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Plane simple: Inside airport retail

Current airport security measures mean many passengers have time to shop before their flights, and a small shopping centre’s worth of retailers have specialised in accommodating their needs. Courtney Devereux explains why airport retail is flying high.

By Courtney Devereux | June 7, 2018 | News

Gone are the days whena $10 discount on foundation and a giant Toblerone could placate the busy traveler. Now, passengers start their holidays the instant they clear immigration, meaning more spending and higher expectations as they begin their travels earlier.

The International Air Transport Association (IATA) expects 7.8 billion passengers to travel globally in 2036, a near doubling of the 4 billion air travelers expected to fly this year. The rate at which we are flying has only continued to increase, and the rate at which tourists enter the New Zealand market has grown in reflection to that.

IATA reports that the biggest driver of demand for air travel will soon be the Asia-Pacific region. This will be the source of more than half the new passengers over the next two decades. Auckland Airport’s monthly traffic updates reflect the projection, with international passengers (excluding transit passengers) increasing by 6.5 percent to 872,408 in February 2018 compared to the same time last year.

The number of passengers that traveled through Auckland Airport in February alone sat at 1,688,859 – up 111,278 from the same period in 2017. That averages to about 60,000 passengers passing through the airport each day, at all times of the day.

Queenstown international passenger numbers were 65,084 for the current month of February in 2018, while domestic passengers surpassed that with 135,152 in the same month, up 8.6 percent from last year. Christchurch airport estimates its amount of passengers as eight million annually.

Because of this rise in air traffic, naturally, there has been a rise in consumer spending in the airport. The new airport consumer has a lot more spending power than previous iterations; they’re tech savvy; and they’re better-informed about product.

Customer demands have changed as travelers have been exposed to more international airports as result of globalisation. This forces airports to be more competitive and innovative. The mix of airport retail is drastically changing to reflect that.

This is your captain speaking

Retailers used to think they had a captive audience at airports, but the truth is that customers will always have a choice, says Richard Barker, Auckland Airport’s general manager of retail and commercial.

Barker says the issues retailers at the airport face are similar to traditional retail; the ongoing battle against online shopping. The challenge now is how to persuade shoppers to do more of their discretionary spending in the airport environment.

Both Auckland Airport’s international and domestic terminals have been under renovations since 2015, when Aelia Duty Free and The Loop Duty Free replaced the longstanding duty free retailers DFS and JR Duty Free,

Since then, renovations have continued to expand, with the refurbishment of the arrival and departure areas to be complete by 2021. After these areas are completed, work will begin to connect the international to the domestic terminal. The expected completion date is around 2022.

The international terminal’s first floor retail and food and beverage leased area after the security gates will grow by about 65 percent in size.

More shops along with dining options are being added to the international departure area, with a mixture of style and price points expected to suit a range of travelers. This fronts on to the airports 30-year plan to further offer Auckland Airport as a global hub.

“We have revamped our entire retail and food and beverage offer because customer expectations have risen dramatically,” says Barker. “We have a bunch of brands opening here in the next few months which will be market firsts for New Zealand. We have luxury brands preparing to come in that subsequently may hit the high street, but will be first here.

“What we will have open in about four months times is a luxury high street lane,” Barker says. “A lot of airports have brands like Prada and Gucci, but they’re a little too high end for our audience. Sure, they suit the Chinese market but a lot of our audience is New Zealand travellers.”

No two travellers are the same: depending on why you travel, you want different things. This means airports must cater to a wide range of demographics in one easy to access area. Auckland Airport has styled the new space specifically so that travelers can set up ‘base’ in the food and beverage area but still be within the retail areas for easy back and forth. 

As numbers grow, airports have been expanding their retail offerings beyond the traditional duty-free shops and newsstands, adding global brands with smaller-than-mall-store selections but comparable prices.

In fact, according to the February 2018 monthly traffic update by Auckland Airport, New Zealanders make for the top number of arrivals.

