WALK THROUGH STORES Driving penetration March/April 2005

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1 WALK THROUGH STORES Driving penetration March/April 2005 Walk through don t walk past When Burt Bacharach and Hal David wrote Walk on by they could have had airport duty free stores in mind, such is the poor location of so many outlets. But if Mark Riches was the composer, the song might be called Walk through and buy. The World Duty Free CEO and Managing Director BAA Global Airport Retail continued to spread the walk through word during an impressive speech to European airport managers at the ACI Europe Trading Conference in Zürich in March. Here is an edited version of that speech. I ve been asked to talk about managing passenger flow - walk through stores. I m going to take the lid off the mystique of these walk through stores and I m sorry to say that there is no mystique the lovely Miss Teak has gone missing. There are no clever intellectual gymnastics for you to worry about - just plain old common sense. Why wouldn t you do better if every one of your passengers walked through your shop? In Heathrow s terminal three, a +1% increase in penetration is one million pounds of incremental income. However people in your shop is one thing - but you need good retailers who understand the passengers and their tastes and their aspirations - to really take advantage of the opportunities. In our everyday lives we follow natural paths from our departure point to our destination. Walk throughs in airports are no different. Walk through stores are common sense. There is no mystique they offer a natural path to the passenger on his walk from security to the plane. They re no big deal but they do offer rich rewards. Walk through, not walk past, gives us a stronger starting point by instantly raising footfall 68 The Moodie Report

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4 March/April 2005 WALK THROUGH STORES Driving penetration In creating a walk through store we are seeking to create a seamless experience, delivered through an aligned agenda and commitment from the three protagonists: the airport the retailer and the brand owner. I ll start by answering three key questions that ACI asked about the walk through strategy: Their first question was: Is there evidence of increased sales? Two: Are there any negative effects? And three: Can it work in isolation? For those of you in a hurry to raise your revenue, here s the condensed version: Yes ; No ; No. Answer number one tells us we have a strategy that gives us an increase in sales so it s something the whole industry needs to be considering. Answer number 2: It s a strategy that has no negative impact; and that s not only in terms of the passenger it also has no negative impact on the airport, the retailer, brand owner, or of course the two main stakeholders: the airlines and the passenger. Heathrow T4: Liquor category within travel retail challenged Abolition & EU accession Internal space challenge vs other categories The raising bar of perfumery Relatively small trade channel for suppliers Need for more impetus The theory: Category management project begun September 2001 Conclusions Not broken fine tuning the existing business Add sub category specific initiatives e.g. destination targeting Genuine sales growth only obtainable through attracting new consumers No real gain in focusing on ATV Drive growth through footfall and conversion So far, so good. But then we have the third question Can it work in isolation? Well, from experience I can tell you the answer is a resounding NO - this approach cannot be done in isolation. By that, I mean it demands the partnership I ve already referred to: it requires the airport to work in close harmony with all its partners airlines, retailers and brand owners. You the airports will have the biggest hang-ups, the fear of interfering with the passenger s route to the gate. Growing WDF sales Increase footfall get more people into liquor area Increase conversion get more of the people to purchase You are right to worry about that but it can become a natural route, rather than a forced route so keep an open mind. Retailers want exactly the same as you do to maximise revenue. And that can only be achieved by giving the customer what they want and making it as easy as possible for the maximum number of them to buy. All of us at BAA understand the airport agenda. We are an airport management business and we would not wish to jeopardise operations at our airports. If the partnership approach works, then walk through gives us all a remarkably effective weapon in the fight for revenue. So it s a highly relevant strategy for every airport to consider whatever its size, whatever its location. WDF is owned by BAA and we were launched in 1997 to provide BAA with certainty around its most important retail revenue stream - in other words to be in charge of its own destiny. From the small team that launched the company, WDF now operates a total of 5,700sq m of floor space 62 stores across BAA s seven UK airports; the largest of which is our flagship store in Heathrow T3. WDF is now responsible for 27% of BAA s retail income and is still growing. The Moodie Report 71

5 WALK THROUGH STORES Driving penetration March/April 2005 Shopping behaviour RELUCTANT SHOPPERS Make it worth my while or I won t buy Purchasing transaction HABITUAL SHOPPERS Let me compare to get the best deal. Impulse Planned EXPERIMENTAL SHOPPERS Let me explore the new and exciting. Shopping experience SHOPPING LOVERS Let me experience (the pleasure of shopping). Last year s sales reached 550 million which shows just how effective the partnership between airport, retailer and brand owner can be. That performance is a shared effort and a shared success. BAA, like any airport operator, needs to maximise its revenue. ACI Europe Director General Roy Griffins recently highlighted the challenge that airports will have in funding developments to meet capacity demands. Given the tight regulation in many European countries, he observed: It is fair to say that the tendency will be for aeronautical charges to go down relative to commercial revenue. BAA has an investment programme of 11 billion over the next 11 years. Terminal five means that we are now a highly-geared business, so we need more than ever a strong, reliable revenue stream that maximises every opportunity and WDF s mandate is to deliver exactly that. The drivers for that revenue stream are simple, they re the same drivers as at every airport, every retail site: footfall, penetration and spend. That s what this business is all about. Walk through, not walk past, gives us a stronger The single most important factor in our success is that a higher number of passengers are exposed to the retail offer in a very natural way 72 The Moodie Report

