Role of Airports in the Next Era of Travel Retail

Studies say, Global travel retail market is expected to reach $154 billion by 2025 growing at 9.6% of CAGR between 2018 -25.

Credits: https://www.alliedmarketresearch.com/travel-retail-market

Above graph shows the major part of this growth happens at the Airports, which tells us the importance of Airports and the role they play. You might be wondering why ‘at’ is highlighted, the reason is very simple yet important. The money spent by passengers at outlets at Airports does not go into Airport’s account directly. It goes to the Concessionaires/Retailers at the airport and based on Revenue share model that Airport has with its Concessionaires, that fraction of amount goes to Airport. So, the money Airport makes is directly proportionate to the Concessionaires make! Which takes me back to my previous article where I have mentioned some key statements.

  • Airports need to think like a modern-day SHOPPING CENTRE!
  • Airports know exact number of FOOTFALL in a day and DWELL TIME of passengers
  • Airports need to take the lead in enabling this new business approach as they are the right players to do so

So, why do Airports need to think like a modern-day shopping centre? As per my experience, successful shopping malls act as Real Estate companies. The key asset for them is ‘space’ measured in Sq.ft (Square foot) or Sq.m (Square meter). The productivity is measured per Sq.ft and revenue is measured against every space available (Leasable area, Common area, parking space, hoardings etc). The tenant mix (Retailers who have shops in malls) also depends on performance of retailers and Mall owner decides who DESERVES space in their malls!

Airports are no different from Shopping malls (Except for Aviation part at airports). They need to be agile while managing the space that is let out for Concessionaires and take steps improve the Asset performance (Read it as ‘Space’). Some of the key metrics that help in tracking this.

Trading Density – It is measured as sales per sq.ft, and is an important metric that helps to gauge how retailers are performing (Performers & non-performers) . It also helps in tracking conversion rates based on footfall i.e. passenger traffic

Revenue per sq.ft – As I mentioned earlier, Airports make money from Retailers based on the revenue sharing agreement. Typically, it involves MG (Minimum guarantee) and RS (Revenue share) or Pure Revenue share model. This metric help Airport authorities to keep track of the revenues it is earning and going to earn in future (If they have forecasting module in their systems). Whether they will achieve their revenue target or not? If not, who are the retailers that are causing shortfalls?

Sales Velocity: It is the rate at which sales are happening per day per hour at Airport. It helps to identify sales at peak hours and non-peak hours. And, more importantly sales activity based on passenger traffic trends.

There are some other key metrics which are in combination of above, but I will keep them for some other day. I want to emphasize on the fact that why Airports and Retailers need to work closely for mutual benefit and success.

Now, moving on to the 2nd point I have mentioned, Airports know exact number of FOOTFALL in a day and DWELL TIME of passengers.

Generally, any business spends some share of their revenues for marketing and advertising. The percentage may vary from business to business, but spending is common. In Shopping centres, this spend is anywhere between 3-8% as marketing expenses. The key objective of this is, to drive traffic to the malls which in turn results in sales conversions. But no marketing campaign can guarantee the exact number of footfalls in the mall. No campaign can guarantee the amount of time spent by customers in the mall.

If there is any business that can guarantee the footfall and tells exactly how much time customer spends in their premises, it is ‘Airport’. But, key to this information is ‘Airlines’. Airlines have to share the data of Arrival/departure passengers To/From the Airport. Collaboration with Airlines can tell about each passenger, demographics, purchase behavior, preferences etc. With this collaboration, one can personalize the airport experience to the last passenger. Now, do you see the need to have collaboration among Airports, Airlines and Retailers?

This will lead me to the last point - Airports need to take the lead in enabling this new business approach as they are the right player to do so

So, let me elaborate on why Airports are the natural players to lead this collaboration? The reason is very straightforward: Airport is not an individual entity but largely a platform where Airlines, Retailers/brands exist and operate to serve their common customer, ‘Passenger’. So, like any successful platform, Airports need to accommodate the players and enable the eco-system to thrive. Think of Alibaba, Amazon, Airbnb! The success of platform depends on the success of its constituents, so the platform has to take steps to enable the success of its constituents. Also, the maximum time spent by passengers during their travel is at Airports for shopping (I am discounting in-flight retailing due to its very less contribution), hence Airports are the right player to lead this collaboration.

In current market landscape, we do have such platforms some of them are Airlines-led and some are Airport-led. For example, AirAsia launched a marketplace called OURSHOP which onboards Airports and Retailers London Heathrow launched a marketplace with its technology partner, AOE. But what we feel is, such adoption is in nascent stage and requires large scale industry participation to reach the full potential. Exciting days ahead for Travel Retail! 😊

Author: Prakash Babu Devara
Source: https://www.linkedin.com/pulse/role-airports-next-era-travel-retail-prakash-babu-devara/

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