Unexpected turbulence

Airport retail in Auckland, according to Barker, is continuing to improve and will keep changing as renovations in the area are complete. He expects consumer demands won’t ever cap, but will continue to change.

“The first phase of renovations is to expand the international terminal to reflect growth. As a result, because we’ve got this strong passenger growth, 20 of our retailers had 20 percent like to like growth. The retailers here want to be here, do they pay a lot of rent? Yes, they do. But the sales per square metres, at best we can tell, are double the best mall in New Zealand.”

Yet decisions about what retail is offered is not solely left up to consumer demand to decide, or who can afford what. Each airport has a different way of deciding what factors are needed to fill a certain space. Auckland airport itself has over 100 different shops, cafes and restaurants and employs over 15,000 people.

“When deciding who takes up space here, we have sort of a balanced scorecard,” Barker says. “We look at finance but it’s also what brands can they bring, what is the operational expertise, what are their references from other airports, and what is their strategy around marketing and training?”

Duty-free has always a big drawcard, with retailers such as Walker & Hall encouraging customers who buy on the high street to pick up at the airport to get their tax back.  Barker says in the initial stages of the renovation that’s currently underway, seven international duty-free places competed for two spaces.

“Duty-free is a great business, each day they do a turnover of a good-sized Pak’n Save. So, they do big businesses. There is the opportunity to offer duty-free to domestic travelers with two-tier pricing. Though we are mindful of making the customer journey as easy as possible. We try to think of every type of passenger, if you’re doing a business trip to Wellington and you’re taking a seven in the morning flight, you don’t really want to be taken through a whole bunch of stores, you just want your coffee.”

The global duty-free industry is expected to grow to about USD$67 billion by 2020, from an estimated $45.7 billion in 2016, according to Dufry, the world’s largest travel retailer.

Passed with flying colours

Airport retailers have the upper hand as foot traffic is a given, but the challenge lies in trying to increase sales generated from passengers in the time before they embark on flights, as well as profiting profit from shifting traffic flows.

Globally, the average time spent at an airport — from arrival until an aircraft’s doors are closed — was 133 minutes last year, down from 150 minutes in 2013, according to the IATA.

As passengers become more familiar with flying, they arrive later at airports. Because airport processes, such as security and check-in, have become quicker, the time available to shop or eat has remained at roughly 30 minutes over the same period. To maximise sales in this short amount of time, Barker says the airport is relying more on improvements in technology.

“A lot of the big retailers are improving their technology, so that is why we are focusing a lot on that augmented platform. That is why we launched the Strata Club, so we can have that insight into our loyal customers. When people book their parking, we can see when they’re flying and get data from retailers who can start to then build up a profile of that person, and then create a targeted offer for buying.”

Most airports will hold onto customer data for a more seamless experience, but have now started using it as a means to offer more personalised services, in addition to the conventional services such as duty-free, food and beverage and ground transportation services.

“We can use beckons to give people timely offers because we know when they’ve gone through security. Or if you’re overseas and we know you’re arriving back, we can give you an offer tomorrow to buy something particular.”

Although airports may deliver the foot traffic and the technology to better target customers, Barker notes there is a limit to how much you can target a specific person.

“But with technology, if we bombard them too much and have retailers all trying to get this one person into a shop, they will just ignore their phone. And that’s a reason why we as the airport will control that retail platform, so it’s about learning to take a customer-centric approach and letting people shop on their own terms without a whole bunch of people shouting at them.”

This data is a big player in the way that the airport operates, not only to benefit retail and stay on trend with growing demands, but also to smooth running operations.

“A lot of the AI stuff we are testing is more back of the house. The airport is about on-time fast departures, and how quickly you can turn around the plane.”

With airport retail, it is important to consider the end objective – what the airport operator wants to offer its customers, and how to deliver it.  At the same time, however, consideration needs to be given to how these ambitions will impact on the 24-hour operations of an airport during delivery.

“A big things new brands have to align themselves with is the very long trading days,” warns Barker. “It is essentially 20 hours. That can bring challenges of finding staff, who need to be well presented, here and ready to go by 4:30 in the morning - which is a big ask. But what you tend to find is that you see people who like the routine and easily get into the swing of it. Retailers here like the vibrancy, because it is always changing.”

