September 18, 2008
Airport Retailing Takes Off
By Tom Ryan
After the internet, the fastest growing channel at retail is the often-maligned airport terminal. The growth is being driven by a number of new airport terminals opening in major foreign markets as well as aggressive efforts by luxury brands to reach the jet set.
According to Generation DataBank, global travel retail revenues jumped 17.2 percent to $34 billion in 2007 from $29 billion in 2006, and are nearly double the levels reached in 2002. (In local currencies, airport retail revenues were ahead 11.8 percent last year.)
Sales are set to continue to grow strongly over the next five years, particularly in emerging markets, driven by the rapid increase in air travel and major investment in new airports and retail facilities. New terminals opening in London, Beijing and Paris have recently boosted airport retail’s appeal, but India, the Middle East and Russia are also building terminals and expected to become much bigger markets in the future.
“The key factors stimulating this growth are increased affluence, growing tourism, rapidly expanding airline networks and new routes (especially those of low cost carriers),” said Nick Gladding, lead analyst at Verdict Research. “The increase in business travel as a result of globalization is providing a further boost to airport retailers.”
By product category, luxury goods (defined all merchandise other than confectionery, fine food, alcohol, tobacco and perfumery products) now ranks as the biggest category at airport retailing, accounting for 35.5 percent of sales. That’s up from only 19.5 percent global duty free sales, according to according to Generation Databank. An article in Footwear News stated that brands such Prada, Ferragamo and Chloé, are finding the retrofitted terminals to be highly conducive for selling high-end goods.
“Airport retail is growing very quickly, and the image is also changing,” Marco Franchini, CEO of Bally, told Footwear News. “The market is shifting from a main category, like tobacco, alcohol and cosmetics, to a more brand-oriented shopping experience, with full boutiques and personalized shop-in-shop corners.”
“Airports are a wonderful place for retail,” concurred Neil Clifford, CEO of Kurt Geiger, which has six airport shops in the U.K. “You’ve got money, you’re going on holiday and you have time to spare. You can buy an iPod or a Montblanc pen or a Hugo Boss shirt.”
After luxury goods, the biggest categories were fragrances & cosmetics, representing 30 percent of airport retail revenues; wine & spirits, 17.2 percent; confectionary & fine goods, 8.8 percent; and tobacco goods, 8.2 percent.
Discussion Question: What do you think of the airport retailing opportunity for luxury brands? What has impressed you in how many terminals have been upgraded over the years? What other categories can be doing more to capitalize on the upgrades and expansion of airport terminals?
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Airport terminals are shopping malls for the business travelers on layovers. However, there are some issues that airport businesses need to deal with:
1. Travelers are not allowed to leave their baggage at the gate while walking around doing some browsing and shopping in the airport. Therefore, they need to drag all their heavy and awkward belongings with them while they shop.
2. It’s amazing that clothing stores are able to sell suits and other products that require attention to sizing and fitting. Chain stores need to allow consumers to make returns and be fitted at other stores within their chain, outside the airport. Not all of these businesses allow that to occur.
3. Purchases made inside the corridor need to fit on the airplane for outbound passengers. Purchases made in the terminal before security need to be carried through security without problems for the traveler.
Overall, the airport shopping mall is a great opportunity. However, businesses need to think through the entire shopping process from the viewpoint of the “real world” traveler to achieve the maximum results.
The retailing at airports is dependent on the airlines attracting travelers to get from destination to destination. With the change in luggage fees, airlines abandoning certain routes domestically in the United States, fuel charges increasing the price of the tickets for flights that are scheduled, and the general economy teetering–my crystal ball tells me that this is about to become a less attractive place to be for a retailer. The leases and rents were established under good times and the volume is likely to be off–not a good combination.
I’d add one more factor to the rise in airport sales–at least in the U.S. Increased dwell time. Like it or not, we are spending more time in the airport per trip than ever before.
