Video: Ban hurts duty-free sales

By
CNBC
updated 8/12/2006 12:09:38 AM ET 2006-08-12T04:09:38

Travelers are now dumping their sodas and shampoo bottles and that’s not all that’s being lost. The multi-billion dollar duty-free business is taking a serious hit.

Airline travelers in the U.S. and Britain are prohibited from bringing all gels and liquids on board. A serious hit to the big business of duty-free.

“$27 billion is the size of the global industry,” said James Featherstone, Editor of Duty Free News International. "That’s something that’s approaching what you see at a pretty substantial western European city in terms of retail sales annually."

Many duty-free retailers are prevented from selling liquids to travelers between Britain and the U.S. Those nations are a significant chunk of the $27 billion business. Britain is the biggest duty-free market, with $6 billion in sales, while North America brings in $3.5 billion in annual revenues.

About one-third of duty-free sales are liquid, including $3.2 billion of sales in women’s fragrances and revenues from wine, beer and spirits, adding up to $4.75 billion.

But it’s more than just the numbers. Duty-free is a crucial platform for high-end brands.

“Even though it may not be a large portion of their parent company’s bottom line, they see it as being a very important market for them because they’re getting high-end consumers who have a lot of money to spend, who in a way are going to be pioneer consumers for these products,” said Featherstone.

The CEO of the largest U.S. duty-free operator says the Transportation Security Administration is preventing his stores from selling any liquids at all, and that liquor and fragrances comprise three-quarters of his business.

"It is a concern now, and there is a panic," said Simon Falic, chairman of Duty Free Americas.

Security at duty-free shops is already tight.

"Our merchandise is all screened post-security," said Falic. "We deliver at the gates with personnel that has cleared security."

Now, duty-free retailers and spirits and fragrance companies are losing tens of thousands of dollars a day until the TSA allows them back onboard. It's not clear how long the government will ban duty-free liquids on flights, or how many airports will be affected.

Until the ban is lifted, many duty-free shops are arranging to deliver items to customers' homes or ship items in cargo and distribute them on arrival.

But it’s sure to be a costly process.

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