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Nicole Glass

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Cruise Ships Financially Exploit Onshore Stores

Posted: 05/21/2012 3:54 pm

A flock of three thousand tourists spill out of a cruise ship, dispersing into Belize City, following a map given to them by the industry that owns the port, the shops, and the economy. The passengers are on a mission -- a mission to find the largest diamond, a cheap designer watch, or a souvenir that represents the culture of their "exotic" destination.

Convinced that the stores on their easy-to-follow map will lead them to the greatest onshore deals, the eager tourists are unaware that the cruise line's recommendations are driven solely by profit. They are unaware that the maps are leading them to stores whose revenue goes straight back to the ship. Their seemingly-cultural onshore excursions are a product of the more than half a billion dollars their cruise line pays on advertising each year. With shopping bags in hand, the suntanned Caribbean vacationers return to the ship that their wallets never parted from.

Before cruise passengers go onshore to one of their ship's destinations, they are given shopping lectures and store maps with the industry's recommendations for the best deals and the highest quality products. But what the passengers aren't told is that these stores have paid hundreds of thousands of dollars in annual fees to be listed. Additionally, these businesses are required to pay the cruise lines a percent of their revenue made from cruise passengers. Customers are asked whether they came from a cruise ship, and their cruise line's name is then printed on the receipt, used later to calculate how much is owed to the cruise line.

Ross Klein, an expert on the cruise industry and owner of the site cruisejunkie.com, has studied corruption in the industry for decades. He was blacklisted from all cruise ships after years of research, and now relies on information from other reporters to continue his investigation. Klein witnessed the early stages of the port shopping programs in the 1970s, when cruise directors personally collected cash from onshore stores in return for bringing passengers.

"The cruise director would develop a relationship with the stores in port, would advertise the stores on the ship and then at the end of the cruise, you could watch the cruise director go into the stores and collect their commissions for the sales from the passengers from the ship," Klein said.

In the late 1980s and early 1990s, companies including Onboard Media and the PPI Group took this idea and turned it into a business, Klein said. They created port shopping programs, complete with onboard shopping lectures, advertising, catalogs and store maps. To be included in these shopping programs, stores have to pay the companies, who then pay the cruise lines.

While the Caribbean may draw the most money out of "local" shops, this cruise ship business tactic is widespread. Distinctive Gemstones, a small store in Skagway, Alaska, was told by Onboard Media in 2001 that it would have to pay $20,000 per year to be a recommended store listing by the company's cruise lines. Skagway, a population 862 small town that was once a popular Gold Rush destination, is the 16th most visited cruise destination in the world with nearly 450 cruise calls and 750,000 visitors each year.

But stores who refuse to pay cruise lines to be included in their port shopping programs often lose customers to those who can afford the advertising fees. In a small Alaskan town whose economy relies on tourism, this can be financially devastating for the businesses that opt out of participating. Skagway storeowner Eileen Hunter said without cruise line advertising, her art store, which is difficult to find, would have no business.

"People are very influenced by what they hear on board," Skagway resident and former Princess cruise ship employee Allison Wilson told the Associated Press. "I fought against it on board. There's no discrimination. They don't pick the best stores. They pick the stores that will pay the money."

These recommended listings have not been proven to sell higher quality products than any other stores. Carol Wilkins visited St. Maarten in 2008 and found better deals at onshore stores that her cruise line did not advertise.

"Once I abandoned shopping at the 'approved' locations, I found true deals," she said. "Another thing you will not hear from the cruise shopping director is that the stores who are on the 'approved' list are higher priced and less likely to give you deals."

Skagway City Manager Bob Ward wrote a letter to a Norwegian cruise line in 1998, stating his opposition to the port shopping program which had not yet been implemented in his Alaskan town. The program was misleading, he said, because it causes passengers to assume the recommendations were selected on the basis of quality and price.

Although cruise line passengers may be vital for the industries of small towns like Skagway, the amount of money the cruise lines demand is alarming. Stores at several Alaskan ports told Klein that in addition to the annual membership fee, stores paid cruise lines about 40 percent of their gross receipt from cruise passengers. Klein calculated that if the stores keep 60 percent of the gross receipt and 40 percent of this goes to the cost of the products, stores only make a profit of 20 percent of the revenue -- half of the amount that the cruise lines keep.

"They're not earning as much as they rightfully should, but they're certainly making a small amount," Klein said. "The issue from the cruise passenger perspective is the lack of awareness that part of what they're spending at the store is going back to the cruise line."

The numbers in Alaska may sound high, but those in the Caribbean are higher.

"We don't gouge people like in the Caribbean," said Onboard Media representative David Mardini, who advertises port shopping programs. The extent of this "gouging" is unknown, but given the larger number of tourists in countries with fewer financial regulations, the numbers must be significant.

A Royal Caribbean map of Cabo San Lucas lists several retailers as part of its port shopping program. Among them are Diamonds International, Tanzanite International, Milano Diamond Gallery and other diamond, watch and jewelry retailers - large corporations whose incomes are greater than small jewelry shops in Alaska.

Mardini said the annual flat rate that cruise lines charge stores is dependent upon how much each store typically earns. Given the expense of diamonds and watches, cruise lines are likely charging the stores higher annual listing fees and making larger sums of money from stores whose items are so costly.

And while other tourist-driven business -- like hotels -- are often known to overcharge their guests and local tour groups in similar ways, it's the cruise lines that pay little to no taxes. Sixty percent of cruise ships are registered in either the Bahamas, Panama, or Liberia -- countries who do not charge them income taxes or require them to abide by national labor laws.

Rather than following a map of "recommended" stores, passengers may find better deals exploring stores on their own.

 

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