If you can frequently afford the high cost of flying today, and then have to wait around a long time in the airports before boarding the flying cattle cars, you are a pigeon for airport concessionaires since luxury products are probably already in your gun sites. That sounds like niche marketing. But most fliers have to satisfy their “luxury needs” with a Starbucks brew or a sitdown at Chili’s.
Airport retailing is a big opportunity given its (literally) captive audience of highly attractive consumers. However, as more merchants enter the space there will be the same challenges as other retail venues in terms of competition and customer engagement.
As there are more stores in terminals and concourses, these retailers will no longer have the luxury (no pun intended) of what we call the “Field of Dreams” fallacy: if you build it they (i.e., customers) will come.
The most successful airport retailers, like others, will win because they not only have the right location and assortments but because they have customer relationships that enable them to drive store visits before and after people fly. As of today, there is only minimal airport retail customer marketing. That will absolutely change.
Two points come to mind when thinking about airport retail: location and foot traffic – both of which are needed to be successful in retail. Airports have both to the extreme! Not only are your customers basically locked in the building when checked in, you also have hordes of bored people waiting for their flights. Why not sell them something? Terminal 3 at Pearson International in Toronto has a very nice shopping venue within the gate area and I can tell you there are at least 20 people in line at the Tim Horton’s at any time of the day. Vancouver International, San Diego’s Lindberg Field and LAX are also notable with their expansive shopping areas.
High priced goods sold in high rental stores to a declining market does not sound too great to me. However, when the market upturn happens, airports will be a great place to be. Riding the downturn well is the challenge.
There will continue to be an opportunity for the right selection of appropriate luxury items. It is an opportunity for busy business travelers to browse through the latest high tech gadgets, consider all manner of accessories, not to mention toys, sports gear and games. Everyone is just too busy – airport time is a great chance to reach a cross section of travelers. They need to buy gifts now, or look for ideas and pick up or return at local outlets.
I just landed at the new Bangalore airport this Sunday. It is a much better facility than the old one and like this article details, offers the traveling jet-setter a chance to purchase luxury goods free of taxes. Strangely enough, however, an article in the local newspaper the very next day lamented the lack of success of the new duty free shop. Apparently, the retail facilities haven’t really taken off at this location.
Just empirically, I did see a fair number of people go in there after a 10 hour flight in from Heathrow, but those numbers seemed tiny when you would compare them to similar traffic in the duty free shops at airports in Singapore, Dubai or London. Ironically, these are the top 3 international destinations to and from Bangalore. Perhaps that says something about the lack of success of the duty free shop at Bangalore International. Generally speaking, it appears to me that the prime law of retail consumption governs airport retail too–the importance of location.
I would say the best airport retail facilities are defined by all or most of the following criteria:
High transit/layover traffic
Hub operations for a major airline.
Attractive brand names in the general shopping area–Terminal 5 at Heathrow is a prime example.
Demographics–the more diverse the airport visitors, the likelier the success of airport retail.
I have personally found that while the lack of taxes at duty free shops has its appeal, the real attraction lies in creating the image of luxury and providing the traveling shopper an opportunity to spend her money in an atmosphere abundant with a wide choice of luxury brands. Manufacturers and retailers would do well to remember all of this before setting up shop in every international airport.
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Airport terminals are shopping malls for the business travelers on layovers. However, there are some issues that airport businesses need to deal with:
1. Travelers are not allowed to leave their baggage at the gate while walking around doing some browsing and shopping in the airport. Therefore, they need to drag all their heavy and awkward belongings with them while they shop.
2. It’s amazing that clothing stores are able to sell suits and other products that require attention to sizing and fitting. Chain stores need to allow consumers to make returns and be fitted at other stores within their chain, outside the airport. Not all of these businesses allow that to occur.
3. Purchases made inside the corridor need to fit on the airplane for outbound passengers. Purchases made in the terminal before security need to be carried through security without problems for the traveler.
