The new era of travel retail: Impact and challenges October 2015 - Summit Shopping Tourism ...

Page created by Elsie Hughes
 
CONTINUE READING
The new era of travel retail: Impact and challenges October 2015 - Summit Shopping Tourism ...
The new era of
travel retail:
Impact and challenges
October 2015
The new era of travel retail: Impact and challenges October 2015 - Summit Shopping Tourism ...
Quality, sustainability, and employme
The new era of travel retail: Impact and challenges October 2015 - Summit Shopping Tourism ...
Contents
ent
      1                      2
      Understanding          Current scope of
      where we’re            retail tourism
      coming from

                    Page 1               Page 8

      3                      4
      The future of retail   Proposals for
      tourism                improving
                             tourism’s
                             competitive edge
                   Page 28              Page 36
The new era of travel retail: Impact and challenges October 2015 - Summit Shopping Tourism ...
1
The new era of travel retail: Impact and challenges October 2015 - Summit Shopping Tourism ...
Understanding where we’re
coming from
Retail tourism: starting point
In just a few years, retail tourism has become the   Our recommendations include the perspectives
fastest-growing product in the tourism sector,       of the main retail travel agents in Spain, a sector    Some of the most
having gotten quite a bit of attention due to its    which demands increased union and collaboration
huge potential.                                      between companies and public administrations,
                                                                                                            notable companies
                                                     in order to take advantage of the opportunities        in retail tourism
In a very short time, shopping has gone from being   of this product while transforming Spain into a        have taken part in
a complementary activity for tourists to a very      competitive and attractive destination.
relevant motivating (the main one, in many cases),
                                                                                                            the preparation of
and is also a key factor when choosing a certain                                                            this report: Global
destination over another.                                             It’s a challenge to find a            Blue, MasterCard,
Retail tourism is here to stay. An exponential                        globally-accepted concept of          El Corte Inglés,
growth is forecasted for upcoming years,                              retail tourism. What is true          Loewe, Círculo
                                                                      is that there are tourists
especially in emerging markets which have a
                                                                      who travel in order to shop
                                                                                                            Fortuny, World
spending capacity which is well over traditional
                                                                      (increasingly more so), while         Duty Free Group
ones.
                                                                      the remainder shop when               and Spain’s Royal
This is an unstoppable phenomenon which Spain                         they travel.                          Academy of
must undoubtedly take advantage of in order to
surmount the structural problems inherent in its
                                                                                                            Gastronomy. We
main industry, such as for example, those related    Although this task is not simple, it is possible. An   would like to extend
                                                     immediate shift in perspective in the different
to profitability, seasonability, or demand.                                                                 our most heartfelt
                                                     sectors involved is necessary so as to get down to
The purpose of this report is to gain an             work as soon as possible so as not to keep missing     thanks to them all.
understanding and an idea of the dimension           out on opportunities (and market share) which
of retail tourism in Spain, today and in the         other competing destinations are taking advantage
future, identifying opportunities for the sector     of.
while determining all the measures to be taken
immediately to improve its competitive edge.

                                                                                                                          EY 2015 |   1
The new era of travel retail: Impact and challenges October 2015 - Summit Shopping Tourism ...
Spain’s model of tourism

Spain continues consolidating its position as a leading tourist destination
worldwide, despite the increased interest in emerging countries. In 2014, Spain
was the third most popular place to visit in terms of the arrival of international
tourists, just behind France and the US. Spain ranks second in terms of total
income generated by international tourism after the US and China, which has
replaced France on the list.

                  This second-place position in terms of international
                  tourism for Spain worldwide responds to volume and
                  average stays with regard to competing destinations.

The total number of tourists arriving in Spain in 2015 will set a new record,
beating the number for 2014. Tourism’s importance for the national GDP and
employment is clear, as it is not only the principal engine driving the Spanish
economy, but should also do so in the future.

Nevertheless, Spain’s tourism sector must once and for all face its structural
problems, such as the profitability of tour companies, the seasonality of the
demand, quality of the offer, diversification of issuing markets, training of
professionals, sustainability of its activity, or how it coexists with locals, especially
in destinations which are saturated by the high number of visitors.

2 | The new era of travel retail: impact and challenges
The new era of travel retail: Impact and challenges October 2015 - Summit Shopping Tourism ...
Understanding where we’re coming from

                                                                        The old
                                                                        model

Traditional dashboard                                                             Forecasted GDP growth by sector in Spain
Tourism in the Spanish economy                                                    2015 – 2025

GDP contribution 2015 (forecast)       118,000 million euros                               Agriculture         0,30%

% tourism GDP in Spain 2015
                                       11.2%                                                    Retail                        1,00%
(forecast)

                                                                                                 Bank                                 1,50%
Employment 2 Q 2015                    2.73 million professionals

                                                                                            Education                                 1,50%
Percentage of total employed
                                       13.2%
population (2 Q 2015)
                                                                                      Global Economy                                      1,70%
Generation of employment 2014          158,556 individuals (+7.7%)
                                                                                               Mining                                         1,90%

Number of international tourists
                                       65 millon                                    Financial Services
2014                                                                                                                                          1,90%

Number of international tourists
                                       68 million (+6.2 inter-annual)                     Automotive                                                  2,20%
2015

Number of international tourists                                                    Chemical Industry                                                 2,20%
                                       48,928 million (+3.9 inter-annual)
2014

                                                                                              Tourism                                                  2,30%
Source: INE, EPA, IET, Bank of Spain

                                                                                  Source: World Travel and Tourism Council.

                                                                                                                                                  EY 2015 |    3
The new era of travel retail: Impact and challenges October 2015 - Summit Shopping Tourism ...
A successful model of tourism?

Despite the growing number of international visitors and total revenue, the
Spanish tourism model should be urgently refocused towards greater profitability.
This is the key to the sector’s future, and demands the alignment of the strategies
of all the agents operating in the tourism industry.

The arrival of international tourists is still concentrated on sun and beaches
(according to Tourspain (the Spanish Institute of Tourism), in 2014 nearly 85% of
foreign tourists chose Catalunya, the Balearic and Canary Islands, the Valencia
autonomous community, and Andalusia, with a high concentration in the summer
months). Despite the superb offer in Spain of other types of tourism, thus far the
ideal promotional strategy for attracting a significant flow of international tourists
has not been defined.

This model, accompanied by the interdependence between traditional issuing
markets translates into a price and consumption per overnight stay which is well
under surrounding destinations.

In its bulletin entitled “Spain’s balance of payments/international investment
position,” the Bank of Spain concluded that in 2014, the increase in the number
of international tourists was not reflected in revenue, since the average amount
spent per tourist decreased.

                  The success of Spanish tourism does not depend on the
                  number of visitors; the profitability of visits should be
                  the main sector indicator.

4 | The new era of travel retail: impact and challenges
The new era of travel retail: Impact and challenges October 2015 - Summit Shopping Tourism ...
Understanding where we’re coming from

Total expenditure by international tourists, accommodation price, and total volume of overnight stays.
2014

300,000,000                                                                                         700.00

                    578.84                                                                          600.00                                            The new
250,000,000
                                                                                                                                                       model:
                                                                                                    500.00                                          Dashboard of
200,000,000
                                                        423.20
                                                                                                                                                     the future
                                                                                                    400.00
150,000,000                             387.43
                                                                                                    300.00
                                                                                         258.27
100,000,000
                                                                   238.13                           200.00
                                                                                                                            Expenditure ($)
 50,000,000
                                                                                                    100.00                  Overnight stays

           0                                                                                        0                       Average expenditure per overnaight stay ($)
                   Germany          United Kingdom *    France            Italy             Spain

Source: Eurostat and WTO (World Tourism Organization).
* overnight stay data for the UK corresponds to 2013.

