The new era of travel retailtheshopping-tourism.es/wp-content/uploads/2015/12/EY...6 | The new era of travel retail: impact and challenges Spain’s positioning as a shopping destination

The new era of travel retail:Impact and challengesOctober 2015

Quality, sustainability, and employment

Quality, sustainability, and employmentContents

1Understanding where we’re coming from

Page 1

3The future of retail tourism

Page 28

2Current scope of retail tourism

Page 8

4Proposals for improving tourism’s competitive edge

Page 36

1

EY 2015 | 1

Understanding where we’re coming from

Retail tourism: starting point

Some of the most notable companies in retail tourism have taken part in the preparation of this report: Global Blue, MasterCard, El Corte Inglés, Loewe, Círculo Fortuny, World Duty Free Group and Spain’s Royal Academy of Gastronomy. We would like to extend our most heartfelt thanks to them all.

In just a few years, retail tourism has become the fastest-growing product in the tourism sector, having gotten quite a bit of attention due to its huge potential.

In a very short time, shopping has gone from being a complementary activity for tourists to a very relevant motivating (the main one, in many cases), and is also a key factor when choosing a certain destination over another.

Retail tourism is here to stay. An exponential growth is forecasted for upcoming years, especially in emerging markets which have a spending capacity which is well over traditional ones.

This is an unstoppable phenomenon which Spain must undoubtedly take advantage of in order to surmount the structural problems inherent in its main industry, such as for example, those related to profitability, seasonability, or demand.

The purpose of this report is to gain an understanding and an idea of the dimension of retail tourism in Spain, today and in the future, identifying opportunities for the sector while determining all the measures to be taken immediately to improve its competitive edge.

Our recommendations include the perspectives of the main retail travel agents in Spain, a sector which demands increased union and collaboration between companies and public administrations, in order to take advantage of the opportunities of this product while transforming Spain into a competitive and attractive destination.

Although this task is not simple, it is possible. An immediate shift in perspective in the different sectors involved is necessary so as to get down to work as soon as possible so as not to keep missing out on opportunities (and market share) which other competing destinations are taking advantage of.

It’s a challenge to find a globally-accepted concept of retail tourism. What is true is that there are tourists who travel in order to shop (increasingly more so), while the remainder shop when they travel.

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.

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.

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

2 | The new era of travel retail: impact and challenges

EY 2015 | 3

Traditional dashboardTourism in the Spanish economy

GDP contribution 2015 (forecast) 118,000 million euros

% tourism GDP in Spain 2015 (forecast) 11.2%

Employment 2 Q 2015 2.73 million professionals

Percentage of total employed population (2 Q 2015) 13.2%

Generation of employment 2014 158,556 individuals (+7.7%)

Number of international tourists 2014 65 millon

Number of international tourists 2015 68 million (+6.2 inter-annual)

Number of international tourists 2014 48,928 million (+3.9 inter-annual)

Source: INE, EPA, IET, Bank of Spain

Forecasted GDP growth by sector in Spain 2015 – 2025

Agriculture

Retail

Bank

Education

Global Economy

Mining

Financial Services

Automotive

Chemical Industry

Tourism

1,00%

1,50%

1,50%

1,70%

1,90%

1,90%

2,20%

2,20%

2,30%

0,30%

Source: World Travel and Tourism Council.

The old model


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.


EY 2015 | 5

A successful model of tourism?300,000,000

250,000,000

200,000,000

150,000,000

100,000,000

50,000,000

0

700.00

600.00

500.00

400.00

300.00

200.00

100.00

0Germany

Expenditure ($)

Overnight stays

Average expenditure per overnaight stay ($)

France Italy SpainUnited Kingdom *

578.84

387.43

423.20

238.13

258.27

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

The new model:

Dashboard of the future

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

Difference with respect to consumption in Spain

+60%

61.30€

+80%

69.22€+140%

91.99€

38.32€

+77%

65.64€

Source: Eurostat.

