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Merchants fight plan to scrap duty-free for intra-European travel

By Susan Thorne

The German businessman buying tax-free perfume at Orly airport near Paris. The Frenchman purchasing duty-free Chianti in Rome's Fiumcino airport. Both sights are scheduled to be a memory next year as a result of European unification. But merchants are fighting the move every step of the way.

Retailers in airports and other duty-free venues are lobbying vigorously against the scheduled end of duty-free sales between the European Union (E.U.) countries in 1999, and are looking for ways to minimize their losses if the threat becomes a reality.

Europe's finance ministers agreed in 1991 to end intra-European duty-free, meaning that individuals traveling from one E.U. country to another would no longer be eligible to purchase duty-free merchandise. Passengers for destinations outside the E.U. could continue to make such purchases.

Some predict the measure will be a disaster, and not just for the retailers. Others are more sanguine, arguing there will still be a lot of money to be made at airports.

The idea was proposed as a logical extension of the removal of international economic and customs barriers within the European Community. The decision was to have been implemented in 1993, but a lobbying campaign resulted in a postponement to July 1, 1999 to enable enterprises dependent on duty-free commerce to diversify.

The ban would be devastating, says Ken Berridge, business development manager for the Zurich, Switzerland-based Nuance company (formerly Allders), which runs 248 duty-free stores in Europe, Australasia and the United States. He said 56% of his company's $200 million business consists of sales to travelers to or within the European Community.

Without duty-free, Berridge says, Nuance will lose 20% to 25% of its tobacco sales, 80% of its liquor business and half of its perfume and fashion merchandise sales. In addition, 700 of its 2,000 employees could lose their jobs, the company claims.

Discontinuing duty-free will have consequences far beyond losing cheaper goods, agreed John Hume, a spokesman for the International Duty-Free Confederation in Brussels, Belgium, the leading lobbying organization for retaining duty-free.

"Research estimates 100,000 job losses," Mr. Hume said. Ferry services could face serious curtailment or a total shutdown, he said.

Airports also depend significantly on revenue from duty-free. Under the current system, Mr. Berridge pointed out, an £11 bottle of spirits sold in the United Kingdom typically yields £1 in profit for the retailer and as much as £5 to the airport in concession fees.

"The customer pays less for the merchandise and for lower air and ferry fares, while keeping the shopkeeper in business," he said.

The end of duty-free would have trickle-down effects for manufacturers, distributors, shipping companies and transporters, opponents of the measure argue. Most excise-exempt products are of European manufacture, noted Harry Diehl, managing director of Gebr. Heinemann (Heinemann Brothers), Hamburg, Germany, distributors to duty-free shops and the travel market.

European manufacturers and suppliers feel that duty-free should be continued until there is tax equalization among the affected nations, he added.

This is a key issue, because the potential impact of ending duty-free differs from country to country, depending on taxation structure.

Lobbyists are hoping for a second reprieve, and Mr. Hume said his group is having considerable success. Several governments, including Spain, Greece and Ireland, have come out publicly in support of his organization's goals, he said, and other countries are reassessing their positions. The Confederation would like to see the abolition of duty-free postponed until equal taxation is in place throughout the E.U.

Another question is how customers will react if the lobbying does fail.

"You have to consider whether a duty-free purchase is the replacement for a High Street sale or [occurs] just because the customer is traveling," said Mr. Berridge of Nuance.

Nuance is surveying both domestic and overseas travelers in one airport, to see who's buying what, and why. He pointed out that there will have to be different merchandise pricing structures for travelers going outside or within the E.U.

Others also are less apocalyptic about the possible end of duty-free.

Heinemann Brothers' Travel Value Shop & Duty Free stores have forged an identity as discount-priced retail outlets. Tobacco and liquor are the only duty-free goods offered. "If one day they abolish duty-free, our customers will not feel any change. We will offer merchandise at the same price except for cigarettes and some cheap liquors," Mr. Diehl said.

Roy Palmer, managing director of London-based consultants and retail planners Pragma Consulting said airports and other duty-free venues can thrive without duty-free by enhancing their retail offerings and making them distinctive, while targeting them specifically to the airport clientele.

"There will still be a new kind of retail experience with new quality, value, packaging and presentation," he said.