Average consumption of international tourists at overnight stay destination. 2013

                                                                                                        Difference with respect to consumption in Spain
                   91.99€

         +140%
                                             69.22€
                                                                 65.64€
                                   +80%
                                                         +77%                            61.30€

                                                                                  +60%

                                                                                                               38.32€

 Source: Eurostat.

                                                                                                                                                                          EY 2015 |   5
The new era of travel retail: Impact and challenges October 2015 - Summit Shopping Tourism ...
Spain’s positioning as a shopping destination

        The sun and beach offer will without a doubt maintain its leading
        position in terms of size (as regards the number of arrivals and
        total aggregate expenditure, rather than individual expenditures).
        Nonetheless, it is urgent and of fundamental importance to make a                       Solid ability to
                                                                                                create tourist              High cost of
        decided commitment to boost other tourism products with great growth                        loyalty                   tourism
        potential, and profitability levels which are much more attractive than
        those without the influence of the climate and the beaches; therefore,
        Spain does not have the competitive advantage.

        Despite its rich cultural and gastronomic heritage, two of Spain’s more         Income              Benefits of              Diversification of
        outstanding attributes, its image as a tourist destination is inexorably      generation
                                                                                                             shopping                the destination’s
                                                                                      in the area
        linked to the sun and the beach and, on occasion, to the so-called binge                                                           offer
        drinking tourism, which distorts its value proposition while marginalizing
                                                                                        (taxes)               tourism
        profiles with a greater spending capacity.

        One of the most promising opportunities for Spain the repositioning of
        its tourism model, perhaps the most important one, is to prioritize retail              Seasonality              Extension of the
                                                                                                effect of the           impact of tourism
        tourism within its strategy, not only by the larger urban destinations, but             destination             to other economic
        also nationally.                                                                                                      sectors

        Retail tourism is a concept which has the ability to counterbalance the
        negative effects of low-cost tourism, the pressure undergone by certain
        Spanish destinations, and the perception of the destination’s brand
        abroad.

                        A committed to retail tourism would represent a                         Higher                     Generation of
                        determining factor for repositioning the Spanish                     profitability                employment and
                        model of tourism.                                                   of the tourism                 wealth in the
                                                                                               industry                       region

                                                                                         Source: Prepared internally.

6 | The new era of travel retail: impact and challenges
Understanding where we’re coming from

Thanks to Spain’s currently attractive offer as a retail   The Globe Shopper Index
tourism destination, it is noteworthy that Madrid and
Barcelona have earned top results from the The Globe
Shopper Index prepared by Global Blue.                      1             London		                  67,3              7            Lisbon           61,6

This report ranks Spain’s top two cities in second place
                                                            2             Madrid                    67,1              8            Amsterdam        61,3
among over 30 European cities, right behind London          3             Barcelona                 67,1              9            Prague          59,7
and ahead of Paris, Rome, or Berlin. This classification
is the result of ranking different aspects, such as         4             Paris                   65,5            10               Budapest       59,6
shops, prices, comfort, hotels and transportation,
culture, or the climate at the destinations analyzed.       5             Rome                   62,9             11               Milan         59,3

MasterCard 2015 Global Destination Cities Index             6             Berlin               62,3               12               Vienna        59,1
estimates that the expenditure generated by
international travelers places Barcelona as sixth          Source: The Globe Shopper Index. Global Blue.
worldwide (and third in Europe). Madrid ranks in 15th
position globally, and 5th in Europe.                      Global Top 20 cities broken down by international tourism expenditure in
Considering how attractive the tourism on offer in
                                                           2015
Spain’s leading cities, the challenge is to increase
invoicing. Tourist spending is not on a par with other                                         Millions of                                     Millions of
international travel destinations. There is a quite a              City                        dollars                     City                dollars
stretch between current performance and the Spain’s           1   London                              20,273    11        Taipei                        9,280
potential.                                                    2   New York                            17,370    12        Tokyo                         8,440
                                                              3   Paris                               16,610    13        Hong Kong                     7,440
                                                              4   Seoul                               15,240    14        Los Angeles                   7,360
                                                              5   Singapore                           14,650    15        Madrid                        7,130
                                                              6   Barcelona                           13,860    16        Miami                         6,400
                                                              7   Bangkok                             12,360    17        Sidney                        6,150
                                                              8   Kuala Lumpur                        12,020    18        Munich                        5,570
                                                              9   Dubai                               11,680    19        Rome                          5,290
                                                            10    Istanbul                             9,370    20        Berlin                        5,220

                                                           Source: MasterCard 2015 Global Destination Cities Index.

                                                                                                                                                   EY 2015 |   7
2

8 | The new era of travel retail: impact and challenges
Current scope of
retail tourism
What is retail tourism?

Retail, or shopping tourism is a familiar phenomenon which has in a short period of
time become a motivational factor for tourists which is transforming destinations: its
growth is expected to explode exponentially in the coming years.

In its report Global Report on Shopping Tourism, the World Tourism Organization
defines shopping tourism as a contemporary form of tourism fostered by individuals

for whom purchasing goods outside of their usual environment is a determining
factor in their decision to travel. For some markets, such as China, shopping is
without a doubt the main expenditure when traveling

Shopping tourism, which is chiefly yet not exclusively related to urban destinations,
permits tourists to obtain products in conditions not found where they live, be it due
to availability, exclusivity, or price.

                                                                                   EY 2015 |   9
As a concept, shopping tourism is large and difficult to pin down. Nonetheless, we’ll try to synthesize the key elements which make up this type
        of travel:

                         Which products
                         are most in demand                ?                   Where do
                                                                               tourists shop     ?
                                                                                                 Small stores:
                                                               International    Small stores:                                       Bohemian
                                                                                                  multi-brand
                                                               brand stores    local designers                                     or charming
                                                                                                    stores
           Clothing, shoes,             Technological                                                                             neighborhoods
           complements                  products
                                                                                                                          City
                                                                                                                        centers
                                                                                                                                            Suburbs
                                                               Department        Shopping
                                                                                                   Outlets
                                                                 stores           centers
           Jewelry and                  Perfumes and                                                                                           Train
           watches                      cosmetics                                                                                             and bus
                                                                                                                                             stations/
                                                                                                                                   Other     airports
                                                                                                  Temporary
                                                                Handicraft                                                        tourist
                                                                                  Stable         markets (flea                     areas
                   Other: handicrafts, food                      shops /
                                                                                  markets        markets and
                   products, etc.                               workshops
                                                                                                   pop-ups)

        Source: Prepared internally.

10 | The new era of travel retail: impact and challenges
Current scope of retail tourism

When tourists shop, they don’t exclusively concentrate       Degree of tourist preference on trips to urban destinations, by
on leading brand stores featuring international fashion or   type of commercial establishment
shopping centers; shopping tourism goes far beyond this,
with local products now a factor which helps differentiate
between competing destinations.
                                                                                                                                       54%
Specifically, for some of the foremost markets, spending        Russia
on international travel most often occurs in smaller local                                                                         51%
stores, vs. establishments in larger global markets.

