1. Field of the Invention
The present invention pertains to a method and apparatus for selling merchandise, and particularly to a method and apparatus for selling duty free merchandise in combination with travel tickets.
2. Description of the Related Art
Duty free shopping is a multi-national business with substantial revenues. In the year 2000 alone, worldwide duty free sales are estimated at $21 billion. While the market for duty free goods is substantial and growing, duty free shopping is a relatively recent development, having its origins in so-called “export stores” first established in Ireland in the 1940s. In the ensuing years, most governments enacted laws authorizing and regulating duty free shopping within their borders. Initially, duty free shops offered only items that were subject to high import taxes, such as liquor and cigarettes. However, duty free merchants soon recognized the potential for selling a wide range of luxury goods to international travelers, and over time many additional items have become available as duty free merchandise, including jewelry, watches, perfume, cosmetics, cameras, electronic goods, etc. With help form world-renowned fashion houses such as Dior® and Chanel®, today duty free shops are international showcases for first class luxury goods. International travelers, in turn, have come to appreciate the quality of the shops and often take advantage of them during airport delays and even preplanned duty free shopping trips.
Initially, most duty free operators were local merchants who secured space at airports through personal contacts. However, airports came to realize the revenue potential of such shops and began enlarging the shopping areas for international travelers. To maximize revenue, airport management eventually began issuing requests for proposals (RFP) from persons seeking to operate duty free airport shops. The response was substantial and since then the size and number of duty free shops has expanded significantly at airports throughout the world. The potential value of a particular duty free shop will, of course, depend on a number of factors, such as the total number of international passengers enplaning at that airport, the number of international routes, the frequency of flights, the airlines that utilize the facility, e.g., upscale, leisure, charter, the location of the store relative to the gate area where passengers enplane, the local prices for comparable merchandise, the prices for the goods at the usual travel destinations, the duty or tax, if any, which the passenger may have to pay at the travel destination, the projected increase or decrease in international travelers at the airport, and the length of the lease. The revenue paid by the operator of the duty free store to the airport varies widely depending on these and other factors. Oftentimes the arrangement includes a minimum rent plus a percentage of sales.
Airlines have also sought to profit from the duty free shopping boom by selling duty free merchandise in-flight. Typically the duty free merchandise is retained on one or more trolleys which are wheeled up and down the aisles by flight personnel at preset times. The merchandise and pricing may be in a brochure shown by flight personnel to passengers expressing an interest, or it may be in a catalog at each passenger seat, or both. Travelers purchasing merchandise typically pay in cash, checks or by credit card, though checks and credit card sales carry a risk as in-flight verification that an account is in good standing is difficult.
The particular assortment of goods on the trolleys varies depending on the carrier and the route. For example, presently one airline's most expensive item is a Hermes scarf which sells for $265.00, whereas another airline lists a Bvlgari watch which sells for about $1,000.00 at current exchange rates. Some airlines operate their own in-flight trolleys and keep the revenue, though typically a percentage of sales is paid to flight personnel as a commission. Other airlines, particularly those in North and South America, outsource their in-flight duty free sales programs, just as they do with other services, such as meal preparation. When in-flight duty free sales are operated by a third party provider, the provider typically pays the airline a negotiated percentage of sales depending on the commission paid to the flight crew and other factors.
Some in-flight programs offer passengers the option of pre-ordering merchandise from a special catalog of duty free merchandise. In one variation, catalogs are forwarded to international travelers sufficiently in advance of departure such that orders can be placed and fulfilled by the departure date, with the merchandise being delivered to the passenger during flight. In another variation, catalogs are presented to international travelers on their outbound flights, and ordered merchandise is awaiting them on their return flights. These programs have the advantage that the program provider can offer the traveler a wider range of merchandise than is available on the trolley, and it minimizes the amount of inventory that the provider must maintain While all these modes of duty free shopping have had various degrees of success, they also have inherent shortcomings. For example, duty free shops face the problem of late arriving passengers, international travelers spending more time clearing security, and increased pressure on airlines to meet scheduled departure times, all of which contribute to international travelers spending less time in airport duty free shops. In-flight trolleys have a limited amount of space for showcasing goods and can carry only a limited amount of merchandise. Such trolleys also face strong competition from duty free shops, which can display and inventory a much wider range of goods. Duty free catalogs forwarded to passengers before flight face passengers who may not be at the mailing address when the catalog arrives, difficulty distinguishing their catalogs from the multitude of other catalogs which flood the mails, passengers who purchase their tickets too close to flight time to receive the catalog before departure, and passengers who subsequently cancel their flights, all of which reduce sales and/or increase expenses. Catalogs delivered in-flight for product delivery upon return solve some of these problems, but this approach is useless for passengers traveling one way or those purchasing gifts for persons at the flight destination, and also fail to satisfy the traveler's desire for immediate gratification. Furthermore, all duty free shopping suffers from the perception among many travelers that duty free prices are high, which, excepting for catalogs forwarded to the traveler prior to flight, results, in part, from the traveler's inability to compare the duty free price with prevailing retail prices.