Average consumption of international tourists at overnight stay destination. 2013



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 decided commitment to boost other tourism products with great growth 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 outstanding attributes, its image as a tourist destination is inexorably linked to the sun and the beach and, on occasion, to the so-called binge drinking tourism, which distorts its value proposition while marginalizing 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 tourism within its strategy, not only by the larger urban destinations, but also nationally.

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 determining factor for repositioning the Spanish model of tourism.

High cost of tourism

Diversification of the destination’s

offer

Extension of the impact of tourism to other economic

sectors

Income generation in the area

(taxes)

Solid ability to create tourist

loyalty

Seasonality effect of the destination

Benefits of shopping tourism

Source: Prepared internally.

Higher profitability

of the tourism industry

Generation of employment and

wealth in the region

EY 2015 | 7


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

This report ranks Spain’s top two cities in second place among over 30 European cities, right behind London and ahead of Paris, Rome, or Berlin. This classification is the result of ranking different aspects, such as shops, prices, comfort, hotels and transportation, culture, or the climate at the destinations analyzed.

MasterCard 2015 Global Destination Cities Index estimates that the expenditure generated by international travelers places Barcelona as sixth worldwide (and third in Europe). Madrid ranks in 15th position globally, and 5th in Europe.

Considering how attractive the tourism on offer in Spain’s leading cities, the challenge is to increase invoicing. Tourist spending is not on a par with other international travel destinations. There is a quite a stretch between current performance and the Spain’s potential.

The Globe Shopper Index

Berlin 62,3

Rome 62,9

Paris 65,5

Barcelona 67,1

Madrid 67,1

London 67,31

4

2

5

3

6 Vienna 59,1

Milan 59,3

Budapest 59,6

Prague 59,7

Amsterdam 61,3

Lisbon 61,67

10

8

11

9

12

Source: The Globe Shopper Index. Global Blue.

Global Top 20 cities broken down by international tourism expenditure in 2015

Source: MasterCard 2015 Global Destination Cities Index.

City

Millions of dollars

City

Millions of dollars

1 London 20,273 11 Taipei 9,280

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


2

EY 2015 | 9

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.


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:

Source: Prepared internally.

Which products are most in demand?

Clothing, shoes, complements

Technological products

Jewelry and watches

Perfumes and cosmetics

Other: handicrafts, food products, etc.

Where do tourists shop?

International brand stores

Department stores

Small stores: local designers

Shopping centers

Small stores: multi-brand

stores

Outlets

Handicraft shops /

workshops

Stable markets

Temporary markets (flea markets and

pop-ups)

City centers

Train and bus stations/ airports

Suburbs

Bohemian or charming

neighborhoods

Other tourist areas

EY 2015 | 11


When tourists shop, they don’t exclusively concentrate on leading brand stores featuring international fashion or shopping centers; shopping tourism goes far beyond this, with local products now a factor which helps differentiate between competing destinations.

Specifically, for some of the foremost markets, spending on international travel most often occurs in smaller local stores, vs. establishments in larger global markets.

Degree of tourist preference on trips to urban destinations, by type of commercial establishment

Russia

0 10% 20% 30% 40% 50% 60%

54%

51%

50%

33%USA

United Kingdom

54%

28%

Small local shops

Big global brands

Source: High value city tourism 2015. Premium Market Observatory and IE MasterCard Prestige Products

A top destination must consider shopping tourism as a priority element of its strategy. To be successful, an offer must be adapted to outbound source markets and supported by active and innovative promotional activities.

This will also affect airline routes as operators find these destinations increasingly attractive.


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:

Exchange rate

Opening hours of shops

Tax rebates

Available accommodation

Ability to communicate

in foreign languages

Restaurants

Quality and cleanliness of the area

Culture and entertainment

The exclusivity

of the commercial

offer

Its price

Airline connections

to the destination

Safety of the location

EY 2015 | 13

Spain must make great strides forward to improve its position as a shopping destination. Although it is the only European country with two cities in the Top 10 list of urban destinations on the continent by number of international tourists and overnight stays (rather than per-capita expenditure), the shopping option is not as popular as others, despite the quality and variety of its offer.

