More airport shops are promising international travelers serious savings on luxury brands. Sallie Brady reveals the real values—and when you're better off buying back home

It is a weekday afternoon, and London Heathrow's Terminal 3 looks more like Las Vegas than an airport. Amid gleaming boutiques selling the latest finery from Burberry, Gucci, and Ferragamo, a perky brunette is handing out shots of Godiva liqueur to the free-spending hordes, while a James Bond blond is spinning a massive roulette wheel, offering travelers the chance to win discounts on top-shelf cosmetics. Welcome to the $20.5-billion-a-year world of duty- and tax-free shopping.

Eager to cash in on the buying power of the brand-mad captive audience of international fliers, airports from New York to New Delhi have transformed their terminals into mini-Rodeo Drives, selling designer clothing, perfumes, and high-end accessories. The strategy is working: In 2003, travelers shelled out $7 billion for duty- and tax-free goods, including watches, clothing, jewelry, and china. At Heathrow, annual sales of more than $700 million now generate fully half of the airport's income.

For decades, duty-free stores peddled little more than cigarettes and spirits at prices as much as 50 percent below retail: Because the goods were being taken out of the country, they were exempt from the usual hefty sin taxes and import duties. But as today's souped-up airport boutiques focus more and more on selling luxury, are there still bargains to be had? A Condé Nast Traveler survey of the prices of popular high-end apparel and accessories sold in duty- and tax-free shops revealed that although discounts aren't nearly as dramatic, Americans can still save substantially on certain purchases.

NOT YOUR PARENTS' DUTY-FREE
Duty-free boutiques have expanded their offerings to include the same watches and designer fashions available in retail stores, but the changes go well beyond what's being sold. Today, travelers can flash a boarding pass and purchase goods at duty-free malls in downtown Honolulu, on Singapore's Orchard Road, and next year, in central Okinawa: Sign the sales slip and your items will be delivered to you aboard your flight home. In Brazil, New Zealand, and Scandinavia, travelers can place their duty-free orders online and pick them up at the departure gate as they leave the country. Heathrow employs a staff of 17 personal shoppers who will happily make dust of your Christmas list, and some duty-free stores around the world are even rewarding frequent shoppers with extra discounts.

To help you cut through the clutter and make sense of the rapidly changing marketplace, here are some points to keep in mind.

PERFUME AND COSMETICS
One out of every four tax-free dollars is now spent on perfume and cosmetics, but we found the savings to be generally underwhelming: about $10 on a bottle of perfume, slightly more after figuring in what you would pay in state and local taxes. It's worth noting, though, that some limited-edition fragrances from Dior, Givenchy, Tommy Hilfiger, and Lancôme debut or are sold exclusively in duty-free outlets. Sharing an insider's tip, cosmetics executives say that the best way to save is to buy at the U.S. airport before flying abroad. So does a jar of pricey Crème de la Mer really cost less at JFK than at Saks? Yes, but you'll save only $10 to $16, depending on the size. Buy it in Dubai, however, and you'll save $20. On the other hand, at JFK we did pay $20 less than the New York retail price for a jar of Lancôme's Absolue Crème, versus $9 more than retail at Charles de Gaulle. In Barcelona, we actually paid $28 above the retail price. Which leads us to the cardinal rule of duty-free shopping: Always compare prices. Never assume that you're getting a better deal than you would if you paid retail. (For guidance, consult our "Shop Smart" chart, above.)