Ground crew

Carena Stout works as a retail staff member at Christchurch’s Relay, a store selling books and convenience items. She says she usually starts work around 4am, and confirms the hours took some adjusting to.

“You do get used to the hours and most people are friendly from past 10 in the morning. I don’t find it is too different to normal retail, at the end of the day people come in, they make their purchase and leave.

“For Christchurch we only have the two stores, which is sort of our main retail centre. There isn’t a lot past that. People don’t spend a lot of time around and if they are they’re usually just trawling through magazines and books, waiting mostly for their flights.

Travellers seem “pretty consistent” in how they approach sales staff, says Stout.

“For the most part airport retail is pretty good, we have a great team on the ground who’s values match the company’s. We talk a fair bit with the airport commercial manager who likes to monitor sales. I guess if we’re performing well, so is the airport.”

Reaching new heights

According to the latest key tourism statistics from the Ministry of Business, Innovation, and Employment, international visitor arrivals were a little over 3.7 million for the year ending February 2018. The Chinese market only makes up 12 percent of our tourist market, yet according to Barker, they spend twice as much in airport retail thanks to a culture which often requires people return home with gifts.

The economic contribution of these travelers is around $36 billion, with just under 10 percent of our entire population working in tourism. Tourism numbers are forecasted to continue to grow, with reports expecting a 4.8 percent growth in visitors for 2017-2023.

In direct relation to that, the MBIE reports that tourism expenditure by industry falls heavily in favour of retail sales, followed by food and beverage services.

Although Auckland Airport saw a revenue increase of 6.9 percent to $332.4 million across the 2017 financial year, and despite our thriving tourism industry, international retail airports far surpass our own, mostly due to size restrictions.

Dubai International Airport is now one of the world’s busiest international hubs processing 66 million passengers a year. Al Maktoum International Airport is being considered as Dubai’s airport of the future, projected over time to become a ‘superhub’ with an annual capacity of 160 million passengers and 12 million tonnes of freight. 

Singapore’s Changi International Airport saw $1.6 billion in sales in 2016. By 2025, travelers from China are expected to spend a whopping $450 billion in international travel and retail. When compared to a typical retail high street or shopping mall, sales per square foot at airports are astronomical.
 

How does our busiest airport stack up against the rest?

Auckland International Airport: 19,800,000 million travelers passing through per year

Atlanta International Airport: 103,902,992 million per year
Beijing International Airport: 95,786,296 million per year
Dubai International Airport: 88,242009 million per year
Tokyo Haneda Airport: 84,956,964 million per year
LA International Airport: 84,557, 968 million per year
 

But how does airport retail fare in domestic-only terminals where the offering is less substantial? More importance is placed on food and beverage offerings, as domestic passengers have much shorter waiting periods, sometimes less than 20 minutes as technology advancements allow for off-site check-in.  

Christchurch domestic airport is nearing the end of its renovations, which included a runway expansion, the addition of two new restaurants and a beauty salon. Yet despite a smaller retail scene, the airport itself still turned an annual net profit of $64.6 million in 2017.

Renovation plans include a landscaped plaza, an entry tunnel representing the flow of water from the Southern Alps, a second multi-level car park building, and a larger terminal.

Off flight entertainment

As customers come to expect just as much from an airport shopping experience as from a cutting-edge urban shopping center, only retailers that focus on compelling merchandising and offering something different will capture their attention.

Brands that tap into the need for speed are behind other innovations: artificial intelligence; click-and-collect connected to in-flight e-tail; and location-specific sales and offers pushed to smartphones are just some of what’s expected to start popping up at major airports. Some of those developments are already being seen at Auckland, but Auckland Airport’s Barker says technology is only a part of what retailers need to survive changing expectations.

“Most of the airport business is still traditional retail, which mixes location and foot traffic. We’ve really pushed retailers to focus on things like fit-out and strong visual merchandising.”

