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What you're up against as a duty-free airport retailer

  • Opinion
  • July 7, 2015
  • Paul Keane
What you're up against as a duty-free airport retailer

How long does a lease need to be, to give retailers enough time to recover their development costs and make a profit? These dual questions emerge from the change of duty-free operators at Auckland Airport; DFS and JR Duty Free have been replaced by Aer Rianta (trading as The Loop Duty Free) and LS Travel Retail (Aelia Duty Free).

Airport retailing would be one of the most difficult environments for retailers to trade from, or for that matter to obtain an opportunity to trade from.

Airports generally take the view that there are no long-term friendships. It’s all about dollars and what retailers will pay to have the opportunity to trade. It’s a tough market.

Percentage of future forecast sales are generally the key benchmark to achieving a site, so the higher one bids, the more the opportunity for acquiring a site. One assumes that the two existing operators simply didn’t offer enough return to AIAL, and so they missed out. Going forward, the two new operators will be under the cosh to achieve sales that generate profit.

The competition is intense. Hence the fact that international duty-free operators with the ability to bulk buy are the only true retailers who have the capacity to fulfil the tough economic benchmarks set by airport owners.

So let’s revisit the intensity of occupation and the fact that the last operators had just 7 years each to satisfy their occupation. Creating a new store is an expensive exercise. This can amount to hundreds of thousands of dollars dependent on the quality of design, and customer experience expected. And airport stores are at the higher end. So are retail stores at airports all they are cracked up to be?

Pedestrian traffic is significant. However, the number of actual customers and what they purchase are the key drivers to success.

Since airlines demanded passengers to check in earlier for flights, exposure to retailers and time to spend has increased the sales opportunity. However, in days past, 80 percent of total sales were in liquor and tobacco.

Today that has changed, given the decline of tobacco sales and the increase in the price of liquor. Cosmetics, electronics, some apparel and general merchandise have therefore had to replace those lost sales volumes.

Add to that the fact that specialty retailers who focus on just one or two merchandise categories, are going into airports in increasing numbers. The pressure on traditional duty-free stores to perform is becoming increasingly difficult.

Can duty-free retailers survive?

Not in their present form or with the tough economic standards currently set by airport owners. Eventually it will come down to tenants negotiating harder and leaving if the negotiation proves too tough. Incidentally specialty store owners have declined airport occupation simply because the returns do not match the cost of occupation. Remember passengers have money to spend at their destinations not as they leave the airport!

A good move by Briscoe Group

The potential takeover of Kathmandu by Briscoe Group has not altogether been met with a great deal of joy by Kathmandu shareholders. Is this a good move by Briscoes? It certainly adds to the company’s list of brands and whether one accepts it or not, both are discounters, so the sales performance will be the key ingredient for success. Forget the idea that Briscoe are not up to it, the skills they have in merchandising are more than enough to make a success of the Kathmandu brand.

Sharewatch | Foodstuffs

The Foodstuffs-Progressive battle for our food dollars has been one to watch, and based on the last year, it seems like Foodstuffs is in the lead.

For the year to February, sales for Foodstuffs South Island rose 3.9% to $2.72 billion. Foodstuffs opened four new supermarkets in the North Island during the year, and none in the South Island. However, four will start trading between August and October this year – Foodstuffs put this down to “delays in gaining building consents and the need to prepare sites with piling”.

Nationwide, Foodstuffs “had a particularly good year with nine out of every ten sales dollars in scanned sales growth coming to Foodstuffs”. Put another way, these supermarkets did much better than their competitor in growing sales, according to Nielsen sales tracking.

On the other hand, Foodstuffs has recently been lagging behind Progressive in new openings. This could well translate into higher growth for Countdown supermarkets in the future.

​ ​

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