Photo: DFS
Are airports now the sweet spot for luxury retail?
Last year, Estée Lauder Co. for the first time earned more revenue at airports globally than at U.S. department stores.
“Very few channels have almost guaranteed traffic,” Olivier Bottrie, who heads Lauder’s global travel-retail business, told The Wall Street Journal. “When a department store goes away, it’s not a major catastrophe. But if a major airport went away, it would be a major catastrophe.”
The WSJ’s article explored how luxury spending is expanding at airports in large part due to a spike in travelers from emerging markets such as China, India, Russia and Brazil that are seeing rising middle classes.
According to a report from The Data Circle, global duty-free sales at airports rose 9.3 in 2018 to $76 billion in another year of above-trend growth. The gains were driven by increased passenger volume, up 6.5 percent year-over-year, and rising spend per person. Asia Pacific, led by China, spearheaded regional growth, with sales rising 15 percent, ahead of the Middle East, 10 percent; Europe, nine percent; the Americas, six percent; and Africa, three percent.
Also helping spending inside terminals overall are longer wait times, partly due to tightened security following the 9/11 attacks. According to Bacardi, the average passenger spends 72 minutes waiting between security and boarding. Passengers have more time to browse over more thoughtful or indulgent purchases. Travelers on holiday are also often in the mood to splurge.
Also supporting growth is an increasing number of low cost airlines driving more tourist traffic and re-configured terminals that support shopping.
DFS, the largest operator of duty-free shops, saw strong revenue growth in 2018, according to the annual report of its parent, LVMH. The gains were buoyed by high impact marketing campaigns, in-store events, the introduction of new digital communication tools, and the expansion of products “to meet the expectations of younger, more exacting travelers while showcasing the uniqueness of each destination.”
- Forget the Mall, Shoppers Are Buying Gucci at Airports – The Wall Street Journal
- Duty free market hits US$76 billion in 2018: Travel Retail State of the Industry report from The Data Circle out next week – Moodle Davitt Report
- Airport retail has a long runway — for the right brands – Retail Dive
- LVMH 2018 Annual Report – LVMH
Discussion Questions
DISCUSSION QUESTIONS: Why have airports seemingly become more conducive to luxury spending? Where do you see the strongest growth opportunities for retailers or brands at airport terminals?
Poll
BrainTrust
Oliver Guy
Global Industry Architect, Microsoft Retail
Ian Percy
President, The Ian Percy Corporation
Airports offer the ultimate retail ecosystem — retailers, brands, airport operators and airlines all working together to capture wallet share from a captive audience — an audience that together these companies know a lot about. For example, the amount they spend on travel indicates their disposable income. Unlike other physical retail locations, customers make their presence known — because they have to. Travelers use wi-fi so you can tell where they are … the list goes on
The trick is to be able to openly share data between the partners — and after regulations the biggest barrier here is technology. The need for seamless B2B integration and a cost-effective API management approach has never been stronger.
Airports are evolving from what we remember they were (a huge open space with a lot of people and airplanes), to what they now are (a secure environment with stores and airplanes), to what they are to become (a mall with great restaurants and stores, sleeping kiosks, massage spas, elite lounges and myriad other attractions to which, by the way, non-passengers are being allowed entry in certain airports, by reservation.
The typical traveler is either traveling on business expense accounts, or is well-off with discretionary spending capability. Luxury retail certainly has its appeal and in layover situations, are a fun, albeit more expensive form of diversion from the waiting time to re-board.
A restricted environment that includes time poor travelers with disposable income, combined with the right curation of products is a great recipe for success.
The key driver is increased dwell times, particularly in the U.S. It is the closest thing to a “captive audience” retailers will ever get. If a traveler doesn’t belong to an airline club, they are generally left to entertain themselves for over an hour. All airport businesses are benefiting
The modern, redesigned, customer experienced focused airport retail operations are prime ground to engage, entertain and sell to a highly captive customer, who has time on their hands before their flights. While department stores and the malls are evolving, the airport, along with train stations have to undergo a similar transformation to focus on the customer, who is willing to spend money.
The airport is part of the travel experience, and consumers are ready and willing to spend their money on luxury items, services, and restaurants during their wait times. We are witnessing the slow transformation, however, it is encouraging to see airports such as LaGuardia offer plenty of experiential luxury stores, spa services along with plenty of restaurants.