                                                                                                                                 50%
                                                                  USA
                                                                                                            33%

               A top destination must consider                  United
                                                                                                                                       54%
               shopping tourism as a priority                 Kingdom
               element of its strategy. To be                                                        28%
               successful, an offer must be adapted
               to outbound source markets and                            0             10%     20%          30%         40%          50%            60%
               supported by active and innovative
               promotional activities.
                                                                   Small local shops
               This will also affect airline routes as             Big global brands
               operators find these destinations
               increasingly attractive.
                                                             Source:   High value city tourism 2015. Premium Market Observatory and IE MasterCard
                                                                       Prestige Products

                                                                                                                                             EY 2015 |    11
Shopping tourism should not only contemplate products acquired by tourists, but
rather, destinations must be perceived as attractive and easily accessed by this market
segment.

Although they vary according to markets, according to experts consulted, the crucial
factors when choosing a shopping destination are:

                    The
                                                             Airline
                 exclusivity
                                              Its          connections    Safety of the
                   of the
                                             price            to the        location
                 commercial
                                                           destination
                    offer

                                                             Ability to
                                                                           Quality and
                                             Tax           communicate
               Exchange rate                                               cleanliness
                                           rebates           in foreign
                                                                           of the area
                                                            languages

                   Opening
                                         Available                         Culture and
                   hours of                                Restaurants
                                      accommodation                       entertainment
                    shops

12 | The new era of travel retail: impact and challenges
Current scope of retail tourism

Spain must make great strides forward to improve its position as a            Another noteworthy shopping destination is Milan, which to which the
shopping destination. Although it is the only European country with two       greater part of tourists head when their main focus is shopping. Estimates
cities in the Top 10 list of urban destinations on the continent by number    indicate that Vía Montenapoleone generates 3,000 million euros a year,
of international tourists and overnight stays (rather than per-capita         representing 12% of the city’s GDP, largely generated by tourists from non-
expenditure), the shopping option is not as popular as others, despite the    EU countries.
quality and variety of its offer.
                                                                              Other emerging destinations are also actively seeking out international
Certain destinations have made shopping tourism the driving focus of their    tourists through mega-events focused on shopping, such as the Dubai
strategies. New York is probably the pre-eminent example worldwide of         Shopping Festival or the Malaysia Mega Sale Festival.
this type of tourism.
                                                                              Shopping tourism is the primary focus of leading urban destinations
Through the creation and enhancement of innovative sales offers in            worldwide, as it multiplies the impact of tourism on the economy and
different neighborhoods (beyond outlets), and thanks to its active            employment.
promotion as a shopping destination, 25% of spending by visitors to NYC is
on shopping. In 2013, tourists spent $8,600 million in the city.              The inclusion of shopping in New York’s tourism offer created an economic
                                                                              reverberation of $61,300 million in 2014, generating over 350,000 jobs.
London has world-renowned shopping centers and markets, and supports
initiatives such as the development of the New West End Company, a            Visit Britain forecasts a contribution to its tourism revenue of 257,000 £
Business Improvement District that works to maintain and enhance the          by 2025. This entity calculated that for every 54,000 £ of tourist income, a
West End’s                                                                    new full-time job is created.

appeal to visitors worldwide (cleanliness and safety), carrying out
marketing activities aimed at international markets, including a successful
campaign to ease visa restrictions for Chinese visitors.                                     Visit Britain calculated that for every 1% increase
                                                                                             in total tourism expenditure in the UK, full-time
Paris, another global point of reference, has supported shopping tourism                     employment goes up 0.89%.
using tools such as the Paris City Shopping Passport, a card designed to
promote shopping offers to tourists through discounts with a number of
participating firms during a designated period of time.

             It is increasingly customary to see shopping tours
             or active promotion in international markets during
             sales campaigns.

                                                                                                                                              EY 2015 |   13
Which are the predominant
outbound source markets for
shopping tourism?
The ranking of international tourism from outbound source markets with leading
expenditures is China, which has replaced traditional western markets in very few
years. Chinese tourist spending grew 30% worldwide in 2014 with respect to the prior
year, which is well over the other top markets, against a very promising backdrop of
expanding international tourism.

In 2014 a notable difference took place in total amounts spent by Chinese travelers vs.
Americans, who ranked in second place. This is especially significant when considering
that in 2012, the total amount of spending worldwide was practically similar for these
two markets. The stunning growth of this country in just two years is a clear reflection
of the huge potential of so-called emerging markets, and not just China.

The total expenditure outlay by foreign tourists in Spain is dominated by main
European outbound source markets. Apparently, the growth of tourism expense in
emerging international source markets is not having a direct impact on Spain.

Although the source used as a reference does not break down tourism spending
in Spain by these emerging markets, it is of particular interest that the increased
spending in markets other than Europe and the US surpasses 20% of the inter-annual
growth in 2014, as compared to the average of 6.5%.

14 | The new era of travel retail: impact and challenges
Current scope of retail tourism

Tourism countries of origin by total expenditure (2014,    Spending by tourists in Spain broken down by country of
millions of euros) and interannual variation               origin (2014, , millions of euros), and interannual variation

  180,000                                                  14,000
               28.2%
                                                                              5.9%
  160,000
                                                           12,000

  140,000
                                                                                        3.0%
                                                           10,000
  120,000              6.4%

  100,000                      0.9%                         8,000

                                                                                                 9.7%
   80,000                                                                                                   1.4%
                                                            6,000

                                        8.0%
   60,000
                                                  -5.7%     4,000
   40,000                                                                                                              15.5%

                                                            2,000
   20,000

         0                                                       0
               China   USA    Germany    United   Russia                      United   Germany   France     Nordic      USA
                                        Kingdom                              Kingdom                       Countries
Source: WOT.                                               Source: Egatur.

                                                                                                                       EY 2015 |   15
No statistics are currently available on the volume of income by international       Leading source markets by tax free spending
        tourists when traveling abroad. Global Blue, the top international tax free          on shopping in Europe and Spain
        operator, provided the information necessary for preparing this report
        to calculate the leading source markets by spending on shopping during
                                                                                                                                Market        Trend June
        international travel.                                                                Ran. Market                        share         2014/15
                                                                                                 1 China                             33.44%         34%
        These are not absolute figures, as the data provided is taken from tax refund
        reports from countries where they exist (over 40), and therefore, does not               2 Russia                            10.05%        -29%
        include transactions of under a determined amount (depending on the country),            3 USA                                3.98%         28%
        or purchases made by EU tourists in other member countries. Nonetheless, this
                                                                                                 4 Indonesia                          3.18%          2%
        is most relevant source available and is representative on a global scale in order
        to gain an understanding of and analyze shopping tourism.                                5 Saudi Arabia                       2.53%         28%
                                                                                                 6 Thailand                           2.51%         23%
        At June 2015, China represents 33.44% of purchases by international tourists.
        This is followed by Russia, with 10% of the global market, and the US, with              7 Hong Kong                          2.36%         34%
        nearly 4%. Key markets reported solid growth rates during the past year (except          8 Taiwan                             2.33%         38%
        for Russia and Japan). Taiwan, South Korea, China, and Hong Kong are the
                                                                                                 9 United Arab Emirates               2.24%         18%
        largest-growing markets in interannual terms, over 30% in all cases.
                                                                                               10 Kuwait                              2.21%         17%
        The position of Middle Eastern countries in the global ranking (despite
                                                                                               11 Japan                               2.10%        -11%
        populations which are well under those of Asian countries) is also worth
        mentioning, as is their striking growth over the past year.                            12 Switzerland                         2.06%         15%
                                                                                               13 Malaysia                            2.05%         11%
                                                                                               14 South Korea                         1.99%         37%
                                                                                               15 Qatar                               1.70%         27%
                                                                                               16 Other                              25.27%         10%

                                                                                             Source: Global Blue June 2014 - July 2015).

