Bosses at its retail branch, Abu Dhabi Duty Free (ADDF), are only happy if revenues are visibly outstripping passenger growth, which means keeping them consistently in the double digits, says ADAC’s senior vice president commercial Daniel Cappell.
“We are not fighting for 1.5% growth here, if we don’t get 22% annual growth [in revenue] we are disappointed,” he tells Airport World.
And judging by recent sales figures, there seems to be no need for ADDF to fret.
ADAC posted sales revenues totalling $103.5 million for the first half of 2012, a 29.1% increase on the same period in 2011 and higher than the 22.8% rise in passenger traffic registered in the same six months. Meanwhile, spend per passenger increased by 7.2% to $14.47.
“In terms of retail sales, our business is performing very strongly. Our spend per passenger is increasing and I think given the reaction of the brands and thanks to the support we have from them, I can say we have an outstanding commercial offer at Abu Dhabi International Airport,” explains Cappell.
These already impressive results are expected to skyrocket once Abu Dhabi International Airport’s new Midfield Terminal, which will cater to 27-30 million passengers annually and house over 25,000sqm of retail and F&B outlets, opens in 2015.
Emphasis on luxury
So what is at the heart of ADDF’s strong performance? For Cappell, the answer lies in the fact that since a major strategic review in 2007, the airport – in partnership with international airport retailer DFS – has focused on offering a level of luxury and choice they believe is unrivalled in the region.
“We believed there was a significant opportunity to differentiate Abu Dhabi from other airports in the region and on a global basis from airports under 20 million passengers by introducing a focus on luxury in addition to our core duty free and tax free offerings.
“When we opened Terminal 3 in March 2009, we had 19 stand alone boutiques which included the first ever Jimmy Choo outlet at an airport worldwide, the only Hermes boutique in the Middle East at that time and, until recently, the only one in Abu Dhabi, along with brands such as Cartier, Mont Blanc, Rolex, Polo Ralf Lauren and Coach,” explains Cappell.
Mainly centred at Terminal 3 and the refurbished Terminal 1, ADDF operates some 124 retail and food and beverage outlets across the airport, offering a range of international brand products, including Tag Heuer, Swarovski and Bvlgari, as well as a mix of cosmetics, tobacco, electronics and liquors.
But what really sets Abu Dhabi apart from its rivals, according to Cappell, is the number of full door boutiques it offers, providing customers with the kind of shopping experience they could expect to find at the average downtown shopping mall.
“We have the only Rolex boutique in an airport in the Middle East and the only Hermes and Coach boutiques. A number of other airports have what we call ‘shop in shop’, not a full door boutique. And if you take a percentage of overall retail space, we have allocated more space to the luxury end than other airports and that’s all been to the benefit of incremental revenue,” enthuses Cappell.
While airside duty free continues to exceed expectations, perhaps surprisingly, arrivals duty free, while still a small part of the business, is growing quickly and proves popular with certain demographics.
“On a global basis certain places are much stronger, such as the Philippines and Brazil, within the Middle East arrivals has been an area, especially in Abu Dhabi, which has seen the most growth, that is because we have increased the size of the shops and the products in them. In terms of percentage it’s high but it’s still only 5% of our business.
“Where you have good price differentials on the airport price compared to downtown you will find this will attract passengers,” Cappell says.
The emphasis on luxury brands and quality goods, such as Johnnie Walker whiskies and clothes, cosmetics and accessories from Dior and Chanel and others not only means Abu Dhabi boasts a unique offering – it also proves popular with the airport’s ‘big spenders’ – passengers from China, Russia and Japan, followed by regional Gulf travellers and western ex-pats.
“The Chinese are the fastest growing spenders per head in the world. Here we have Etihad that has three destinations in China, and while the Chinese make up less than 1% of total traffic, they make up 4% of total spend. From a demographic point of view, they are very important and their propensity for brands is huge,” says Cappell.
As Etihad’s international network continues to increase and more routes are added in Asia, this figure will no doubt grow.
Less high yield but by no means less important is the mid range spenders, such as Asian workers returning from the UAE to families in the Indian subcontinent, who Cappell says are fond of confectionary, tobacco and liquor.
“The subcontinent profile is also very important; they are going home to see family and friends and buy a huge amount of confectionary and liquor for friends and family.”
