Dubai Airport Duty Free Shops.
Photo: Simon Chapman
The holiday season is upon us and many of us are taking trips home to spend time with family or vacationing on a beach somewhere. We join the millions of airline passengers around the world passing through airports and spending money on souvenirs, last-minute toiletries, and even food and drink while waiting for departure. The number of passengers flying has risen every year since 2009. According to the U.S. Department of Transportation, U.S.-based airlines carried a record 823 million passengers last year, up from 798 million in 2015.
If you’ve only traveled to a handful of airports in the US and have only ever seen a Hudson News stand or Applebee’s restaurant, you’re likely wondering, “What’s so great about airport retail?” Well, on the whole, airport retail is doing much better than main street retail. Around the world, airport retail sales rose 4 percent in 2016 and is expected to reach $90 billion by 2023, according to Credence Research. In the US and Canada alone, airport retail is expected to rise to $10 billion by 2020 from $4.2 billion in 2015.
When we take a closer look at specific retail categories, some stores in airports appear to be experiencing better sales than their main street counterparts. The most obvious examples are of course the newsstands/ book stores, electronics/ gadgets, and specialty gifts/ souvenirs stores. These are all last-minute goods that travelers have often forgotten to pack or are looking for as gifts for loved ones back home, and have virtually no other option except to purchase right before boarding a flight at the airport.
High-end Harrods Department Store at London Heathrow
International Airport. Photo: Henry Burrows
Another retail category that is also doing very well in airports in recent years is ‘Clothing and Accessories’ – particularly that of luxury brands. Last year, clothing and accessories accounted for more than 50 percent of revenue share in the global airport retail market. The luxury lines of clothing and accessories, in particular, are meeting the preference and style of a large share of affluent travelers who are willing to spend more with their high disposable incomes. Today, luxury retail is booming in ‘hub airports’ that have a large number of connecting international flights. Terminal 3 at Singapore’s Changi Airport, for example, features a wide range of upscale boutiques and brands such as Bottega Venetta, Burberry, and Gucci.
With such a large share of the retail market, it’s important that cities and governments (typical owners of airports) take time to understand airport retail and its various customers in order to enhance the experience of retail in these unique microclimates.
 
The Three Main Types of Airport Retail Customers
First, and most importantly, there’s the traveler. Travelers, as you might have already guessed from personal experience, are looking for a wide range of goods – from the unwieldy ‘replacement item’ to the seasonal and trendy souvenir or gift.
To make things even more complex for airport retailers, even within this customer segment of travelers, there are various subsets of travelers – the business traveler, the vacation traveler, the domestic traveler, and the international traveler – with wide-ranging needs, price points and consumer preferences.
The most lucrative consumer market, however, appears to be the growing group of travelers with high incomes, travelling for business and travelling internationally. These consumers are seeking exclusivity in products and are not heavily affected by price points.
 
Regardless of type of traveler, one thing remains constant – they all have limited time to browse and they are also captive foot traffic from post-security point on. Often, travelers dwell between 60 to 90 minutes in the airport from check-in to boarding and, according to a DKMA report, passengers who spend more than 60 minutes at the airport are +33% more likely to buy F&B, +27% more likely to buy retail and +13% more likely to buy duty free than passengers who spend fewer than 60 minutes at the airport. It is therefore important that airport retailers are strategic about merchandising and store layouts to maximize customer attention.
The second airport retail customer is the airline crew or airport staff. Growing up with both parents in aviation meant that I was always getting stuff purchased at airports – my mother would sometimes buy take-out dinner after work from the restaurant in the airport or get groceries from the convenience store at the airport – this was all regular to me. But think about the thousands of employees who come in and out of airports daily for work and need affordable and convenient meals throughout the day and last minute grocery!
Finally, the family member picking up and dropping off travelers make up the final key group of airport retail customers. These customers are looking for balloons and flowers to greet their loved ones or a final meal with friends before sending them off. Many airports in the US don’t offer more than a Starbucks and diner in the departure level and almost no retail at arrival level. This is a large chunk of airport customers whose needs are being ignored.
 