Overall, the airport shopping mall is a great opportunity. However, businesses need to think through the entire shopping process from the viewpoint of the “real world” traveler to achieve the maximum results.
The retailing at airports is dependent on the airlines attracting travelers to get from destination to destination. With the change in luggage fees, airlines abandoning certain routes domestically in the United States, fuel charges increasing the price of the tickets for flights that are scheduled, and the general economy teetering–my crystal ball tells me that this is about to become a less attractive place to be for a retailer. The leases and rents were established under good times and the volume is likely to be off–not a good combination.
I’d add one more factor to the rise in airport sales–at least in the U.S. Increased dwell time. Like it or not, we are spending more time in the airport per trip than ever before.
If you can frequently afford the high cost of flying today, and then have to wait around a long time in the airports before boarding the flying cattle cars, you are a pigeon for airport concessionaires since luxury products are probably already in your gun sites. That sounds like niche marketing. But most fliers have to satisfy their “luxury needs” with a Starbucks brew or a sitdown at Chili’s.
Airport retailing is a big opportunity given its (literally) captive audience of highly attractive consumers. However, as more merchants enter the space there will be the same challenges as other retail venues in terms of competition and customer engagement.
As there are more stores in terminals and concourses, these retailers will no longer have the luxury (no pun intended) of what we call the “Field of Dreams” fallacy: if you build it they (i.e., customers) will come.
The most successful airport retailers, like others, will win because they not only have the right location and assortments but because they have customer relationships that enable them to drive store visits before and after people fly. As of today, there is only minimal airport retail customer marketing. That will absolutely change.
Two points come to mind when thinking about airport retail: location and foot traffic – both of which are needed to be successful in retail. Airports have both to the extreme! Not only are your customers basically locked in the building when checked in, you also have hordes of bored people waiting for their flights. Why not sell them something? Terminal 3 at Pearson International in Toronto has a very nice shopping venue within the gate area and I can tell you there are at least 20 people in line at the Tim Horton’s at any time of the day. Vancouver International, San Diego’s Lindberg Field and LAX are also notable with their expansive shopping areas.
High priced goods sold in high rental stores to a declining market does not sound too great to me. However, when the market upturn happens, airports will be a great place to be. Riding the downturn well is the challenge.
There will continue to be an opportunity for the right selection of appropriate luxury items. It is an opportunity for busy business travelers to browse through the latest high tech gadgets, consider all manner of accessories, not to mention toys, sports gear and games. Everyone is just too busy – airport time is a great chance to reach a cross section of travelers. They need to buy gifts now, or look for ideas and pick up or return at local outlets.
I just landed at the new Bangalore airport this Sunday. It is a much better facility than the old one and like this article details, offers the traveling jet-setter a chance to purchase luxury goods free of taxes. Strangely enough, however, an article in the local newspaper the very next day lamented the lack of success of the new duty free shop. Apparently, the retail facilities haven’t really taken off at this location.
Just empirically, I did see a fair number of people go in there after a 10 hour flight in from Heathrow, but those numbers seemed tiny when you would compare them to similar traffic in the duty free shops at airports in Singapore, Dubai or London. Ironically, these are the top 3 international destinations to and from Bangalore. Perhaps that says something about the lack of success of the duty free shop at Bangalore International. Generally speaking, it appears to me that the prime law of retail consumption governs airport retail too–the importance of location.
I would say the best airport retail facilities are defined by all or most of the following criteria:
High transit/layover traffic
Hub operations for a major airline.
Attractive brand names in the general shopping area–Terminal 5 at Heathrow is a prime example.
Demographics–the more diverse the airport visitors, the likelier the success of airport retail.
I have personally found that while the lack of taxes at duty free shops has its appeal, the real attraction lies in creating the image of luxury and providing the traveling shopper an opportunity to spend her money in an atmosphere abundant with a wide choice of luxury brands. Manufacturers and retailers would do well to remember all of this before setting up shop in every international airport.