16 | The new era of travel retail: impact and challenges
Current scope of retail tourism

The following are the source markets protagonizing      Leading source markets by tax free spending on shopping in Europe
shopping in Europe as well as Europe, with very         and Spain
similar market shares: China, Russia, and the US
Asian countries also lead in terms of growth during
the past year.                                                  Europe                                              Spain
                                                                                                Trend June                                      Trend June
Spain reflects notable differences. Although China      Ran. Country                Quota       14/15         Ran. Country          Quota       14/15
and Russia are still key markets, Morocco is in third
                                                           1 China                    32.33%           37%      1 China               32.05%          85%
place ahead of the US. Latin American markets
follow, which are ahead of other Asian countries. In       2 Russia                   11.62%           -30%     2 Russia              12.92%         -14%
general terms, growth in Spain’s main markets are          3 USA                       4.39%           28%      3 Morocco              3.74%          49%
higher than that in they leading markets for Europe
                                                           4 Hong Kong                 2.70%           37%      4 USA                  3.37%          45%
and worldwide. China stands out, with an inter-
annual growth of 85%. Europe’s highest growth last         5 Saudi Arabia              2.64%           24%      5 Mexico               2.97%          41%
year was the result of a much less favorable starting      6 Thailand                  2.61%           24%      6 Argentina            2.93%          21%
point with respect to other main European shopping
                                                           7 Taiwan                    2.47%           41%      7 Brazil               2.45%          16%
destinations.
                                                           8 UAE                       2.45%           18%      8 Hong Kong            2.07%          52%
                                                           9 Switzerland               2.44%           16%      9 South Korea          1.96%         114%
                                                          10 Kuwait                    2.43%           16%     10 Venezuela            1.90%         -17%
             Certain Asian countries have                 11 South Korea               2.20%           39%     11 Thailand             1.85%          52%
             doubled their shopping spending              12 Japan                                             12 Japan
                                                                                       2.10%           -10%                            1.83%         -19%
             in Spain in just a year.
                                                          13 Qatar                     1.91%           25%     13 Taiwan               1.75%          92%
             Nevertheless, unlike Europe and
             the rest of the world, no Middle             14 Singapore                 1.85%            9%     14 Colombia             1.69%          27%
             Eastern country ranks among the              15 Brazil                    1.71%            -1%    15 Singapore            1.64%          28%
             leading markets.
                                                        Source: Global Blue (June 2014 - July 2015).

                                                                                                                                               EY 2015 |   17
Shopping tourism in Spain

        Global Blue estimate of total non-EU tax free purchases in Spain       The distribution of tax free purchase by non-EU
        amounted to 1,600 million euros in 2014. Although this figure does     tourists in 2014
        not include purchases in Spain’s key markets (European), and non-tax
        free purchases made by non-EU shoppers or under 90.15 euros, it
        can be used to obtain an approximate idea of the dimension of this     Rest
        type of tourism already implanted in Spain.
                                                                               14,000 million €                         France
        The European tax-free shopping tourism market (as regards non-EU                                                11,500 million €
        shoppers) is estimated at 50,0000 million euros; therefore, Spain’s    Spain
        market share is approximately 3.2%.
                                                                               1,600 million €
        Tax free purchases are estimated to represent around 40% of total      (3.2%)                                 23%
        purchases by non-EU tourists; hence, the European shopping market                           28%
        represents 125,000 million euros (that is to say, also considering
        tourist who do not get tax refunds).

                                                                                                                         18%
                           Spain is the second country worldwide in                                 15%
                           terms of income from tourism, yet it only                                                            United Kingdom
                           attracts 3% of the European market of                Germany                      16%                9,000 million €
                           non-EU shoppers. There is huge room for              7,500 million €
                           improvement.
                                                                                                                   Italy
                                                                                                                   8,000 million €
                                                                               Source: Global Blue (2014).

18 | The new era of travel retail: impact and challenges
Current scope of retail tourism

Even though Spain is not a leading country in retail tourism, these figures indicate its enormous opportunities for generating wealth if given a
sufficient boost. According to Global Blue, for each euro non-EU tourists spend in Madrid another 2.2 euros are spent in Munich and Milan, and 9.5 in
Paris or London.

A comparison of Madrid and Barcelona reveals that with regard to other European cities, Paris, London, or Milan lead the way in number of purchases
by non-EU tourists by average sales receipt.

Proportion of non-EU expenditure on tax free items in other                      Number of tax free transactions and average sale receipt
European cities by each euro spent in Madrid                                     in main European cities

 10                                                                                                         Number of
            9.5€          9.5€
                                                                                                          transactions
                                                                                                                                                    Paris

  8

                                                                                                                              London
  6

                                                                                                          Milan
                                                                                                                                         Average receipt

  4                                                                                         Munich
                                       3.5€
                                                                                                Vienna

                                                  2.2€                                        Barcelona
  2

                                                               1€

  0
           London         Paris        Milan     Munich       Madrid                                                       Madrid

 Source: Global Blue (January 2014).

                                                                                                                                               EY 2015 |   19
When also considering source markets within the European Union - not included in prior estimates - the Footprints of Spain’s tourists in Summer 2014
        report prepared by BBVA indicates that spending on clothing and shopping is now the first item charged on its credit cards by international tourists.
        France leads in the total amount of charges for the same item.

        Type of expenditure charged on credit cards and breakdown of spending on clothing by nationality

                                                                                         21.36%
                                                                                France
                                                                                Germany
                                                                                UK
                                                                      51.75%                     7.18%
                                                                                Russia
                 28.43%                                    29.07%
                                                                                Other
                                                                                            6.86%
                                     Moda
                                     Restaurantes                                        6.73%
                                     Comida
                                     Alojamientos
                                     Otros                                                                      Clothing
                 7.48%
                                                                                                         Average transaction amount on               69 €
                                                19.32%                                                   credit card (2014)
                           9.11%
                                                                                                         Average amount spent on clothing by       106 €
                                                                                                         visitor (2014)

        Source: Footprints of Spain’s tourists in Summer 2014. BBVA

20 | The new era of travel retail: impact and challenges
Current scope of retail tourism

Non-EU tourists generate the most income through this      The average receipt of leading non-EU markets
activity. According to Global Blue, spending on shopping
is four times higher than for EU residents, and seven
times the national average. Three Asian countries have          Hong Kong     1                                             1,049 €
the highest average sales receipt amounts in Spain.
                                                                   Thailand   2                                            1,019 €
It is significant that other markets not currently
relevant in Spain, such as Saudi Arabia or the United                China    3                                            989 €
Arab Emirates, have purchase receipts higher than the
average.                                                               USA    4                             609 €

                                                                 Singapour    5                            591 €

                                                                    Taiwan    6                            590 €
              Chinese tourists, which is Spain’s
              main market - reflect sales receipts                  Mexico    7                           561 €
              which are twice the average for
              non-EU tourists, which is 499                          Japan    8                          544 €
              euros.
                                                                     Russia   9                  410 €

                                                                     Brazil   10            363 €

                                                                  Colombia    11            355 €

                                                                   Morocco    12          332 €

                                                                     Korea    13          317 €                       Total average
                                                                                                                      purchase
                                                                 Venezuela    14         303 €
                                                                                                                      499€
                                                                 Argentina    15        290 €

                                                           Source: Global Blue (June 2014 - July 2015).