Certain destinations have made shopping tourism the driving focus of their strategies. New York is probably the pre-eminent example worldwide of this type of tourism.

Through the creation and enhancement of innovative sales offers in different neighborhoods (beyond outlets), and thanks to its active 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.

London has world-renowned shopping centers and markets, and supports initiatives such as the development of the New West End Company, a Business Improvement District that works to maintain and enhance the West End’s

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.

Paris, another global point of reference, has supported shopping tourism 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.

Another noteworthy shopping destination is Milan, which to which the greater part of tourists head when their main focus is shopping. Estimates indicate that Vía Montenapoleone generates 3,000 million euros a year, representing 12% of the city’s GDP, largely generated by tourists from non-EU countries.

Other emerging destinations are also actively seeking out international tourists through mega-events focused on shopping, such as the Dubai Shopping Festival or the Malaysia Mega Sale Festival.

Shopping tourism is the primary focus of leading urban destinations worldwide, as it multiplies the impact of tourism on the economy and employment.

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.

Visit Britain forecasts a contribution to its tourism revenue of 257,000 £ by 2025. This entity calculated that for every 54,000 £ of tourist income, a new full-time job is created.

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

Visit Britain calculated that for every 1% increase in total tourism expenditure in the UK, full-time employment goes up 0.89%.



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%.

EY 2015 | 15

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

5.9%

3.0%

9.7%1.4%

15.5%

United Kingdom

Germany France USANordic Countries

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

Source: Egatur.

Tourism countries of origin by total expenditure (2014, millions of euros) and interannual variation

180,000

China USA Germany RussiaUnited Kingdom

160,000

140,000

120,000

100,000

80,000

60,000

40,000

20,000

0

28.2%

6.4%

0.9%

8.0%-5.7%

Source: WOT.



No statistics are currently available on the volume of income by international tourists when traveling abroad. Global Blue, the top international tax free operator, provided the information necessary for preparing this report to calculate the leading source markets by spending on shopping during international travel.

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 include transactions of under a determined amount (depending on the country), or purchases made by EU tourists in other member countries. Nonetheless, this is most relevant source available and is representative on a global scale in order to gain an understanding of and analyze shopping tourism.

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 nearly 4%. Key markets reported solid growth rates during the past year (except for Russia and Japan). Taiwan, South Korea, China, and Hong Kong are the largest-growing markets in interannual terms, over 30% in all cases.

The position of Middle Eastern countries in the global ranking (despite populations which are well under those of Asian countries) is also worth mentioning, as is their striking growth over the past year.

Leading source markets by tax free spending on shopping in Europe and Spain

Source: Global Blue June 2014 - July 2015).

Ran. Market Market share

Trend June 2014/15

1 China 33.44% 34%

2 Russia 10.05% -29%

3 USA 3.98% 28%

4 Indonesia 3.18% 2%

5 Saudi Arabia 2.53% 28%

6 Thailand 2.51% 23%

7 Hong Kong 2.36% 34%

8 Taiwan 2.33% 38%

9 United Arab Emirates 2.24% 18%

10 Kuwait 2.21% 17%

11 Japan 2.10% -11%

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%

EY 2015 | 17


The following are the source markets protagonizing shopping in Europe as well as Europe, with very similar market shares: China, Russia, and the US Asian countries also lead in terms of growth during the past year.

Spain reflects notable differences. Although China and Russia are still key markets, Morocco is in third place ahead of the US. Latin American markets follow, which are ahead of other Asian countries. In general terms, growth in Spain’s main markets are higher than that in they leading markets for Europe and worldwide. China stands out, with an inter-annual growth of 85%. Europe’s highest growth last year was the result of a much less favorable starting point with respect to other main European shopping destinations.

Certain Asian countries have doubled their shopping spending in Spain in just a year.

Nevertheless, unlike Europe and the rest of the world, no Middle Eastern country ranks among the leading markets.

