Thanks largely to increasing international tourism and to fresh investment in airport construction and renovation, sales volume for the airport retail market is anticipated to reach €83.9 billion by 2023, according to California-based Credence Research. Likewise, worldwide passenger traffic is likely to more than double from 2015, to slightly more than 19 billion by 2035.
Asia remains the largest regional airport retail market, accounting for some 40 per cent of global revenue today, and the region is expected to see the fastest growth in the years ahead. Europe’s airport retail market, the globe’s second largest, is estimated to grow at a compound annual rate of 14.4 per cent from 2015 to 2020, according to MicroMarketMonitor. Retail operations in Eastern European airports in particular could see significant growth, with notable standouts being Riga International Airport, in Latvia, and Tallinn Airport, in Estonia, according to Andrew Phipps, head of EMEA and UK retail research at CBRE. “Some of these airports that you wouldn’t necessarily expect to be very strong operators have really good food-and-beverage and really good entertainment-type leisure concepts,” said Phipps. “They do quite well. Heathrow Terminal 5 is great, but it’s massive and it’s like a super-regional mall. … [It is] some of the smaller airports that you wouldn’t necessarily expect that I’m always impressed by.”
Airports have a vested interest in updating their retail offerings, since their income from landing fees and passenger charges has been squeezed by regulators and budget airlines alike. “Airports would like to keep the fees for airlines as low as possible, and you can offset part of those fees by increasing your non-aeronautical or non-aviation revenues, and that’s to a large degree airport retail revenues,” said Gert-Jan de Graaff, a former executive at Schiphol Airport (Amsterdam), Arlanda Airport (Stockholm) and Brisbane Airport Corp., and now president and CEO of the company that manages Terminal 4 at John F. Kennedy International Airport, in New York City.
This helps explain why airports were more in evidence at the MAPIC conference, in Cannes, in November. “There was a much larger presence around airports and airport retailing, including big stands for Changi Airport, in Singapore, and the new airport in Istanbul,” said Phipps. “It wasn’t that long ago that airports were just really disappointing, but they’ve come on massively, in terms of the retailing operations that they can deliver. People are recognizing that these airports are absolute must-have locations, both in the marketing point of view for retailers [and] from a revenue-generation point of view for the airports.”
Changi Airport remains Asia’s crown jewel, ranking among the top three global airports in retail sales volume for the past 20 years. Sales there grew by 8 per cent, to a new record of €2 billion in 2015. Changi features roughly 400 stores and service providers across its three terminals. Like many airports, this one is investing in expansion and upgrades. Jewel, a 134,000-square-metre, mixed-use complex containing 90,000 square metres of retail space, is being developed in the heart of Changi Airport, in partnership with CapitaLand Mall Asia. Featuring the world’s tallest indoor waterfall, Jewel received a MAPIC Award for Best Future Shopping Centre. The project broke ground in December 2014 and is scheduled for completion in early 2019.
Airports across Asia are undertaking massive developments owing to increased competition from the off-airport duty-free stores that are opening in urban areas. “Faced with intensifying competition, we challenged ourselves to rethink what an airport can be, not just as a gateway for flights, but as a tourism destination on its own,” said Lee Seow Hiang, CEO of Changi Airport Group.
China’s airport retail scene is on the verge of explosive growth. “The market has really taken off in the last three to five years,” said Steven McCord, head of JLL’s retail research in Asia. “China has been investing heavily in airports as a way to boost economic growth and add capacity for huge growth in passenger volumes. Meanwhile, the airports are becoming the domain of the middle-class consumer and with each passing year are more like the passengers in an American airport. That means they are looking for the same food-and-beverage chain stores that they are used to in local malls.”
That same focus on food-and-beverage is seen at virtually all global airports, says Phipps. “Passengers are eating at the airport rather than waiting to go to their destination to eat, so airport dining quality is one of the big changes seen in the last five years,” he said. “This ties in with what’s happening in shopping centres and malls, in that there is a recognition that more and more space and time and effort needs to be given over to food-and-beverage.”
An increased number of luxury brands are also demanding airport venues. “A few years ago you really wouldn’t have expected to walk through an airport and see Louis Vuitton, Hermès, Prada, Gucci and Cartier, but they are in most reasonably sized airports now,” said Phipps. “They recognize airport retail as a key driver for their business in terms of brand recognition.”
Joel Stephen, senior director of retail advisory and transaction services at CBRE Asia, concurs that retailers are using airports as an important channel for building global presence. “Airport retail, given the significant volumes of people passing through, can also help a retailer build their brand in a region in addition to driving sales,” Stephen said.
Perhaps unsurprisingly, the ultimate challenge will involve meeting the increased demands of passengers. “The airport consumer is becoming more sophisticated and now expects more from airport retail than ever before,” said Astrid Cheyne, a member of JLL’s EMEA retail team. “One new development is that retailers now offer services allowing passengers to collect their purchases on their return or organize delivery to their home while benefitting from duty-free prices. This gives the retailer more freedom to sell from their whole range and furthers the possibilities of airport retail.”
Airports also lend retailers a distinct advantage over their more traditional high-street brethren — they know the flight schedules and shopping habits of their audience. “They have absolute knowledge of who is in the airport and of the customer profile,” said Phipps. “So retailers can and will change the offer between flights, depending on who’s coming in or who’s going out, and that is quite powerful.”