Non-aeronautical revenue is an essential element of airport commerce – often accounting for a very substantial percentage of airport income.
And with many airports operating at a loss, this revenue stream can have dramatic implications for service standards, as well as the break-even points for passenger or flight fees. Airports, therefore, need to take retail very seriously if they are to make the most of this vital flow of cash.
When the going gets tough
However, gone are the days when bargain-hungry duty free buyers guaranteed airports a steady supply of dollars, yuan or rubles, and the times when airport retail strategy could be ‘pile it high and sell it cheap’ are very much behind us. Growth has slowed.
The latest figures from specialist travel retail research organisation, Generation, show that total duty free and travel retail sales in 2014 amounted to a still substantial $63.5 billion. However, the increase in spend has fallen over the past year from +7.5% in 2013 vs 2012 to +5.8% in 2014 vs 2013.
Asia-Pacific remained the fastest growing region at +9.9% in 2014, but even this (on the face of it a healthy figure), is down from 12.1% in 2013.
Among the product groups, fashion and accessories performed best with an increase of 3.5% but fragrances and cosmetics – duty free and travel retail’s biggest category – was flat and three major categories were in decline.
More worryingly still, the current growth rates don’t match the growth in the number of passengers, which must be a concern for both airports and retailers. Therefore, in today’s harsh economic environment, considerable commercial dexterity and a much more sophisticated approach is required to maximise revenues.
What’s the problem?
Issues both inside and outside the sector have played a part in putting growth on this downward slope. Of course in uncertain times, fewer passengers buy a plane ticket, and conflict, particularly in regions such as Ukraine, Iraq, Syria as well as terrorism scares in Paris, Belgium, Sharm el Sheikh and other areas will all take their toll.
Health issues such as the Ebola epidemic in West Africa and the outbreak of the Middle East Respiratory Syndrome (MERS) virus in Korea will also add to people’s reluctance to fly.
Economic instability in Europe has created currency pressures and reduced consumer confidence. Double-digit growth in China is probably over – at least for the time being anyway – leading to a downturn in purchases by traditionally big spending Chinese passengers.
Economic turbulence in Brazil and political as well as financial troubles in Russia mean fewer passengers. Passengers from these countries are the source of a big percentage of duty free and travel retail spending, and when they keep their cash in their wallets, it hits the sector hard.
Changes within the travel sector itself have also contributed to the difficulties. These include the increased prevalence of certain low-cost carriers and the associated restrictions on baggage alongside increased or confusing regulations about what passengers can and can’t take on planes.
Looking on the up side
But the industry is far from powerless to fight back. Conversion is key, and the sector shouldn’t worry about passenger growth when it is currently letting millions of those who are already flying slip through its fingers.
So how do we rectify this situation? One area that we need to consider carefully is how to harness the power of new technology to communicate effectively with passengers.
Around 2.8 billion people (two fifths of the world’s population) are now connected in some way. Mobile devices are fast becoming the dominant digital gateway for passengers to preview their plans, manage their time and then navigate their way through an airport. In addition 20% of online bookings are now made via a mobile phone.
This represents a massive opportunity and the industry needs to do more to capitalise on it. Passengers can get advice from friends, family or retail experts wherever they are. Mobile is not just a technology, it’s an essential element of consumer behaviour.
We need to be creative about how we use it – it’s not about ‘likes’, it is about delivering messages that are personal and relevant at a time when they are useful.
The quality of the airport experience should also be a priority. Travelling can be stressful, and passengers who arrive in the retail area fraught after a struggle to get from the car park to the terminal, an anger-inducing queue at check-in or a battle at security will have every reason to be grumpy.
But happy passengers are spending passengers, and airports need to consider how they keep their passengers in good spirits as they pass through the airport as well as how to relax the anxious and put them in a spending mood.
Exclusivity also matters. By giving passengers something they can’t get on the high street – whether that’s an experience, a product or a promotion – we can add a sense of exclusivity, which will encourage more passengers to stop and spend.
Airports are unique environments in which exciting and engaging retail experiences can be created. And there are many positive stories to tell. Much investment has gone into enhancing the retail environment at airports across the world, and many of the retail operations we see in airports today are equal to, if not ahead of, what is happening on the high street.
By careful planning at an early stage of airport development, and working together as a true trinity between the airport, the retailers that operate within it and the brands they sell, we can drive an even better business.
The future is bright
Although passenger numbers fluctuate, there is no doubt that while the nineteenth century was the era of rail and the twentieth was that of the car, this century belongs to the aircraft.
More and more people are taking to the skies every year, and the increase in international travel from newer markets such as India and Africa will continue to drive growth at a phenomenal rate.
And many of these new travellers are keen to experience the luxury and glamour of airport shopping and the brands that can be found at our stores.
The duty free industry has a reputation for resilience and that reputation is deserved. The mood at the TFWA among our own members is upbeat. Much business was being done on the floor of our own events during 2015, including at our World Exhibition and Conference in Cannes in October last year and we expect no change in this positivity in 2016.
We’ve weathered some challenging times in the past, and we will come through them again in the future. We have much to look forward to.