Airport fit-outs such as technical apparel retailer Icebreaker and jade retailer Mountain Jade use strong visual marketing to draw in passing flyers. Mountain Jade includes five digital touch-screens, an in-house workshop and eye-catching designs to make sure customers take their time within the store.

Although delays can result in unhappy travelers, they also mean people are more likely to hang around and shop, which is an opportunity no other retailer gets. Yet despite the delivered audience with time and money to kill, Barker says retailers cannot become complacent in their ways.

“The days of retailers sitting back and charging what they want are well and truly numbered. Competition on the high street is cut-throat, and increasingly, that level of the competition has stepped up as the quality of the retailers get better. As competition increases consumers have more options, so we spend a lot of time trying to educate them around the fact that their competition isn’t just the person next door, it’s the person on the end of their phone. So they do need to pay a lot more attention to what they do.”

The airport is supportive of its retailers, as obviously the better the retailers do, the better it reflects on business. So quarterly meetings are held with between retailers and airport management to monitor progress.

“We put up an anonymous chart of the like to like growth, and there is a line of passenger growth, and we say, anybody who does not have growth reflecting that passenger growth is going backwards,” says Barker. “And if they fall under that mark for too long they need to start thinking about how they’re going to fix their business.”

“We offer businesses development managers to help them, but the ones who don’t change are usually the ones that drop off. And there is a fair degree of scrutiny because we will always have people wanting to fill that space.”

Costa Kouros, managing director of Awpl.

Landing the job

Costa Kouros, managing director of Awpl, an airport-only retailer, says airport retail environments differ from traditional retail as communications between the stores and their landlord, the airport, take place daily to make sure resources are being used wisely.

“The actual airport operator is a key stakeholder in our business. So by that, they actually invest heavily in helping us drive our business. Because it’s absolutely a true partnership commercially, as well as in effort.”

Awpl has been open since 1995 and has 60 operations across New Zealand and Australia. Kouros says that the changes more than ever are becoming about the customer, which he doesn’t expect to slow down anytime soon.

“People are only realizing now over the last number of years that if every decision you’re making is putting customers at the centre of those decisions, you’re most likely going to make the right call.”

Airport retail has changed as quickly as consumer expectations needed it to, yet according to Kouros, consumer perceptions are still catching up to the new and improved offerings.

“You think about even 10 years ago, there were perceptions that airport retail was expensive, that airports provided poor service. Now, airports and the retailers within them have put in a lot of hard work, at least over the last 10 years. We want people to know they will get the best value, the best service, and the most memorable experience. A lot of retailers are continuing to do a lot of work on reality, and perceptions, surrounding what we offer.”

Kouros says although the renovations at Auckland Airport are a great step for the future of airport retail, his team has had to invest in improving their own operations drastically to suit the change in the consumer.

“We have had to reinvest like never before for things that the customer connects with. If you think about that, the customer connects with that is the look and feel of the store, the products within the store, and not just the type, but also the number of staff.”

Kouros sees many differences between airport and traditional retail, with the main point being most the people in an airport are there for a purpose past initially shopping.

“So, for us, it is even more important that we surprise and delight those people, that we really create a sense of place and something that international people identify as an amazing uniqueness like New Zealand.”

“But airport retailers are not out there marketing their brand to people, it isn’t about brand awareness, it’s about connecting with the customer – before, during and after their visit… It is constant, it never stands still, it never stops changing.”

Auckland Airport’s chief executive, Adrian Littlewood, started out in the role of general manager retail and commercial before progressing to CEO in 2012. Kouros says Littlewood's experience in retail has helped drive the improvement of the retail sectors within the airport.

“The airports are growing at a very rapid rate, and I’m a strong believer that it is going to continue. The team on the ground shows no hint of slowing down progression anytime soon. So really what they have done now, is kept a strong eye on the near future and why these changes were necessary.”

Wellington, Christchurch and Queenstown airports were approached for comment within this feature.

This story originally appeared in NZ Retail magazine issue 755 April/May 2018. To subscribe, click here.

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