                                                                                                                                        EY 2015 |   21
One of Spain’s biggest challenges is its high dependence on source    Primary long-haul markets with the highest growth in
        markets. According to Frontur, in 2014, 91% of foreign tourists       international tourism expense . 2010-2013
        visiting Spain were from European countries (with 55% concentrated
        on just three: the UK, France and Germany).
                                                                                                            Position in the global       Growth of total   Market share
                                                                                  Market                    tourism expenditure          tourism expense
        This dependence has hardly changed during the recent decade,                                                                                       in Spain*
                                                                                                            ranking 2013                 2010-13
        despite the huge increase in international tourism, led by emerging
                                                                                  China                                              1            131%
Current scope of retail tourism

The type of products most in demand by non-EU tourists in order is led by clothing, well ahead of other product categories, which reflects the importance
of local commerce on purchases made by international tourists.

The highest average purchase receipt corresponds to watches and jewelry, which is also the category with the strongest growth as regards average receipt
amounts last year. This indicates a demand for a tourism segment with a very high purchasing power, exerting a tractor effect on demand.

Tax free purchases by non-EU tourists in Spain by type                           Average tax free receipt in Spain by type of
of product                                                                       product (June 2015)

                                                                                                              1
                                                                                Watches and jewelry                                            2,386 €
                                         5,65%
                                 3,1

                                                                                                              2
                                    5%

                                                                                     Electronics and
                           6,13%                                                                                                     612 €
                                                                                          appliances
                                                                                                              3
                                                                                  Articles of clothing                       401 €

                                                                                                              4
                   20,09%                           64,99%                           Sports clothing              224 €

                                                                                 Interannual trend of the average tax free receipt in Spain
                                                                                 by type of product (June 2015 vs. June 2014)

    Articles of clothing                                                                                      1
    Watches and jewelry
                                                                                Watches and jewelry                                                 48%
    Electronics and appliances                                                                                2
                                                                                     Electronics and                      32%
    Sports clothing                                                                       appliances
    Other                                                                                                     3
                                                                                     Sports clothing                   21%

                                                                                                              4
 Source: Global Blue (June 2014 - July 2015).                                     Articles of clothing            9%

                                                                                                                                                  EY 2015 |   23
When analyzing the concentration of purchases by non-EU tourists, at June 2015
Barcelona represented nearly half the Spain’s sales volume. It is followed by Madrid,
and at a greater distance, the province of Malaga.

Barcelona’s Paseo de Gracia and Madrid’s Barrio de Salamanca generate the highest
purchasing activity. The 20 districts with the greatest national buying activity,
Barcelona offers five, while Madrid and Malage have four.

Breakdown of non-EU tourist purchases in Spain by province
(June 2015)

                                9.62%

                      6.72%

                                                           46.74%

                     36.92%
                                                                    Barcelona
                                                                    Madrid
                                                                    Malaga
                                                                    Other

            Source: Global Blue (June 2014 - July 2015).

24 | The new era of travel retail: impact and challenges
Current scope of retail tourism

Leading national districts by tax free purchases by non-EU tourists

                                      1           4                7          8          14
                                Paseo de                     Old
  Barcelona                                  Suburbs                     Other       Diagonal
                                 Gracia                     town

                                      2           3                5          6
                                Barrio de
   Madrid                                     Other        Center       Suburbs
                               Salamanca

                                      9           12            16           17
                                 Puerto                                 Costa del
   Malaga                                    Marbella      Capital
                                 Banús                                 Sol - Other

            10                     11                      13                  15                        18         19               20
                                                                        Balearic                  Cádiz -
   Valencia              Alicante                Seville                                                       Granada        Vizcaya
                                                                        Islands                 C. Gibraltar

   National ranking of shopping volume - non-EU tourists

                                                                                                                                             EY 2015 |   25
Of the 20 most relevant Spanish districts for purchases by non-EU visitors, the
greatest amounts were spent in Madrid’s Barrio de Salamanca, Puerto Banús
(Marbella), and la Diagonal in Barcelona.

Average tax free receipt in Spain by district (June 2015)

   Madrid - Barrio de Salamanca       1                                           1,011 €

           Málaga - Puerto Banús      2                                               994 €

             Barcelona - Diagonal     3                                           973 €

     Barcelona - Paseo de Gracia      4                                       850 €

                   Madrid - Other     5                               710 €

                          Valencia    6                       520 €

                  Balearic Islands    7               391 €

                           Vizcaya    8              374 €

                Málaga - Marbella     9             357 €

                  Madrid - Center 10                356 €

Source: Global Blue (June 2014 - July 2015).

26 | The new era of travel retail: impact and challenges
Current scope of retail tourism

The highest growth in terms of tax free purchases between June 2014 and 2015 in Spain’s shopping districts was in Madrid and the
outskirts of Barcelona.

The Interannual trend of the average tax free receipt in Spain’s five most important districts
(June 2015 vs. June 2014)

                                                   Madrid
                                               B. Salamanca
                                                 +32%
                                 Madrid
                                                      Madrid                                          Barcelona
                                 Center                                                                suburbs           Barcelona
                                                      other                                                            Pso. de Gracia
                                 +67%                 +50%                                             +58%               +37%

Source: Global Blue (June 2014 - July 2015).

                                                                                                                                          EY 2015 |   27
3

28 | The new era of travel retail: impact and challenges
The future of retail
tourism
The expansion of international
tourism
Growth forecasts for international tourism are exceptional. The World Tourism
Organization estimates that in 2030, the number of international tourists will
reach 1,800 million (2014: 1,133 million).

Asian countries lead in terms of source market growth: forecasts are for 5%
annually, and an average of 17 million international tourists every year.

                                                                                 EY 2015 |   29
Forecasted number of international
                                                                                                                                      tourist departures 2030.

                                                                   914                                                                Forecasted growth of number of
                                                                   million
                                                                                                                                      international tourist departures
                                                                                                                                      2020-2030.
                                                                    +22%

                                                                                                                 544
                                                                                                                 million

                                  264                                                78
                                                                                    million
                                   million                                                                       +48%
                                                                                    +34%
                                   +23%                                84
                                                                      million

                                                                      +52%

        Source: WTO.

        According to Turespaña, 40% of international travelers (visiting Spain or other destinations) include shopping among the travel plans. Although it is not
        possible to establish an exact number of tourists who travel to shop in other countries, this option will grow well over the others, since shopping is a
        main motivation (or at least one of them) for emerging markets who will lead the growth of international tourism.

        Without a doubt, Asian markets will reflect the highest growth in terms of number of travelers and total amounts spent.

        According to China outbound tourism report 2014, the number of Chinese tourists will reach 250 million in 2020, or according to the World Tourism
        Organization’s Tourism Forecasting Committee, there will be 50 million tourists from India during the same period.