Leading source markets by tax free spending on shopping in Europe and Spain

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

Ran. Country Quota Trend June 14/15

1 China 32.33% 37%

2 Russia 11.62% -30%

3 USA 4.39% 28%

4 Hong Kong 2.70% 37%

5 Saudi Arabia 2.64% 24%

6 Thailand 2.61% 24%

7 Taiwan 2.47% 41%

8 UAE 2.45% 18%

9 Switzerland 2.44% 16%

10 Kuwait 2.43% 16%


12 Japan 2.10% -10%

13 Qatar 1.91% 25%

14 Singapore 1.85% 9%

15 Brazil 1.71% -1%

Ran. Country Quota Trend June 14/15

1 China 32.05% 85%

2 Russia 12.92% -14%

3 Morocco 3.74% 49%

4 USA 3.37% 45%

5 Mexico 2.97% 41%

6 Argentina 2.93% 21%

7 Brazil 2.45% 16%

8 Hong Kong 2.07% 52%


10 Venezuela 1.90% -17%

11 Thailand 1.85% 52%

12 Japan 1.83% -19%

13 Taiwan 1.75% 92%

14 Colombia 1.69% 27%

15 Singapore 1.64% 28%

SpainEurope


Shopping tourism in Spain

Global Blue estimate of total non-EU tax free purchases in Spain amounted to 1,600 million euros in 2014. Although this figure does 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 type of tourism already implanted in Spain.

The European tax-free shopping tourism market (as regards non-EU shoppers) is estimated at 50,0000 million euros; therefore, Spain’s market share is approximately 3.2%.

Tax free purchases are estimated to represent around 40% of total purchases by non-EU tourists; hence, the European shopping market represents 125,000 million euros (that is to say, also considering tourist who do not get tax refunds).

The distribution of tax free purchase by non-EU tourists in 2014

France11,500 million €

United Kingdom 9,000 million €Germany

7,500 million €

Italy 8,000 million €

Rest14,000 million €

Spain1,600 million €(3.2%) 23%

28%

16%

18%15%

Source: Global Blue (2014).

Spain is the second country worldwide in terms of income from tourism, yet it only attracts 3% of the European market of non-EU shoppers. There is huge room for improvement.

EY 2015 | 19


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.

London Paris Milan MadridMunich

1€

2.2€

3.5€

9.5€9.5€

0

2

4

6

8

10

Source: Global Blue (January 2014).

Proportion of non-EU expenditure on tax free items in other European cities by each euro spent in Madrid

Number of tax free transactions and average sale receipt in main European cities

Number of transactions

Average receipt

Paris

London

Madrid

Barcelona

Vienna

Munich

Milan


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

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

29.07%28.43%

7.48%

9.11% 19.32%

21.36%

7.18%

6.86%

6.73%

51.75%

Moda

Comida

Restaurantes

Alojamientos

Otros

France

UK

Germany

Russia

Other

Clothing

Average transaction amount on credit card (2014)

69 €

Average amount spent on clothing by visitor (2014)

106 €

EY 2015 | 21



Non-EU tourists generate the most income through this 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 the highest average sales receipt amounts in Spain.

It is significant that other markets not currently relevant in Spain, such as Saudi Arabia or the United Arab Emirates, have purchase receipts higher than the average.

Chinese tourists, which is Spain’s main market - reflect sales receipts which are twice the average for non-EU tourists, which is 499 euros.

The average receipt of leading non-EU markets

1Hong Kong

2Thailand

3China

4USA

5Singapour

6Taiwan

7Mexico

8Japan

9Russia

10Brazil

11Colombia

12Morocco

13Korea

14Venezuela

15Argentina

1,049 €

1,019 €

989 €

609 €

591 €

590 €

561 €

544 €

410 €

363 €

355 €

332 €

317 €

303 €

290 €

Total average purchase 499€


One of Spain’s biggest challenges is its high dependence on source markets. According to Frontur, in 2014, 91% of foreign tourists visiting Spain were from European countries (with 55% concentrated on just three: the UK, France and Germany).

This dependence has hardly changed during the recent decade, despite the huge increase in international tourism, led by emerging markets in recent years.

Asian, Middle Eastern, and certain Latin American markets are quickly climbing the worldwide ranking in tourism expenditure, but the number of tourists arriving from these countries to Spain is of yet still insignificant.

