APTRA commission on behalf of their respective members, we are providing valuable tools to help industry stakeholders understand consumer behaviour and grow their business as a result," says Juul-Mortensen.

APTRA, which comprises suppliers, retailers and operators, exists to support the stakeholders developing business in the region.

"We are energetic in our defence of the sector in the face of challenges from regulatory authorities such as governments and the WHO, which wish to restrict duty-free sales of, for example, alcohol and tobacco, in the misguided belief that they lead to smuggling and health issues," says Tuli. "We also conduct research on behalf of our members companies."

Such research is vital to addressing the challenges that constantly arise. Despite these hurdles, however, it is clear that the cruise ship duty-free market is thriving, both within Asia and outside it. If operators continue to pay heed to shifting patterns of expenditure, there is no reason that present rates of growth cannot continue into the future.