30 | The new era of travel retail: impact and challenges
The future of retail tourism

A new scenario and changing
priorities
The fact that tourists love to shop is clearly evident in Spain, despite the fact that it is
not yet a leading destination for this type of visitor.

BBVA’s Footprints of Spain’s tourists in Summer 2014 states that credit card charges
by foreign tourists on clothing and shopping in Spain will surpass 40%, or even
50% in certain markets (these percentages are notably higher to those reflected in
traditional European markets).

Source markets with the highest proportion of shopping paid for
using credit cards in Spain

     53,99%

                         45,55%
                                             41,34%
                                                                    39,68%         39,18 %

    China            Argentina           Australia            Mexico             Russia

    Percentage of shopping for clothes

     Source: Footprints of Spain’s tourists in Summer 2014. BBVA.

                                                                                    EY 2015 |   31
Of the current portfolio of clients heading to Spain, there is   Cities by spending capacity forecasted for 2030
        a low presence of source markets who spend the most on           (in billions of dollars)
        shopping, as well as those growing in overall spending during
        their travels.
                                                                           1.                                                            New York-Newark-Jersey City   339
        According to the Oxford Economics Future trends and market
        opportunities in the world’s largest 750 cities, the highest       2.                                                                         Shanghai   315
        urban concentration by buying power in 2013 were the USA           3.                                                             Peking   258
        and Asia, with presence in some Latin American and Middle
        Eastern cities.                                                    4.                                                    Tokyo    224
                                                                           5.                                                   London   221
                                                                           6.                                             Chongqing      217
                           Spain must work to prioritize                   7.                                              Jakarta    212
                           attracting the source markets with the
                           highest current and future spending             8.                 Los Angeles-Long Beach-Anaheim        204
                           potential (both by individual as well as        9.                     Dallas-Fort Worth-Arlington     200
                           aggregate spending).
                                                                          10.                                          Canton   194
                                                                          11.                                        Riyadh     188
                                                                          12.                  Houston-Woodlands-Sugar        184
                                                                          13.                                Tianjin    166
                                                                          14.                            Sao Paulo     162
                                                                          15.          Chicago-Naperville-Elgin   146

                                                                         Source: Future trends and market opportunities in the world’s largest 750 cities.
                                                                         Oxford Economics.

32 | The new era of travel retail: impact and challenges
The future of retail tourism

The potential growth of spending on international trips is also reflected    If China currently leads in tourism expenditure, in coming years the
in air traffic forecasts for upcoming decades. China will double the US in   difference with respect to the USA, the second-ranked country, will
number of air passengers, while other emerging markets will occupy the       become more notable. The expected growth of the Chinese market is well
following positions worldwide:                                               over the most important European source markets.

Key air traffic markets in 2034                                              Previsión del gasto en viajes internacionales por mercado

                                                 Total number of                                         Forecasted                   Growth 2014-
       Country                                   passengers (million)                    Country         expenditure in 2019*         2019 (%)
  1   China                                                      2,900          1    China                              245.5                 68.9%

  2   USA                                                        1,400          2    USA                                154.6                 37.7%

  3   India                                                        367          3    Germany                            117.4                 23.7%

  4   Brazil                                                       272          4    United Kingdom                      78.4                 33.3%

  5   Indonesia                                                    270          5    France                              53.4                 20.8%

                                                                              * (billion dollars).

Source: IATA.                                                                Source: Euromonitor.

                                                                                                                                            EY 2015 |   33
The future of retail tourism

        An extraordinary opportunity for Spanish tourism

        Based on the expected growth of emerging source markets, as well as the high margin for improvement identified in Spain’s shopping tourism
        segment, it should aspire to make enormous improvements in its offer throughout upcoming years and therefore, boost employment related to this
        activity.

        The following section reflects a number of proposals and initiatives designed to improve Spanish tourism’s competitive edge and profitability based on
        giving a solid push to shopping tourism.

                                      Tax free shopping
                                      by non-EU countries

                      Today                                      In 4 years
                                                                                                                                50,000
                      1,6 billion                                More than 5                                                    new jobs
                      euros                                      billion euros

        Source: Own elaboration.

34 | The new era of travel retail: impact and challenges
EY 2015 |   35
4

36 | The new era of travel retail: impact and challenges
Proposals for
improving tourism’s
competitive edge

The enormous growth potential for shopping tourism is an opportunity which must be
taken advantage of in the short term. This will leverage the repositioning of Spain’s model
of tourism, based on previously-analyzed factors, such as the high spending capacity
associated to this type of tourist, or the effect of the seasonality factor on demand, which
contributes to improving the profitability of the sector as well as generating employment
and wealth.

Spain must endeavor to immediately position itself as a leading destination for this type
of tourism, a task which will require promoting certain aspects making shopping tourism
a priority aspect of its strategy; all the basic tools it is currently missing must be put into
use to enable it to compete on an international level. To successfully improve its current
offer of shopping tourism, and make it more attractive, Spain’s promotional activity must
be repositioned to focus on professional training for those involved in tourism-related
activities such as shopping, among others.

In order to reach these goals, public administrations must truly and efficiently collaborate
in areas affecting shopping tourism (rather than tourist sites) and the private sector
(not just commercial, but also with regard to transportation, accommodation, and
complementary activities).

                                                                                     EY 2015 |   37
This must be the first step towards ensuring that shopping tourism         A number of recommended improvements follow which are designed
        has its rightful place within Spain’s tourism strategy. Retail tourism     to improve Spain’s shopping tourism, and give it more of a competitive
        is a quality product, featuring excellent raw materials; however, not      edge, as well as position it as a large-scale destination in this regard.
        enough has been done, with efforts thus far uncoordinated and              These initiatives were structured around five central strategic lines.
        lacking in an international vision, therefore allowing competitors to
        gain the advantage.                                                        Targeting these improvement proposals was based on the
                                                                                   representation of sectors with a determining factor for bolstering
        Internationally-renowned Spanish retail and luxury brands, the quality     aspects such as shopping, fashion, financial services, culture,
        of products on offer from smaller businesses, and innovation, are all      gastronomy, or transportation. Results from the round tables and
        attributes which demonstrate that our local designers are assets to        interviews carried out within the framework of this report reflected a
        be taken advantage of in order to better position Spain’s brand. Spain     great deal of interest and predisposition to join efforts to work in the
        also offers a number of traits which enhance the attractiveness of its     same direction.
        offer and differentiating aspects, such as, for example, its culture and
        entertainment, gastronomy, lifestyle, or climate.

                        Shopping tourism must have a key position
                        within Spain’s tourism strategy to be able to
                        contribute to the changes necessary in the
                        current model of tourism.

38 | The new era of travel retail: impact and challenges
Proposals for improving tourism’s competitive edge

Shopping tourism
Proposals for improving tourism’s competitive edge

   A change in mentality

                                               a
   A global alliance
   A common vision: focus on key                                                                              Issuing of visas
   markets                             Shopping Tourism:
                                       a strategic priority                                               Airline connections
   Attracting tourists who add value

   Think Tank                                                        b                          Smooth VAT return processes

                                                                 Basic tools
                                                                for becoming
                                                                 competitive
   Improved tourism environment

   Adapting the commercial offer             c
   Attracting international                A more
   brands                              attractive offer
                                                                                                          International brand

                                                                    d
   Premium Hotels
                                                                                                     Specific marketing plans
                                                              New promotional
                                                                                                           Strategic alliances
                                                               activity focus

                                                    e
                                                                                                 Promotion at the destination

                                                                                                            Presentations in
                                                   Talent                                                   markets of origin
                                                                                                               Retail tourism
                                                                                                                 experiences

                                                                                                                           EY 2015 |   39
Retail tourism: a strategic
                                                           priority

                                                           A change in mentality
                                                           The first step towards redirecting Spain’s current tourism model is to change
                                                           mentalities within the private sector as well as the politicians and public entities in
                                                           charge of managing destination on a national, regional, and municipal scale.