Of the 30 most relevant source markets as regards tourist spending, with a growth of over 30% in recent years, only Russia is present in Spain. The remainder of high-potential markets have a minimal market share of under 1%.

Spain’s offer and promotional actions are not tailored to the demands and interests of emerging source markets.

Primary long-haul markets with the highest growth in international tourism expense . 2010-2013

MarketPosition in the global tourism expenditure ranking 2013

Growth of total tourism expense 2010-13

Market share in Spain*

China 1 131% < 1 %

Russia 5 97% 2-3 %

Brazil 11 52% < 1 %

Singapore 12 31% < 1 %

United Arab Emirates 22 50% < 1 %

India 23 32% < 1 %

Kuwait 25 75% < 1 %

Mexico 26 33% < 1 %

Malaysia 27 44% < 1 %

Qatar 28 50%** < 1 %

Source: IET, World Bank.

* Calculated as the number of tourists from the country vs. the total number of foreign tourists arriving in Spain. ** Growth between 2011 and 2013.

EY 2015 | 23


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 of product

Average tax free receipt in Spain by type of product (June 2015)

64,99%20,09%

6,13%

5,65%

3,15%

Articles of clothing

Electronics and appliancesWatches and jewelry

Sports clothing

Other

Watches and jewelry

Electronics and appliances


Sports clothing

1

3

2

4

2,386 €

612 €

401 €

224 €

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

Watches and jewelry

Electronics and appliances

Sports clothing


1

3

2

4

48%

32%

21%

9%Source: Global Blue (June 2014 - July 2015).


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)

Barcelona

Malaga

Madrid

Other

46.74%

36.92%

6.72%

9.62%


EY 2015 | 25


Malaga

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

Other Center SuburbsBarrio de SalamancaMadrid

2 3 5 6

BarcelonaOld

town DiagonalPaseo de Gracia OtherSuburbs

1 4 7 8 14

Costa del Sol - OtherCapitalMalaga

Puerto Banús Marbella

9 12 16 17

Valencia Alicante Seville Balearic Islands

Cádiz - C. Gibraltar Granada Vizcaya

10 11 13 15 18 19 20

National ranking of shopping volume - non-EU tourists


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)


1Madrid - Barrio de Salamanca

2Málaga - Puerto Banús

3Barcelona - Diagonal

4Barcelona - Paseo de Gracia

5Madrid - Other

6Valencia

7Balearic Islands

8Vizcaya

9Málaga - Marbella

10Madrid - Center

850 €

710 €

520 €

391 €

374 €

357 €

356 €

1,011 €

994 €

973 €

EY 2015 | 27



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)

Barcelona suburbs

+58%Barcelona

Pso. de Gracia

+37%

Madrid Center

+67%Madrid other

+50%

Madrid B. Salamanca

+32%


3

EY 2015 | 29

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.


264 million

914 million

544 million

84 million

78 million

+23%

+22%

+48%

+52%

+34%

Forecasted number of international tourist departures 2030.

Forecasted growth of number of international tourist departures 2020-2030.

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.

EY 2015 | 31


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 %

Percentage of shopping for clothes

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

China Argentina Australia Mexico Russia


15.

14.

13.

12.

11.

10.

9.

8.

7.

6.

5.

4.

3.

2.

1. 339

315

258

224

221

217

212

204

200

194

188

184

166

162

146

New York-Newark-Jersey City

Shanghai

Peking

Tokyo

London

Chongqing

Canton

Riyadh

Sao Paulo

Chicago-Naperville-Elgin

Tianjin

Houston-Woodlands-Sugar

Jakarta

Los Angeles-Long Beach-Anaheim

Dallas-Fort Worth-Arlington

Of the current portfolio of clients heading to Spain, there is a low presence of source markets who spend the most on shopping, as well as those growing in overall spending during their travels.

According to the Oxford Economics Future trends and market opportunities in the world’s largest 750 cities, the highest urban concentration by buying power in 2013 were the USA and Asia, with presence in some Latin American and Middle Eastern cities.