Best Practice: Asia-Pacific
In Asia- Pacific, the picture is different. Airports are already being designed with shopping as a key use for travelers, airport/airline staff, and for the general public. After all, retail accounts for approximately 30 percent of non-aviation revenues made by airports so why not maximize the benefits?
Today, Asia Pacific is leading the growth for airport retail, according to Bain & Company. In the region, it is common to see large international airports there with edutainment options, family-friendly restaurants, and even convenience/grocery stores for the families and friends waiting in departure or arrival halls. It is no wonder that it is the largest regional airport retail market accounting for 41 percent of revenue share in the 2015 global airport retail market.
The Slide at Terminal 3 Singapore Changi International Airport.
Photo: LittleDayOut.Com
In Singapore, Changi International Airport features two full-service Fairprice grocery stores and ‘Family Zones’ equipped with children’s playgrounds and giant slides. These amenities are used year round not just by families in transit to another destination but also families waiting on loved ones to return on a flight. With over 400 retail and service outlets and 140 food and dining options across approximately 979,515 square feet, the whole gamut of airport retail customers are easily able to find goods and services for any time of the day and year.
Hong Kong traditional street fare at the airport. Photo: Joe Allen
In Hong Kong, traditional Chinese and Hong Kong style coffee shop eateries are located across both terminals for both travelers to sample traditional cuisine on the way to their next destination and locals to enjoy a quick and affordable meal. Amongst their entertainment options, travelers and the general public can count on an aviation discovery center, IMAX Theater and simulation golf facility to pass their time at the airport.
 
Challenges of Airport Retail
Getting airport retail to reap full benefits from its captive audience, however, requires a lot of upfront investment. Airport regulations requires that a lot of retail inventory may be subject to checks. There are also often no truck bays for easy delivery access, especially in older airports, which means retailers spend more time and money transporting their goods to the store. Not to mention the higher staff salaries that go into operating stores that must remain open at least between 7am and midnight. Alan Gluck, chairman of Airport Economic and Concession Consultants, reports that airport retailers have annual operating hours that are twice that of a similar storeoutside of an airport.
Tenant improvement costs are also often high as retailers are required to scrap all interior fit-outs at the end of each lease term, leaving new retailers with a new canvas to completely design and build from scratch.
 
Support Airport Retail
Airports play an important role in economic development. In a 2012 CityLab article, Richard Florida called out two studies that found associations between airport passengers and both metro population and employment growth, while controlling for other factors that would be expected to shape growth. In a study by economist Jan Brueckner, a 10 percent increase in passengers in a metro area was found to generate a one percent increase in regional employment. It is therefore incredibly important to boost the sources of revenues for airports in order to ensure their sustained performance and retail, as it turns out, is the leading or second biggest source of revenue for most airports.
Airport Express Train at Hong Kong International Airport.
Photo: Fabio Achilli
Firstly, the airports in the U.S. need to start competing with those in other regions like Europe and Asia-Pacific in terms of tenant mix, merchandising and price points. Travelers have wide-ranging needs and preferences, and airport retail needs to be able to cater to these various groups. In addition, the needs of the general public and staff working for airlines and the airport itself also need to be accounted for. In Singapore, the Changi International Airport sees its affordable food courts and eateries packed to the brim daily at lunchtime with employees working for various airlines or even families with children after school. This also likely due to the strong public transit connections between the airport and residential neighborhoodsand downtown Singapore. Most residents across the country are able to get to Changi International Airport in less than an hour by public transit (cab, bus, mass rapid trains), and likewise in Hong Kong.
Secondly, like its counterparts on Main Street, airport retail also needs to up its omni-channel game in order to remain relevant and competitive amongst the traveler market. Many airports in Asia-Pacific are working on mobile apps with maps that help travelers navigate the building once they get there so that they can save time on browsing stores to visit and meals to purchase. Airport retailers are also allowing travelers to use their store apps to order food or items online before having them delivered directly to boarding gates, or partnering with airlines to enable click-and-collect service via inflight e-tail.
The airport is a truly complex micro-climate of retail that many cities and governments need to be more active in understanding. There is a large untapped potential in raising revenue for airports through retail and as owners of airports, municipalities are well poised to help bolster the retail environment for travelers, airline workforce, and the general public.