                                                           This shift in paradigm must abandon the old focus on attracting the greatest possible
                                                           number of tourists. This is not or goal, but rather, to lure the tourists with the greatest
                                                           spending power. Spanish tourism’s key challenge is to significantly increase its
                                                           profitability while maintaining its position with regard to other surrounding countries.

                                                           The tourism model should aim to exert less pressure in the region, greater
                                                           sustainability and increased expenditure at the destination, to therefore increase
                                                           employment. This change would also help reduce the saturation of certain Spanish
                                                           destinations, and thereby contribute to the sustainability of its cities (an improved
                                                           coexistence with the local population, decreased wear and tear and use of local
                                                           infrastructures).

                                                           Public and private sectors must immediately take this vision onboard and use shopping
                                                           tourism to leverage change.

40 | The new era of travel retail: impact and challenges   40 | The new era of travel retail: impact and challenges
Proposals for improving tourism’s competitive edge

This point of inflexion should also be considered a change in the indicators
generally used to measure tourism success. Statistical and market research
                                                                               A global alliance
structures must include techniques for measuring spending at destinations,
or the growth indicators of strategic source markets.                          A better-positioned Spain as a shopping destination, and its competitiveness
                                                                               will be based on solid commitment from the involved parties. It will
                                                                               be necessary to join forces, establish public/private cooperation and
The entities responsible for destination management must consider the          coordination channels, and notably increase budgets (and their efficient
measurement of tourism expenditure in their statistics as a fundamental        management) to improve its offer while promoting and commercializing retail
aspect, and include desegregated data for emerging source markets which        tourism.
reflect the growth of international tourism.

                                                                               Public administrations will play a vital role, having to coordinate and push
                                                                               valid measures forward in all public areas with the ability to develop shopping
                                                                               tourism as, for example, promotion in source markets not familiar with Spain
              It is not sufficient to just measure the number of               or issuing of visas. This is not simply a tourism policy, but rather, a country
              international tourists arriving in Spain. Spending on            strategy.
              tourism should be the new point of reference.
                                                                               Recognition of shopping tourism as a strategic priority for tourism which is of
                                                                               better quality, as well as more profitable and sustainable.

                                                                                                                                                  EY 2015 |   41
Attracting tourists who add value
        The growing importance of shopping as an activity associated with                is therefore a deciding factor when ensuring that amounts spent by
        tourism is an undeniable reality. The sectors involved in retail tourism         tourists offset the cost to get there, while also generating wealth for the
        identify the direct focus of public policies on quality tourists as a critical   areas and associated employment.
        aspect - visitors with good spending capacity.
                                                                                         Shopping is increasingly present as part of tourist consumption,
        Spain must clearly commit to attracting tourists who generate relevant           and forecasts indicate that this trend will grow exponentially. The
        economic returns during their visit. An attractive destination for these         phenomenon greatly surpasses the profile of high-income tourists,
        tourists would lure others, making the destination aspirational for the          affecting a number of different demand groups.
        remaining sectors of tourism. The strategy does not seek to exclude.

        One must not forget that for tourism, as in other sectors, demand has
        polarized to two extremes: premium and low cost. Therefore, it makes no
        sense to devote efforts to profiles in demand which generate less wealth
        in these destinations.                                                                          A sustainable destination must include it its
                                                                                                        objectives the profitability of tourism.
        The limits to the segmentation of tourism demand are increasingly
        complex. A tourist might totally change consumption habits depending on
        type of trip- and even may indistinctly consume premium- and low-cost
        products and services during the same trip. A destination’s value proposal

42 | The new era of travel retail: impact and challenges
Proposals for improving tourism’s competitive edge

A common vision: focus on key markets                                              Think Tank
While the consumption habits of different tourist segments is increasingly         The close collaboration between the different parties involved in shopping
transversal, it is clear that they are the countries originating the biggest-      tourism in Spain must arise from the creation of a stable think tank
spending tourist groups.                                                           representing the different economic activities linked to this product.

It makes sense to look at international source tourism markets with the            The Think Tank would be devoted to actively lobbying the private sector as
biggest increase in spending on travel (overall and by tourist) over recent        well as public administrations regarding measures and initiatives designed
years. The forecasted growth of the size of the population traveling in            to boost Spain’s international positioning (such as measures designed
these countries is notably higher than in European countries which were            to attract priority markets, outline offers, create awareness, and train
traditionally important for the tourism market.                                    professionals, as well as evaluate results, among others).

It is therefore logical that a priority when attracting these tourists and their
related spending budgets would be to devote more time to these emerging
markets, where the familiarity with Spain and other new destinations is very
limited for obvious reasons related to geographical and cultural distance.
The tourism strategy switch is not moving forward as fast as it should.

Representatives of retail tourism contacted were unanimous about where
promotional efforts should be devoted. Specifically, key markets identified
included Asia (not only China, but also others in Southeast Asia such as
Indonesia, Thailand, or Malaysia), Russia, the Middle East, North America,
and Latin America (chiefly Brazil and Mexico). This does not mean that
traditional European markets or Japan should be ignored, since although
they are familiar with the destination, shopping tourism could be greatly
improved.

                                                                                                                                                  EY 2015 |   43
Basic tools for becoming
                                                           competitive

                                                           Airline connections
                                                           A fundamental area of improvement for Spanish tourism would be greater
                                                           connectivity of long-haul or long-distance markets, especially emerging ones which
                                                           are priorities for shopping tourism. Although Spain is a worldwide leader in tourism,
                                                           other main competitors are better positioned in this segment.

                                                           Important goals for Spain as an attractive destination will include the establishment of
                                                           direct flight connections to the main cities in China and Southeast Asia, opening new
                                                           routes in the Middle East or North America, and cement the position of Spain in Latin
                                                           America.

                                                                             Better connectivity with emerging markets is vital for
                                                                             Spanish tourism, which requires market diversification to
                                                                             minimize risks.

44 | The new era of travel retail: impact and challenges   44 | The new era of travel retail: impact and challenges
Proposals for improving tourism’s competitive edge

A glaring example of this disadvantage of Spain with respect to other European cities is the offer of direct flights to China. During June of 2015, there were
two direct flights from Spain, while Germany has 50, France 60, and the UK 80.

Connectivity is the direct result of a country’s attractiveness for source markets. Therefore, paying closer attention to the abovementioned critical aspects
would represent a greater interest in this tourist group in visiting Spain; the airline connection business case is perfectly justified.

Direct air connections with Spanish airports                                      Direct air connections with non-European countries

                                                                                                                              16.1%

    North America
                                  Europe                                                                                      14.4%
           1.29%
                                  94.86%                 Asia-Pacific
                                                         0.13%
            Latin America
                                                                                                                              9.6%
                   1.72%                           Middle East
                                                   0.36%

                                       Africa                                                                                 5.1%
                                       1.63%

Source: Airports Council International. 2014.

