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The new era of travel retail: Impact and challenges October 2015
Quality, sustainability, and employme
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
1
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
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
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
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
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
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 challengesUnderstanding 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 | 72 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 | 9As 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 challengesCurrent 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 | 11Shopping 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 challengesCurrent 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 | 13Which 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 | 15No 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 challengesCurrent 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 | 17Shopping 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 challengesCurrent 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 | 19When 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 challengesCurrent 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 | 21One 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 | 23When 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 challengesCurrent 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 | 25Of 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 challengesCurrent 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 | 273 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 | 29Forecasted 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 challengesThe 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 | 31Of 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 challengesThe 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 | 33The 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 challengesEY 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 | 37This 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 challengesProposals 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 | 39Retail 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 challengesProposals 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 | 41Attracting 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 challengesProposals 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 | 43Basic 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 challengesProposals 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 | 45Issuing 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 challengesProposals 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 | 47A 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 challengesProposals 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 | 49New 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.
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