Cappell puts much of the fortunes of Abu Dhabi Duty Free down to a key turning point in 2007/08 when following a strategic review, the company decided to take a step back and bring in international airport retail specialist DFS to manage 80% of the business.
This change in approach, which was partly driven by Cappell upon his return to the airport in 2007 after an 18-month stint away, also saw the airport cooperating more closely with a rapidly expanding list of international brands in terms of marketing and shared promotional campaigns.
A good example of this is the Abu Dhabi Grand Prix. Since the Emirate first hosted the motoring event in 2009, the airport has worked with its resident brands to maximise the sales opportunities it offers.
“During the Formula1, the airport is very actively involved, all the equipment and personnel comes through the airport, but we also turn it into a very interactive experience for all our customers and visitors; we offer memorabilia, cars, simulators; we do major promotions with some of the brands that sponsor F1, for example DiMaggio, Johnnie Walker, Hugo Boss – we always try to create a link between major events and the airport and, where applicable, the brands,” beams Cappell.
While it is one thing to offer a compelling range of products, it is quite another to ensure people want to buy them, and with this in mind, Abu Dhabi Duty Free has invested significantly in customer engagement and staff training.
“It is about the experience – if you take, for example, our core duty free offering by DFS, we have had over 30,000 hours of staff training over the last 12 months. That is a huge commitment and investment and it’s there to constantly raise the bar and improve critical category knowledge.
“I think from a customer point of view, everyone remembers when they’ve been served by a member of staff who is passionate about the brand, who can answer all of your questions about a brand and, from that perspective we are a good example, but also in the use of iPad technology and 3D schematics – so if you are buying a luxury watch, the sales associate will have a schematic of how it is built and that starts to create much more of a one to one relationship with the customer,” Cappell beams.
Customer engagement also extends to special events laid on by the airport, a recent example being a tasting day by a top Dom Pérignon expert and special offers linked to DFS Galleria Platinum Services Club loyalty programme.
So what is next for ADDF? The immediate priority, says duty free veteran Cappell, is to finalise the future retail offering at the new Midfield Terminal, where, he believes, there is an opportunity to “create something outstanding.”
With that in mind, ADAC is in the process of appointing a commercial consultant to work out detailed plans and the layout.
“We are very fortunate to have 25,000sqm of commercial space, which gives us the ability to create something really special across all categories to meet all demographics that come through the airport.”
Like the rest of ADAC, ADDF is also focusing on how to leverage the benefits of social media within its commercial offering and Cappell reveals that the duty free operator is close to finalising its social media strategy.
“Social media is becoming more and more important within retail and within duty free. I think it’s something that as an industry, duty free has been relatively slow in introducing and focusing on it, but now I think everyone is waking up and smelling the roses and now we are working very closely with corporate marketing; we are in that developmental stage now,” he explains.
In 2010, ADDF unveiled a rebranded retail and duty free offering under the title of ‘Shop-Dine-Unwind’ and at the time of its launch Huraiz bin Huraiz, chief commercial officer for ADAC, stated the brand could be a possible vehicle for international expansion, saying it was “easily transferable - outside of Abu Dhabi”.
On this point, Cappell does not rule out the idea of expansion abroad at some point in the future, but says the focus right now has to be on the new Midfield Terminal.
“We did a strategic review of the business in 2007 that focused on trying to become the leading airport in the Middle East and then going on to be the leading airport worldwide when the new terminal opens, obviously we want to maximise our revenue and profitability, but also have a retail offer that meets our customers’ needs and hopefully exceeds their expectations,” he explains.
“If you look at the results, we’ve got a Skytrax four-star rating, the only airport in the Middle East to have achieved that, ASQ results have improved year on year, our commercial revenues have grown above our traffic growth and has been in the high double digits since 2007 and, seen major improvements in our in bottom line profitability.”
Abu Dhabi Duty Free timeline
|1984:||ADDF is established with just five retail units|
|2007-8:||Strategic review led to partnership with DFS and a change from direct operator to landlord for duty free operations|
|May 2010:||ADDF launches its 'Shop-Dine-Unwind' brand unveiled. Possible vehicle for international expansion|
|June 2012:||Launch of the buy now-collect later shopping service "Fly Lighter"|
|July 2012:||ADDF and DFS launch their biggest monthly cash draw with a $1 million dollar grand prize|