Cities by spending capacity forecasted for 2030 (in billions of dollars)

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

Spain must work to prioritize attracting the source markets with the highest current and future spending potential (both by individual as well as aggregate spending).

EY 2015 | 33

Country

Total number of passengers (million)

1 China 2,900

2 USA 1,400

3 India 367

4 Brazil 272

5 Indonesia 270

Source: IATA. Source: Euromonitor.


The potential growth of spending on international trips is also reflected in air traffic forecasts for upcoming decades. China will double the US in number of air passengers, while other emerging markets will occupy the following positions worldwide:

If China currently leads in tourism expenditure, in coming years the difference with respect to the USA, the second-ranked country, will become more notable. The expected growth of the Chinese market is well over the most important European source markets.

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

Country

Forecasted expenditure in 2019*

Growth 2014-2019 (%)

1 China 245.5 68.9%

2 USA 154.6 37.7%

3 Germany 117.4 23.7%

4 United Kingdom 78.4 33.3%

5 France 53.4 20.8%

* (billion dollars).


Tax free shopping by non-EU countries

Today1,6 billion euros

In 4 yearsMore than 5 billion euros

50,000 new jobs


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.

Source: Own elaboration.

EY 2015 | 35

50,000 new jobs


4

EY 2015 | 37

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).


This must be the first step towards ensuring that shopping tourism has its rightful place within Spain’s tourism strategy. Retail tourism is a quality product, featuring excellent raw materials; however, not enough has been done, with efforts thus far uncoordinated and lacking in an international vision, therefore allowing competitors to gain the advantage.

Internationally-renowned Spanish retail and luxury brands, the quality of products on offer from smaller businesses, and innovation, are all attributes which demonstrate that our local designers are assets to be taken advantage of in order to better position Spain’s brand. Spain also offers a number of traits which enhance the attractiveness of its offer and differentiating aspects, such as, for example, its culture and entertainment, gastronomy, lifestyle, or climate.

A number of recommended improvements follow which are designed to improve Spain’s shopping tourism, and give it more of a competitive edge, as well as position it as a large-scale destination in this regard. These initiatives were structured around five central strategic lines.

Targeting these improvement proposals was based on the representation of sectors with a determining factor for bolstering aspects such as shopping, fashion, financial services, culture, gastronomy, or transportation. Results from the round tables and interviews carried out within the framework of this report reflected a great deal of interest and predisposition to join efforts to work in the same direction.

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.

EY 2015 | 39


Shopping tourism Proposals for improving tourism’s competitive edge

dNew promotional

activity focus

cA more

attractive offer

eTalent

bBasic tools

for becoming competitive

aShopping Tourism: a strategic priority

A change in mentality

A common vision: focus on key markets

Attracting tourists who add value

A global alliance

Issuing of visas

Smooth VAT return processes

Airline connections

Improved tourism environment

Attracting international brands

Premium Hotels

Adapting the commercial offer

International brand

Strategic alliances

Presentations in markets of origin

Promotion at the destination

Retail tourism experiences

Specific marketing plans

Think Tank

40 | The new era of travel retail: impact and challenges 40 | The new era of travel retail: impact and challenges

Retail tourism: a strategic priority


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.

EY 2015 | 41


This point of inflexion should also be considered a change in the indicators generally used to measure tourism success. Statistical and market research structures must include techniques for measuring spending at destinations, or the growth indicators of strategic source markets.

The entities responsible for destination management must consider the measurement of tourism expenditure in their statistics as a fundamental aspect, and include desegregated data for emerging source markets which reflect the growth of international tourism.

A global alliance

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 coordination channels, and notably increase budgets (and their efficient management) to improve its offer while promoting and commercializing retail 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 or issuing of visas. This is not simply a tourism policy, but rather, a country strategy.

Recognition of shopping tourism as a strategic priority for tourism which is of better quality, as well as more profitable and sustainable.

It is not sufficient to just measure the number of international tourists arriving in Spain. Spending on tourism should be the new point of reference.



