New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Transport Titbits — The Future of Duty Free</h2>
The UK government recently announced that tax free shopping in the UK will soon change significantly. The changes are due to be implemented in tandem with its withdrawal from the EU on 1 January 2021. Overseas visitors will no longer be able to obtain a VAT (value added tax, the UK equivalent of GST) refund on items bought in the UK and taken home in their luggage. Furthermore, UK airports will no longer be able to offer duty free on fashion, accessories and health/beauty, with only alcohol and tobacco exempt from the new scheme. The new regulations would mean non-EU visitors who purchase items in store must have them delivered directly to their overseas addresses to be eligible for VAT-free shopping.
The rationale for the move given by the UK government is&nbsp;that it counters concerns that (1) the tax/duty savings are not always passed on to consumers, and that (2) in some instances the tax-free goods were being brought back into the country by UK residents, putting high street retailers at a disadvantage.
The raison d’etre for travel retail/duty free has changed over time. It historically offered a price advantage given the duty/tax saving. However, the savings for travellers have been eroded by (1) more competitive pricing in other channels, and (2) the high rents paid by travel retailers to airports. Our price comparison exercises between New Zealand travel retail stores and on-line/high street in recent years have shown the price gap has narrowed and in many categories no longer exists. Moreover, a survey undertaken by eDreams in 2018 found that only 6% of travellers believed duty free offered the best price, while 52% knew they could find a better price online or on the high street.
As the price gap has narrowed the concession yields paid by retailers to airports has grown. We estimate the current concession yields paid by&nbsp;Auckland Airport’s&nbsp;duty free players is around 40% (outside of minimum annual guarantees), compared to closer to 30% a decade ago. &nbsp;Larger international airports have benefited in particular by generating higher profits, which has allowed greater investment in higher quality retail experiences and more sophisticated approaches to managing their concessions. Retailers/brands have also benefited from being part of upper-end shopping malls and have been happy to pay high concession rents (based on their tenders) given the exposure to high quality and captive (by pre-flight dwell time) foot traffic. The removal of duty free entitlements would make airport concessions less attractive to retailers. Concession yields would decline as a result and airports would generate less retail income.
The future of duty free has been challenged in the UK. We don’t foresee the same happening in New Zealand in the immediate future but we are wary of the potential domino effect if other nations were to follow suit.
Transport Titbits Chart: Leading travel retailer Dufry’s concession yields have risen over the past decade &nbsp;
&nbsp;<img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.2&amp;permmsgid=msg-f:1678498338917491667&amp;th=174b39589f42a3d3&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ_L6GA2dBQ_FAO4Q7kTY533SOsuC0A0FclbO6B09T0mYoML-9SXkrPX8X_zPekztcUkdyK2PD87wcwTp1KJBVgxbFJrU5A9-YjmdG9Hzrs16hm4ilM55mqsLX0&amp;disp=emb" width="555" height="363" class="editor-image img-responsive" data-image-whitelisted="">
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&nbsp;Source: Dufry, Forsyth Barr analysis
Andy Bowley&nbsp; Head of Research
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.1&amp;permmsgid=msg-f:1678498338917491667&amp;th=174b39589f42a3d3&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ_tcFG3t2PBtCeHpuPgqVR05C_Am6Li0VMsgxBnppkDdKNzVHx_ugOTbEwxoduqGV_-MSClwhXCQzwekri3ukSypNkpAZhsl7aFVWdP_q7GwS8EROEYKhY7L5s&amp;disp=emb" class="editor-image img-responsive"></figure>
 M: +64 21 338 941 |P: +64 4 495 8246 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

Transport Titbits — The Future of Duty Free
The UK government recently announced that tax free shopping in the UK will soon change significantly. The changes are due to be implemented in tandem with its withdrawal from the EU on 1 January 2021. Overseas visitors will no longer be able to obtain a VAT (value added tax, the UK equivalent of GST) refund on items bought in the UK and taken home in their luggage. Furthermore, UK airports will no longer be able to offer duty free on fashion, accessories and health/beauty, with only alcohol and tobacco exempt from the new scheme. The new regulations would mean non-EU visitors who purchase items in store must have them delivered directly to their overseas addresses to be eligible for VAT-free shopping.
The rationale for the move given by the UK government is&nbsp;that it counters concerns that (1) the tax/duty savings are not always passed on to consumers, and that (2) in some instances the tax-free goods were being brought back into the country by UK residents, putting high street retailers at a disadvantage.
The raison d’etre for travel retail/duty free has changed over time. It historically offered a price advantage given the duty/tax saving. However, the savings for travellers have been eroded by (1) more competitive pricing in other channels, and (2) the high rents paid by travel retailers to airports. Our price comparison exercises between New Zealand travel retail stores and on-line/high street in recent years have shown the price gap has narrowed and in many categories no longer exists. Moreover, a survey undertaken by eDreams in 2018 found that only 6% of travellers believed duty free offered the best price, while 52% knew they could find a better price online or on the high street.
As the price gap has narrowed the concession yields paid by retailers to airports has grown. We estimate the current concession yields paid by&nbsp;Auckland Airport’s&nbsp;duty free players is around 40% (outside of minimum annual guarantees), compared to closer to 30% a decade ago. &nbsp;Larger international airports have benefited in particular by generating higher profits, which has allowed greater investment in higher quality retail experiences and more sophisticated approaches to managing their concessions. Retailers/brands have also benefited from being part of upper-end shopping malls and have been happy to pay high concession rents (based on their tenders) given the exposure to high quality and captive (by pre-flight dwell time) foot traffic. The removal of duty free entitlements would make airport concessions less attractive to retailers. Concession yields would decline as a result and airports would generate less retail income.
The future of duty free has been challenged in the UK. We don’t foresee the same happening in New Zealand in the immediate future but we are wary of the potential domino effect if other nations were to follow suit.
Transport Titbits Chart: Leading travel retailer Dufry’s concession yields have risen over the past decade &nbsp;
&nbsp;

&nbsp;Source: Dufry, Forsyth Barr analysis
Andy Bowley&nbsp; Head of Research

 M: +64 21 338 941 |P: +64 4 495 8246 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

Transport Titbits — The Future of Duty Free

Auckland Intl Airport

Transport Titbits — The Future of Duty Free