• Industry: Consumer Goods & Retail
  • Date: 2/5/2013

That special shopping experience while on the move 

Interview with: Josef Felder, Chairman of the Board of Directors of The Nuance Group AG
KPMGnews: What sets the duty-free sector apart from the rest of the retail sector?

Josef Felder: The travel retail market is a relatively small niche market that generates sales of around $46 billion. Yet the past few years have brought striking changes to retail shopping habits. People are making a growing number of purchases on their way home from work. Just take a look at how retail spaces are developing at major train stations and airports. The trick is to offer customers the right blend of stores, services and restaurants at the right location without badgering them to alter their buying behavior too greatly or, even worse, slowing them down on their way through. We want to make our guests and customers feel at home while they’re on the move.


Is the term ‘duty free’, or price-based differentiation, still the decisive criterion for a sale, particularly in single currency and trade zones?

Price hasn’t been a driving factor behind airport shopping for some time now. Convenience is what drives these sales. Passengers and consumers appreciate the easily accessible yet extremely broad, high-quality range of products and services offered at an airport. You can still find a price advantage at the arrival shops of Swiss airports in Zurich and Geneva due to tax differences; however that mechanism obviously isn’t a factor anymore throughout the rest of Europe.  


How do you think the market will develop in the future?

Nowadays airports don’t make a profit on their aviation-related operations, but rather through the complementary range of shopping opportunities and services they offer. The market of the future will be determined by achieving the right balance of products and services so that an airport’s aviation operations and its retail market complement each other ideally. Fair cooperation agreements that provide both sides sufficient freedom and opportunities for economic development are key to a successful partnership between an airport and its retailers. I’ve experienced this partnership from both sides and am familiar with each side’s needs and capabilities.


There are still around 6 or 7 global suppliers on the duty-free market. Taken together, though, they command a market share of less than 20%. Do you expect the sector to see some consolidation in the future?

Historically, the sector grew with a large number of regional suppliers and niche players. I’m convinced that further consolidation will take place. Apart from growth in air traffic passenger numbers around the world, global consolidation in the sector actually represents an interesting opportunity for us, as a major player and one of the world’s largest travel retailers, to tap new markets. When it comes to global and regional presence – we’re active in 17 countries on four continents and have over 4600 employees – everything revolves around the big growth markets. Which markets will benefit most from global growth in mobility and air traffic? Europe isn’t likely to be among the top candidates as an answer to this question. Asia, the Middle East and even Eastern Europe offer good growth opportunities in the near future.


Where have you seen particularly strong regional differences?

We try to integrate the Nuance culture in all of the regions where we do business. Consequently it’s important to us that when guests and customers are in our stores, they don’t find themselves faced with overly aggressive sales staff. If you compare our shopping zone at the airport in Bangalore (India) with the one in, let’s say Taipei, for instance, which we don’t operate, you’ll experience for yourself the difference between the unobtrusive yet attentive service provided at one and the considerably more aggressive sales tactics employed at the other. That wouldn’t be in keeping with our style. This uniform hallmark of our culture is important since the big growth markets in the years to come will be located in countries of the Far East, Africa and South America.


To what extent is the duty-free sector dependent on developments in aviation?

Despite the fact that the duty-free and travel retail market isn’t exclusively located at airports, some 60 percent of the sales generated in the sector is closely linked to the aviation industry. That means we’re greatly dependent on the development of airlines, airports and passenger numbers. However since our core expertise lies in the convenience associated with the shopping experience in general, we will also be able to develop further in related fields outside airports and define new markets. When new projects are put out for tender, we always take a very close look at them to see whether the concept and the market suit us and, above all, whether they have an interesting sales profile. Not every new airport is a good business opportunity per se. There are a lot of factors involved. An extremely large mandate was put out for tender just recently with 26 airports and sites in Southern Europe; after close examination we didn’t even apply. A careful risk assessment is more important to us than growth at all costs. 


How important are the topics of innovation and quality for the duty-free sector?

Quality and innovation are a must. They determine our position in the market and our reputation as a modern, innovative company. When selecting our brands and retail partners, we’re careful to choose top-notch quality and well-known names. When it comes to innovation, alongside the traditional core categories, the trend is moving toward something dubbed ‘retailment’ or, in other words, customers in travel retail markets aren’t just looking for food, alcohol and tobacco or practical travel accessories anymore, instead they’re increasingly receptive to gadgets related to the entertainment industry. We were the first ones, for instance, to introduce iPads to the airport. Now electronics shops form an integral part of our retail zone.

In which areas and product categories do you see further growth potential?

With regard to product selection, alongside the traditional core categories such as tobacco, alcohol and perfume, the trend is moving toward offering more luxury items. We’re opening more and more so-called concept stores and boutiques around the world featuring brand names from the realms of fashion, watches, jewelries and leather goods. Of all our sites, airports are by far the most attractive segment. Yet Nuance also operates a growing number of shops in downtown areas and at border crossings where we can apply our expertise in the area of convenience shopping.


Which are the biggest challenges facing the sector in the future?

Anybody with global operations who is also heavily reliant on a crisis and risk-dependent sector such as the aviation industry finds itself faced with ever-changing challenges. Our business reacts with special sensitivity to developments and events related to exchange rates, changing legislation and regulations, e.g. regarding tobacco, competition from online trade and terrorist attacks. Competition in the travel retail market will also grow and margins are under constant pressure. We consider conceptual refinements to be our main task along with ongoing updates to the blend of products and services, new store concepts and the creation of new kinds of shopping experiences for our customers.



Interview: Bryan DeBlanc, Partner Advisory, KPMG Switzerland

Josef Felder

Josef Felder