Duty Free Shops: Not Really a Tax-Free Bargain

While these airport stores promise big savings, they often fall short.

October 22, 2009, 2:05 PM

Dec. 7, 2009— -- It seems like a great bargain: buy liquor, cigarettes, perfume and luxury clothing all without paying tax.

Every traveler who has left the country has encountered airport duty free store and those promises of great deals. But are the tax-free prices really that great?

Several travel experts told ABC News that -- in most cases -- the deals at duty free shops really aren't deals at all.

"As a general rule, there are no bargains in the duty free," said Suzy Gershman, a self-proclaimed shopping goddess and author of Frommer's Born to Shop series. "The reason there is so much shopping in the airport is because people are trapped there for two hours."

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A tremendous amount of merchandise is being made specifically for the duty free stores, or at least packaged specially for the store, Gershman said. That makes it harder to determine an item's real value because you can't "compare apples to apples." She likened it to merchandise made specifically for factory outlet stores.

Duty free stores have benefited as more people, following the Sept. 11, 2001 terrorist attacks, began arriving earlier to the airport to clear security. Some found themselves with more free time before their flight and more stores opened to fill the need.

The duty free store owners moved to bring more luxury brands into their stores, Gershman said. But first they had to convince companies that worried about watering down the value of their brand. So, she said, handbag makers started to make items like wallets exclusively for the airport stores.

Liquor, cigarettes and perfumes are often identical to those in your local store but not necessarily cheaper.

"Saks Fifth Avenue is often less expensive for perfume," Gershman said.

Gershman suggests shoppers get a price list, including sizes, from their favorite retailer to comparison shop at the duty frees. And even if you do get a great deal, consider this: it might be hard to get your new purchase home.

If you are flying from, say, Mexico to Detroit, changing planes and clearing customs in Miami, you must go through airport security again. That bottle of tequila that was in your carry-on bag must now be checked. Do you want to chance having that new bottle of perfume or liquor make it through the airline's baggage handling system?

Michael Payne is executive director of the International Association of Airport Duty Free Stores. He said that it is a $37 billion global industry, with roughly $3.4 billion in revenues in the U.S. alone last year. About 63 percent of the duty free sales occur at airports, he said, followed by cruise ships and places like ferries in Europe.

Payne said the amount of money shoppers can expect to save at stores varies dramatically from country to country, depending on the level of taxation levied by a country.

"The question of the price value in duty free varies," he said. "In a country like the U.S., which is a relatively low tax country -- and in fact there are no duties on products like perfume -- I would not try to say that you always get a cheaper product in the duty free than in a Walmart."

Duty free shops pay higher rents at airports and that has to be built into the price, he said.

In fact, duty free shops are big businesses for airports themselves. Airports generally make money by charging airlines landing fees, from parking fees and rent for stores. In the majority of leases, Payne said, the duty free store will actually be required to share a percentage of their revenues with the airport. In some cases, those store rents will actually make up 30 to 40 percent of an airport's operating budget, Payne said.

The ban on liquids over 3 ounces has had a big impact on the store's ability to sell alcohol and perfumes to departing passengers.

"We're losing anywhere from 10 to 15 percent of liquid sales because of the ban," Payne said.

Anne Banas, executive editor of SmarterTravel, warns that "duty free doesn't always mean that everything is tax free."

"You want to make sure that it is something that you have priced in other locations," Banas said. In addition, some items like unpasteurized cheeses, popular in France for instance, are not allowed to be brought back to the U.S.

Her tips: know the prices in advance from you local liquor store and – time permitting – duck into the duty free shop upon arrival to learn the prices and then compare them with stores in the place you are visiting.

So given all the hassle, what is the appeal of the stores?

"I don't know," Banas said. "I've never had a good deal in a duty free shop."