What's in store for airport retail?
With retail currently accounting for around 30% of the non-aeronautical revenues made by airports worldwide, creating winning concessions strategies is essential, writes Pragma Consulting’s Alex Avery.
The landscape in airport retail is constantly evolving as changes in consumer behaviour and retail strategy develop at significant pace.
Enhanced technology, sophisticated customer data and consumer demands – set against a context of challenging macro-economic conditions – have all combined to create this environment.
At the same time, global passenger traffic is growing, people’s disposable income has reached an all-time high and emerging market spend is rising.
As a result, in many instances, passenger spend has continued to rise, despite limited innovations from airport retailers to adapt to new consumer behaviours and trends.
But is this sustainable in the long-term? A unique selling point, value-driven tax and duty free proposition, together with a captive audience, has to date, protected airport retailers from high street competition.
Essentially, the industry has often considered travel retail to be a channel of its own, safe from the market pressures and competition of downtown.
However, the rise of digital has led to a diminishing price advantage due to the global dominance and reach of e-commerce giants, which enjoy significant cross-border fulfilment and increasing price transparency.
Indeed, digital continues to raise consumer expectations to the extent that today’s consumer expects to be able to demand what they want, whenever they want, however they want.
So, to maintain and grow customer conversion and spend, the airport retail proposition needs to adapt. The travel retail spirits market is a case in point, contracting 3.3% in 2015.
Airport retail trends in the year ahead
At Pragma, we expect 2017 to be transformative year for travel retail as operators engage digital strategies to shape that convenient, relevant customer proposition.
What can we expect from airport retail in the next 12 months? Below is a quick snapshot of the major trends shaping the airport retail environment.
To date, the combination of a customised offer and purchasing convenience has been a neglected area in terms of airline retail propositions. However, the need to expand the reach of retail beyond the walls of airport stores is set to change this.
New partnerships, such as the collaboration between Fraport, Lufthansa and Heinemann that seek to deliver more convenience for customers, suggests a step change forward for both on-board retail and collaborative stakeholder partnerships at airports to better serve the airport customer.
The partnership covers key aspects of the experience to improve customer convenience:
- A new Inflight Shopping service allows passengers to shop from a range of products, ordering and buying online to be delivered on arrival. This can deliver a more effectively targeted retail experience, as Heinemann can use its significant knowledge of in-store data capture to match the product offer to the passenger profile on the flight.
- Optimising digital marketing, a lounge shopping experience enables travellers to purchase exclusive products from the comfort of the executive lounge to be delivered in half an hour
- The Taste & Travel service means customers can pre-order F&B at selected points in the passenger journey, such as check-in and security. Personalised selections are delivered to the departure gate, to enjoy on the plane
Ultimately, airports are logistics eco-systems. Next year will see retailers leveraging the compelling assets available to them to improve purchasing and delivery options; click & collect, collect on return, or deliver to home.
Placing digital at the centre of this approach will create a more convenient experience as it can free up customers’ hands, increase the ease of purchase, and presents an opportunity to promote both traditional core category sales as well as drive spend into new areas.
Data, data, data
The pure online retailers have been leading the way, in terms of using transactional and customer data to improve sales performance, enhance customer experience, and plan ranges more effectively.
The growing sophistication of data capture in airport retail opens up innovative ways to support sales, through demographic profiling, destination spend analysis, or tracking passenger flows around the terminal through beacon and Wi-Fi enabled technology.
For retailers to maximise value and return on investment, however, airport management executives need to ensure their teams have the right skill sets to understand, analyse, and act upon the data they’re capturing.
Data is only good if it’s understood. It’s about ensuring data insight leads to strategic actions that enhance profitability and sales.
Customer experience is key
Airport retail needs to major on emphasising in-store experience if it’s going to increase footfall and in-store conversion. It is here they have the most to learn from the high street in terms of pushing boundaries around concepts and innovation.
Digital simply can’t compete with the physical sensory experience; the store environment is crucial to delivering product and brand engagement. Experience is what will stimulate purchases and drive customer loyalty.
Expect to see more sophisticated use of how retailers deliver brand values through design, customer service, and sensory experience. Concepts such as The Store, a hybrid retail space beneath Soho House in Berlin, combines the best of commerce, hospitality, and lifestyle.
We expect to see more of these engaging environments created for shopping, socialising, dining, or working, in the airport space.
Attention is really the new currency, integrated with the digital eco-system to present multiple sales avenues, with digital facilitating an on-going dialogue and convenience for the consumer.
There is a strong correlation between customer satisfaction and spend. In current times, consumers are arguably now exposed to too much ‘stuff’, hence passengers are keen to seek out different experiences, rather than be exposed to endless shelves of static commerce.
Airport retailers have the opportunity to make the journey less of a process, and more of an experience.
Challenges to growth
Looking at the challenges ahead and barriers to airport retail growth. Starting close to home, there’s the inevitable impact to UK travel retail if Britain leaves the single market and the customs union.
While there may be the opportunity to implement duty free spend, it could present a significant logistical and operational challenge for retailers. Macro-economic conditions such as exchange rate volatility continue to make airport sales a challenge in the highly lucrative emerging markets of Chinese, Russian and Brazilian passengers, particularly in the luxury sector.
Airports and retailers will be looking to mitigate these risks by opening up retail offers beyond the narrow focus of highest income brackets.
There are core issues that will also prevent some airports’ ability to adapt to incoming shifts. Inflexibility, long-term retail contracts, high operational costs and an aggressive pursuit of minimum annual guarantees and margin could work against retailers.
With a focus on maximising income and profitability, especially in the context of increased privatisation and resulting airport acquisition costs, growing return from non-aeronautical income is key.
Airports have a role to play here by balancing expectations of contract size, margin structure and length of contract against the need for their retailers and brands to invest more in store design, customer service and digital innovation. The reality of the retailers’ profit and loss sheets must come into consideration when looking to promote more innovation.
And while there is very much a drive for more exclusivity within the airport retail channel – and this will continue to be an important line to enhance sales – a wider market opportunity and cost structure means that it is often challenging for brands to develop profitable lines in this way.
A compelling airport retail strategy
Looking at 2017, winning airport retailers will be those that understand the customer composition and how their buying behaviours are evolving.
Enhancing the customer experience is everything, recognising the need to invest in high quality design and place making with closer collaboration and input of brands into the physical store experience.
Price will, of course, remain important, but it’s good customer service, quality of product, and customer experience that will deliver the value. Additionally, investing in methods that promote airside dwell time, will always help to drive penetration and sales.
Airports with strong and trusted partnerships with both airlines and retailers that work collaboratively to increase the scale of the commercial opportunity, rather than fight over its distribution, will come out winning in 2017. It’s in this way that travel retail can create an experience that doesn’t just match the high street – it exceeds it.
Alex Avery is managing director for airports, travel and commercial spaces at travel retail specialist Pragma Consulting.