The growing importance of shopping as an activity associated with tourism is an undeniable reality. The sectors involved in retail tourism identify the direct focus of public policies on quality tourists as a critical aspect - visitors with good spending capacity.

Spain must clearly commit to attracting tourists who generate relevant economic returns during their visit. An attractive destination for these tourists would lure others, making the destination aspirational for the 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.

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

is therefore a deciding factor when ensuring that amounts spent by tourists offset the cost to get there, while also generating wealth for the areas and associated employment.

Shopping is increasingly present as part of tourist consumption, and forecasts indicate that this trend will grow exponentially. The phenomenon greatly surpasses the profile of high-income tourists, affecting a number of different demand groups.

A sustainable destination must include it its objectives the profitability of tourism.

EY 2015 | 43

A common vision: focus on key markets

While the consumption habits of different tourist segments is increasingly transversal, it is clear that they are the countries originating the biggest-spending tourist groups.

It makes sense to look at international source tourism markets with the biggest increase in spending on travel (overall and by tourist) over recent years. The forecasted growth of the size of the population traveling in these countries is notably higher than in European countries which were traditionally important for the tourism market.

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.

Think Tank

The close collaboration between the different parties involved in shopping tourism in Spain must arise from the creation of a stable think tank representing the different economic activities linked to this product.

The Think Tank would be devoted to actively lobbying the private sector as well as public administrations regarding measures and initiatives designed to boost Spain’s international positioning (such as measures designed to attract priority markets, outline offers, create awareness, and train professionals, as well as evaluate results, among others).


44 | The new era of travel retail: impact and challenges 44 | The new era of travel retail: impact and challenges

Basic tools for becoming competitive

Airline connectionsA 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.

EY 2015 | 45


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.

Europe 94.86%

North America 1.29%

Latin America1.72%

Africa 1.63%

Middle East 0.36%

Asia-Pacific 0.13%

16.1%

14.4%

9.6%

5.1%

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

Source: Airports Council International. 2014.


Issuing of visas

Another big hurdle facing Spanish shopping tourism when attracting non-EU visitors is the complex or challenging visa-issuing process.

A more efficient process has been a long-standing demand for different groups in Spain. China attracts the most media attention in this area, but there is a serious impact on other target markets for retail tourism, such 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 issuing which should be implemented in the short term, such as, for example, establishing multiple visa channels, reducing requirements and processing, increasing the number of consulates in key markets, or the implementation of an online issuing system.

An agreement between the US and China went into force in November, 2014, which increased the number of visas for business travelers or those making short stays, tourists, and students. Chinese tourists who frequently visit the US do not need to process an entry visa every year, but rather, can do so without filling out a request or making prior payment during 10 consecutive years.

Number of consulates in China (includes the Embassy)

France 6

Germany 5

United Kingdom 5

USA 5

Italy 4

Spain 3

Source: prepared internally.

Every new 43 visas issued to tourists in the US creates a new job.“ “Taleb Rifai, Secretary General of the World Tourism Organization. April 2015.

The new US-China visa agreement will help attract 7.3 million visitors from China in 2021, generating $85,000 million annually.

EY 2015 | 47


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


A more attractive offer

Improved tourism environment The shopping tourism experience does not just boil down to their visit to a shopping center. Discerning tourists seek out satisfactory 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 and create loyalty with tourists who shop.

To achieve quality tourism, local administrations must play a key role as they are in charge of managing aspects such as safety and cleaning of the urban landscape, tourist signs, as well as information services and tourist attention centers.

The public sector must boost collaboration with the private sector on projects aimed on modernizing commercial areas, as well as carrying out different activities and events which turn destinations into places where many different interesting things happen which visitors find appealing.

Adapting the commercial offerA well-cared for and attractive tourism environment should be accompanied by a sales offer meeting expectations, adapting to needs, which also differentiates a country from other competitors through own and singular products (such as fashion, food, or entertainment).

The private sector has the ability to improve tourist experiences in their establishments. Personnel should be aware of cultural codes and language of visiting tourists, provide information and advisory services, and offer assistance in their languages; these are easy tools to implement which also create a high impact.