While much duty free shopping targets international airline travelers, duty free shopping is also available to international travelers traveling by boat and even land. Cruise lines, for example, market duty free goods using many of the same techniques employed by the airlines. Techniques for marketing to persons traveling internationally by land (e.g., train, bus, etc.) are necessarily more limited, and typically focus on shops at the exit point from the country where the goods are sold.
Most countries have enacted detailed laws and regulations which enable and regulate duty free shopping within their borders. Essentially, duty free shopping works as follows. A merchant desiring to sell foreign made or domestic duty free goods purchases such goods from the manufacturer, either directly or through a distributor. As long as such goods are retained for export only, they are exempt from customs duties and as well as federal, state and local taxes. The shops from which merchants sell such goods are known as duty free or tax free shops, however both are the same, the former referring to the exemption from customs' duties upon export, and the latter referring to the exemption from government taxes imposed by the country in which the shop is situated. As used herein, “duty free” refers to sales which are exempt from customs' duties and/or taxes.
For example, the merchant may purchase foreign-made ties, jewelry, watches, liquor, handbags, etc. and then import those goods into the country from which the duty free sales will be made. Upon export following sale, no duty or tax is paid by the merchant on such imported goods provided, prior to sale, the goods are maintained in a bonded facility sanctioned for that purpose by the government and provided the merchant complies with all applicable regulations governing such facilities. Alternatively, or in addition, the merchant may purchase domestic goods. While domestic goods would not, in any event, be subject to duty upon sale, they are typically taxed when sold. However, provided they are maintained in a bonded facility of the type described above, domestic goods are exempt from tax upon export, which is particularly attractive in the case of goods which command a luxury tax when sold domestically, such as alcohol and cigarettes. In fact, merchants selling domestic goods duty free can typically acquire such goods from manufacturers at prices below, and sometimes well below, the prices at which the manufacturers sell such goods to conventional retail outlets, which makes such sales particularly attractive for duty free merchants. Typically, government regulations will govern the manner is which goods may be brought into and taken out of bonded facilities, and will include strict inventory and record keeping requirements to insure that duty free goods in the bonded facility do not find their way into local commerce.
To maintain duty free status, duty free merchandise may only be delivered to travelers departing the country from which the goods are sold for use and/or consumption outside that country, though such goods may be reimported without duty or tax, provided their value does not exceed the entry exemption allowed for imported goods. To insure that duty free merchandise is exported, most countries have regulations governing where duty free shops may be located and where duty free merchandise may be delivered to the traveler. Although a duty or tax may be due to the destination country upon arrival, many countries exempt a predetermined monetary value of imported goods intended for personal use, i.e., not intended for resale. Consequently, if the traveler purchases duty free goods for personal use under the limit set by the destination country, no duty or tax will be payable either to the country where the goods were purchased or to the destination country. And even if the purchases exceed the exemption allowed by the destination country, a duty and/or tax is only due on the overage.
In the United States, jurisdiction over duty free sales is relegated to the Treasury Department and implemented by the United States Customs Service, which, in turn, has authority to relegate certain responsibilities to port directors at airports and seaports. The current regulations governing duty free facilities and delivery of duty free merchandise to international travelers is found in Title 19 of the Code of Federal Regulations, §§19.35 et seq. These regulations provide, among other things, that “conditionally duty-free merchandise” (defined as merchandise sold by a duty free store on which duties and/or internal revenue taxes, if any are applicable, have not been paid) for export at airport, seaport or land exit points may only be sold and delivered to persons displaying tickets or other proof of imminent departure from the country. To insure that duty free merchandise in fact leaves the country, the regulations also include strict limitations on where duty free merchandise may be delivered to international travelers, with such delivery generally limited to at or beyond the “exit point”, which is defined in the regulations as an area in close proximity to an actual exit for departing the country. In the case of an airport the regulations provide that the exit point may be a gate holding area if the gate holding area is sufficiently secure that there is a reasonable assurance that conditionally duty-free merchandise delivered there will be exported from the country. In the case of a seaport or land border, the exit point is defined in the regulations as the point at which a departing individual has no practical alternative but to continue on to a foreign country or to return to the country of departure by returning through a U.S. Customs inspection facility. The regulations also provide that conditionally duty-free merchandise brought back into the country is subject to U.S. duty and tax, subject, however, to the personal exemption afforded international travelers arriving in the United States, which is currently $400.00 per person, though this exemption can be pooled among multiple travelers for more expensive goods and in some cases, such as goods imported from the U.S. Virgin Islands, the exemption is higher. Most other countries have restrictions on duty free sales similar to those enacted in the United States.
It will be apparent, therefore, that new and creative methods of generating duty free sales are limited by the restrictive government regulations governing such sales, and also by the above-discussed limitations inherent in the current methods for effecting such sales.