                                                                                                                                                    EY 2015 |   45
Issuing of visas
        Another big hurdle facing Spanish shopping tourism when attracting non-      An agreement between the US and China went into force in November,
        EU visitors is the complex or challenging visa-issuing process.              2014, which increased the number of visas for business travelers or
                                                                                     those making short stays, tourists, and students. Chinese tourists
        A more efficient process has been a long-standing demand for different       who frequently visit the US do not need to process an entry visa every
        groups in Spain. China attracts the most media attention in this area, but   year, but rather, can do so without filling out a request or making prior
        there is a serious impact on other target markets for retail tourism, such   payment during 10 consecutive years.
        as the Middle East and Southeast Asia.

                                                                                     “
        The entry into effect of the new biometric visas will be yet another
        new barrier, but there are many alternatives for speeding up visa
                                                                                                                           “
                                                                                          Every new 43 visas issued to tourists in
        issuing which should be implemented in the short term, such as, for               the US creates a new job.
        example, establishing multiple visa channels, reducing requirements and           Taleb Rifai, Secretary General of the World Tourism
        processing, increasing the number of consulates in key markets, or the            Organization. April 2015.
        implementation of an online issuing system.

                   Number of consulates in China (includes the Embassy)
                                                                                                       The new US-China visa agreement will help
          France                                                          6                            attract 7.3 million visitors from China in
                                                                                                       2021, generating $85,000 million annually.
          Germany                                                         5

          United Kingdom                                                  5

          USA                                                             5

          Italy                                                           4

          Spain                                                           3

        Source: prepared internally.

46 | The new era of travel retail: impact and challenges
Proposals for improving tourism’s competitive edge

Smooth VAT return processes
VAT refunds are an incentive leading tourists to shop during their travels. For
these rebates to be effective, tourists must stamp tax free checks at customs
before leaving the country.

There are a number of obstacles when this takes place, since tourists are
immersed in a very cumbersome process. The percentage of the tax refund in
Spain is advantageous for tourists with respect to other competing destinations,
yet quite cumbersome, with no added satisfaction for visitors.

Spain should urgently implement a validation system smoothing the way for both
systems: tax free purchases in stores (ensuring that the shop needn’t devote an
exceptional amount of time and that travelers needn’t be asked to provide too
much information), and quick customs validation compatible in the different
European countries (22% of Spanish VAT returns are validated in another EU
country) as other EU members have done.

Traveler information available at airports (on signs) as well as the locations of
customs and VAT refund stations could be greatly improved upon. These are
relatively simple measures which improve tourist perceptions, since tax rebates
are easier to obtain.

                                                                            EY 2015 |   47   EY 2015 |   47
A more attractive offer

        Improved tourism environment
                                                                                                  The quality of service and differentiation of
        The shopping tourism experience does not just boil down to their                          supply are opportunities to improve Spain’s
        visit to a shopping center. Discerning tourists seek out satisfactory                     position as a shopping destination.
        experiences and quality in a pleasing environment.

        The IE MasterCard Premium and Prestige Products Market Observatory
        identified that the main elements which attract tourists to luxury
        destinations are culture, shopping, and gastronomy. Entertainment
        options, cultural events, and other activities are factors which attract   Adapting the commercial offer
        and create loyalty with tourists who shop.
                                                                                   A well-cared for and attractive tourism environment should be
        To achieve quality tourism, local administrations must play a key role     accompanied by a sales offer meeting expectations, adapting to needs,
        as they are in charge of managing aspects such as safety and cleaning      which also differentiates a country from other competitors through
        of the urban landscape, tourist signs, as well as information services     own and singular products (such as fashion, food, or entertainment).
        and tourist attention centers.                                             The private sector has the ability to improve tourist experiences in
                                                                                   their establishments. Personnel should be aware of cultural codes
        The public sector must boost collaboration with the private sector on      and language of visiting tourists, provide information and advisory
        projects aimed on modernizing commercial areas, as well as carrying        services, and offer assistance in their languages; these are easy tools
        out different activities and events which turn destinations into places    to implement which also create a high impact.
        where many different interesting things happen which visitors find
        appealing.

48 | The new era of travel retail: impact and challenges
Proposals for improving tourism’s competitive edge

Attracting international brands                                                 Premium Hotels
For a large part of tourists who shop, the presence of establishments           To attract segments in demand with the highest spending capacity at the
from the main international fashion firms is a positive aspect to their trip.   destination, offers should include internationally-known hotels. Spain’s
                                                                                selection of premium hotels is quite scarce in its urban environment when
A top shopping destination should have an identity surrounding the offer        compared to other cities leading the tourist market.
to local designers and small businesses (apart from the singular attraction
of entertainment and culture) must complete its value proposal with             We’re not talking about traditional five-start hotels, but rather, those
outstanding fashion and luxury brands. These firms generate a great             offering exceptional service - capable of handling the most demanding
degree of loyalty in their customers, which should be taken advantage of        customers - located in historical buildings under an internationally-famous
by destinations and the local commercial sector.                                brand name.

The concentration of luxury establishments has a positive effect on             This is one of the biggest challenges facing Spanish urban destinations. In
destinations, as they do not generate competition, but provide an               order to attract this type of hotel, institutional support from the private
attractive offer for international source markets.                              sector is needed: assistance which is worth the effort due to the impact
                                                                                it generates as well as the transformational effect of the offer where it is
                                                                                located.

                  Luxury brands and local offering are
                  entirely compatible, and the combination
                  enriches a destination’s value proposal

                                                                                                                                                    EY 2015 |   49
New promotional activity focus

        International brand                                                       Spanish tourist promotion budgets must be more focused on targeting
                                                                                  these markets, and be comprised of specialized teams for each
        There is a need for the design and international positioning of a         country and product. Promotion and sales investment in shopping
        retail shopping brand which will stick in the minds of target tourist     tourism are currently insufficient, and beg for a radical change.
        groups. The brand should synthesize Spain’s offer, its attributes, and
        differentiating values as a first step in establishing an ambitious and   Strategic alliances
        professional promotion process.
                                                                                  The identification of strategic partners and agreements reached to
                                                                                  improve the product’s positioning in priority markets is the tool most
        Specific marketing plans                                                  recommended by sector experts. This type of strategic alliance makes
                                                                                  it possible to reach targeted tourists and media which are familiar and
        Source countries identified as priority shopping tourism targets are      trusted, such as communication media or companies based in the
        long-distance markets which, in the majority of cases, have cultural      source country.
        codes which differ greatly from Spain’s, and very little awareness
        about the country. This circumstance makes it necessary to design and
        implement specific marketing plans tailored to each of these markets.     Presentations in markets of origin
        The shopping product’s singular nature creates the demand for certain
        tools and channels aimed at efficient promotion.                          Another very effective tool consists of presenting the offer in source
                                                                                  markets through events and happenings to which potential local
                                                                                  participants and communication media are invited. This is how
                                                                                  awareness and interest are generated. Embassies and other entities
                                                                                  should be invited to participate in organizing the events to gain a
                                                                                  greater impact.
                          A greater investment in promoting shopping
                          tourism is justified by a high return on
                          investment.

50 | The new era of travel retail: impact and challenges
You can also read