The quality of service and differentiation of supply are opportunities to improve Spain’s position as a shopping destination.

EY 2015 | 49

Attracting international brandsFor a large part of tourists who shop, the presence of establishments from the main international fashion firms is a positive aspect to their trip.

A top shopping destination should have an identity surrounding the offer to local designers and small businesses (apart from the singular attraction of entertainment and culture) must complete its value proposal with outstanding fashion and luxury brands. These firms generate a great degree of loyalty in their customers, which should be taken advantage of by destinations and the local commercial sector.

The concentration of luxury establishments has a positive effect on destinations, as they do not generate competition, but provide an attractive offer for international source markets.

Premium Hotels To attract segments in demand with the highest spending capacity at the destination, offers should include internationally-known hotels. Spain’s selection of premium hotels is quite scarce in its urban environment when compared to other cities leading the tourist market.

We’re not talking about traditional five-start hotels, but rather, those offering exceptional service - capable of handling the most demanding customers - located in historical buildings under an internationally-famous brand name.

This is one of the biggest challenges facing Spanish urban destinations. In order to attract this type of hotel, institutional support from the private 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


New promotional activity focus

International brandThere is a need for the design and international positioning of a retail shopping brand which will stick in the minds of target tourist groups. The brand should synthesize Spain’s offer, its attributes, and differentiating values as a first step in establishing an ambitious and professional promotion process.

Specific marketing plansSource countries identified as priority shopping tourism targets are long-distance markets which, in the majority of cases, have cultural 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. The shopping product’s singular nature creates the demand for certain tools and channels aimed at efficient promotion.

Spanish tourist promotion budgets must be more focused on targeting these markets, and be comprised of specialized teams for each country and product. Promotion and sales investment in shopping tourism are currently insufficient, and beg for a radical change.

Strategic alliancesThe identification of strategic partners and agreements reached to improve the product’s positioning in priority markets is the tool most recommended by sector experts. This type of strategic alliance makes it possible to reach targeted tourists and media which are familiar and trusted, such as communication media or companies based in the source country.

Presentations in markets of originAnother 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.

EY 2015 | 51

Promotion at the destinationSpain already receives 70 million tourists per year; promotional campaigns held at the destination once tourists have arrived are another superb actions recommended by experts. These would encourage tourists to shop during their visit, while positioning Spain as a future location to visit and shop.

Retail tourism experiencesIn order for promotional offers to be effective, they must be correctly prepared and packaged for commercialization. Related proposals must be specifically targeted to each market, as tastes and preferences vary: they should reflect specifically-tailored culture, food, and entertainment proposals as items setting our offer apart.

The entities responsible for managing destinations must communicate the shopping offer by highlighting the local offer of designers and small businesses, grouped by neighborhoods, local markets, or pop-up shops.

Many of the above objectives are not attainable unless steps are taken to improve professional training. Areas requiring improvement in training include:

• Language training

• Courses designed for adapting offers and getting the attention of tourists from these markets, using specific cultural codes.

• Training on and communication of tax rebate processes for all sector professionals.

• Talent-attracting programs, and support provided to entrepreneurs and startups linked to shopping tourism.

Finally, another area requiring improved training is to make the different economic sectors and public administrations aware of the benefits of shopping tourism, as well as the enormous potential of adapting the Spanish tourism model. This new vision must extend across all these groups, as demanded by different sectors, to thereby ensure the profitability of the model as well as its long-term sustainability.


Talent

Functions and responsibilities Private sector

Entities responsible for managing tourist destinations

Government Administration Office Regional governments Local government

a Retail tourism: a strategic priority

d New promotional activity focus


A global alliance

A common vision: focus onkey markets


Think Tank

International brand

Specific marketing plans

Presentations in markets of origin

Promotion at the destination

Strategic alliances

Retail tourism experiences

e Talent

Talent

b Basic tools for becoming competitive

Airline connections

Issuing of visas


c A more attractive offer

Improved tourism environment

Adapting the commercial offer

Attraction of international brands

Premium Hotels

EY 2015 | 53

A more attractive offer

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