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Duty-Free Shopping: Does it Really Save You Money?

The duty-free shopping business is headed for a worldwide sales mark close to $50 billion this year, says a recent report from the Paris-based Tax Free World Association. Clearly, those deals must appeal to somebody, but my take is that they're limited to a very few cases. Overall, airports account for almost two-thirds of total sales—no surprise here. Luxury goods, including fashion items and accessories, jewelry, and watches, account for about a third of the sales, with fragrances and cosmetics about the same, and wines and spirits a bit less. The Asia-Pacific region rings up the highest sales volume, followed by Europe.

Duty-free is clearly big business. And for the big airports, especially in Asia and Europe, it's a cash cow. As I noted a few years ago, if you were suddenly transported to the international departure area of Heathrow or De Gaulle, you'd think you were in a shopping mall rather than in an airport. In many big overseas airports, you literally can't get to your departure gate without wending your way through an array of shops hawking "tax-free" or "duty-free" purchases.

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But does that mean duty-free is a good idea for the typical American traveler? First, let's look at some basic facts:

  • "Duty-free" and "tax-free" don't refer to what you can bring into the United States at all. Instead they mean that the stuff on sale does not carry locally imposed, value-added excise, or other sales taxes, nor does it include the taxes that those items incur for sale in the U.S. As long as you stay within the very generous allowances, you won't pay any U.S.-imposed duty or tax at all.
  • But the absence of locally imposed tax doesn't mean that the duty-free stores give you the full benefit of the tax breaks. Instead, most airport shops add additional markup to make their prices almost as high as prevailing local retail (or "high street" in British terminology) prices—with just enough of a cut to appeal to penny- or euro-pinching travelers.
  • Thus, the only items on which the lack of taxes is potentially important to American travelers are those that carry high U.S. excise taxes. Among potential travel purchases, those are liquor and tobacco products.

Do you really get great prices? The most recent worldwide survey I could find dates back to 2010 and is from Kelkoo UK, the British arm of the online international price-comparison service, and it found no consistent pattern. Unfortunately, that study was limited to 10 major European airports and did not include airports such as Dubai or Singapore that, by reputation, provide better deals. My take is that you're likely to find good prices on tobacco products—if you still use them. You may also find good prices on liquor. When you buy it post security, you can carry it in the cabin. But unless your final home destination is your entry gateway airport, you can't carry it on a connecting flight: Instead, you have to pack it in your checked baggage and risk having to claim a liquor-saturated suitcase if your bag gets dropped a bit too hard.

I find it hard to understand why luxury goods, fragrances, and cosmetics get so much play. The United States doesn't tax them heavily, so you can usually get good deals here at home. Certainly, European countries may tax them heavily, but you don't have to pay those prices. And I certainly don't get the popularity of cameras, watches, and tech items, which—in my unofficial observations—are almost always better buys in the U.S., to say nothing about future problems with warranties and service.

Clearly, then, the prime rule of duty free is to know U.S. prices on anything you're likely to buy before you leave home so you can compare what you see overseas with those known benchmarks. If you think you'd be tempted to buy liquor, electronics, fashion products, cigarettes, or whatever, then get prices at your local Costco, Walmart, or online before you leave. Then you can tell right away which tax-free goods are a good deal and which aren't.

Ed Perkins on Travel is copyright (c) 2012 Tribune Media Services, Inc.

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