Travelers are often “stuck” at the airport and make for a great captive audience for retailers. Travelers will no doubt prefer to shop around a luxury store than a convenience store if they need to kill time waiting for a flight. Those same travelers are often part of a demographic with disposable income, traveling on business, and may be more inclined to make an impulse purchase than if they were at a mall or an urban high street.
It’s a great combination of factors for retailers to exploit! Store layout, services, and product mix are all areas of opportunity for airport retailers that can set them apart from other brands and draw a traveler’s attention. As more and more airports remodel (honestly, when was the last time you were in an airport that WASN’T under construction in some way?) and more travelers from emerging markets visit those airports, the growth should come for those retailers quickly — especially as many of these shoppers are finding the ability to shop for goods that may not be readily available in their home location.
Business is numbers, and all you have to do is look at the numbers. You have a store, you have traffic, some of the traffic turns into customers and then you have sales. The numbers will tell the retailer if it makes sense to have an airport location. The buying patterns of travelers also play into the decision. And, it looks like it’s working — at least for some brands and merchandise.
Assuming the facts noted here are indeed correct … I still don’t get it. Airports, to me, are places of stress, turmoil, broken dreams (of on-time departures), general duress and people sneezing. And Ricardo is right in his comment that an airport, almost by definition, must be under construction. Once you get in the plane, it gets worse. Of course, I’m old enough to remember when they’d cut chateaubriand in the aisle and serve it on an actual plate.
If one is hungry, sure, find a sit-down restaurant where you can have lunch for under $20. But to walk around because your flight is delayed and spend your money on luxury goods? I don’t get it. If it’s clothing, where are you going to put it? How do you return it if you need to? Perfume? Half the price at Walmart. I suppose there are people who can’t go a couple of hours without buying something, I just hope they’re not related to me.
Having spent most of my long career flying somewhere almost every week, I don’t do that anymore. Can you tell? …I don’t miss it a bit!
Luxury retailers have focused on airports as a growth opportunity and major airports have expanded their marketplaces with collections of luxury stores. As consumers visit these airports with luxury marketplaces, they remember these stores and may plan to shop the stores on their next trip through the airport.
Airports have experienced increased retail revenues and some of this has been driven by longer consumer dwell times in airports. After 9/11, increased airport security has caused travelers to get to the airport with more time to spare to account for longer security lines. This has resulted in more captive shopping time in airports, and hence more retail sales. The brands that are most successful, beyond restaurants, are those that offer convenience products, things that travelers may have forgotten and gift items.
Our poll responses were all over the place with this one — perhaps not surprising given the lack of any hard data in the article. And I would have to think this is still somewhat a niche market: duty free shops, obviously, are for international travelers, and there just aren’t that many people from “China, India, or Russia” coming thru Birmingham or Buffalo or Boise … or most U.S. airports. Even in major hubs, I wonder if the rise of semi-private airlines that often bypass the main terminal(s) won’t eventually put the kibosh on this.
Captive audiences with discretionary spending, airports are a perfect fit for luxury retailers. I spoke on a panel at the Airport Experience Conference with Kian T. Gould, CEO at AOE GmbH, and there are some amazing customer experiences AOE is creating at international airports. With improved omni-channel capabilities, travelers can order products online and have the products delivered to their gate and airports like Frankfurt have launched loyalty programs (across participating brands) to increase total retail revenues at the airport.
With the increased focus on shopping at airports, we will continue to see creative ways for retailers to make shopping more convenient.
I bought my very favorite Furla bag in the Rome airport. Airports are the new malls with guaranteed traffic and receptive shoppers.
In addition to the comments above, I’d like to suggest that brands and products at airport terminals are able to stand out because they are indeed typically more “luxury” in nature. For the traveler with wait time, it’s worth looking at what’s available at another price point. And for some of us the words “duty free” conjure up a bargain and who doesn’t love a bargain?
I just noticed an airport vending machine for the cosmetic brand Benefit and was surprised to see that one brand use that approach, right next to a Best Buy vending machine which houses several brands. I guess they’re thinking that frequent travelers may not have the time to replenish supplies. I think Benefit is a niche brand in a stand-alone space along the path between security, gates and restrooms. Maybe the sheer traffic volume will give them the revenue they’re looking for. It will be interesting to see how that works for Benefit.
It’s a consumer target-rich environment for luxury retailers, so it makes sense.
The greatest growth opportunity is repeat business, if the shops behave like traditional brick & mortar luxury stores and conduct CRM programs, have tailors in-store for quick alterations, and develop commerce websites, then the sales efforts will extend beyond the consumer’s time in the airport and will increase revenue.