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8 March/April 2005 WALK THROUGH STORES Driving penetration starting point by instantly raising footfall it brings the audience to the show. The higher the footfall the greater the opportunity to convert passengers into buyers; the greater the penetration rate, the greater the opportunity to raise average spend per head and average basket spend. By the end of this year we will have seven out of our 11 main stores reconfigured for walk through. Our largest walk through is at Heathrow s flagship terminal terminal three. The same concept works equally well at mediumsized and small airports, such as Glasgow and Aberdeen. But, first, to get the strategy in place, we need the input of our partners. The airport has the primary role in making walk through work. The easiest way to deliver walk through is in new build but more realistically the opportunity lies in an airport s refurbishment programme and reconfiguration of space. But the airport must invest to maximise the return. The airport has a pivotal role in winning support from the airlines who will share the airports desire that a walk through store does not bring operational complications for example a negative effect on punctuality. Two issues are imperative to ensure that there is no disruption to operations: Firstly for passengers to get to the gate on time they must be reassured by clear signage and readily visible FIDS. Secondly, the walkways must be wide enough to make the route a natural and comfortable path which is why in T3 they are 4m wide. The walkways have the same route-finding finish as other routes to the gate. The 4m width means that passengers in a hurry can still make their way through; equally, people moving at a slower pace those with baggage, or browsing don t feel that they re in the way or holding up the flow. No-one is going to shop if they feel stressed, rushed or crowded. It s not only the airport that needs to invest. The retailer needs to invest in refurbishment and in order to maximise the opportunity needs the support of key brand owners. Walk through brings significant change to store layout. It creates more shop front space and has huge implications for category management, space allocation, promotional space, merchandising, and point of sale. T3 is our busiest terminal with over 9 million departing How to get there Radically change How the product is presented the in-store fixturing How the product is sold the staff and atmosphere Delivering a complete customer experience Theatrical execution Motivating promotions Well trained & targeted staff Reduced confusion Range & merchandising The Model Proposal for one-year trial Suppliers maintain current level of consultant support No increased cost using the money in a different way Fewer agencies involved Accountable for performance WDF to restructure Greater numbers better trained better motivated 24 WDF FTEs eight people per shift dedicated to service Total of 10 people selling / customer service at any one time All in a single team Staff deployed by zone selling whole category Luxury/Malt/Mix It/Gifting passengers last year, mostly long haul the majority of whom pass through the main store, which is over 2,000sq m. Some 47 airlines were initially against our plans to make the store as it is today. Did it work? It certainly did. Penetration rose by +4% The Moodie Report 75

9 WALK THROUGH STORES Driving penetration March/April 2005 and spend per head grew by +13%. And of course in T3 these are high spenders. More went through the store, more shopped and they spent more. And this success is not simply about revenue improvements: passenger satisfaction has increased. There is a direct correlation between the rise in Heathrow s Quality Service scores and the introduction of walk through. It works equally well at a medium-sized airport. Glasgow Airport had 4.3 million departing passengers last year. It s a smaller store, 590sq m with a much simpler layout. Fragrance is hugely important at Glasgow and walk through enabled us to feature it strongly delivering 10%+ growth on fragrance sales. The overall result has been a +6% improvement in spend per head. Finally Aberdeen, our latest walk through project; it s a small airport with 1.3 million departing passengers, but the same walk through principles and strategies are equally effective - they can stay on the walkway and walk right through the store without shopping or they can meander at leisure and still find the route to gate. Aberdeen saw a +30% increase in spend per head and a +9% increase in penetration. I think the single most important factor in our success has been that a higher number of passengers are exposed to the retail offer in what is a very natural way. There s definitely a difference between walking through a store and having to make a conscious effort to go in to a store. The traveller is relaxed by ensuring that they remain in touch with their flight, by ensuring it feels a natural part of the journey to the gate they relax, they look, they respond and they spend. Our airport managers are actively encouraging us to create more walk through stores. They ve seen the positive commercial effect and are receiving positive feedback from all stakeholders including the airlines. It s a winning outcome for the airport... retailer... brand owner... and, best of all, for the passenger. However, if your retail offer is bad then your airport is bad. If the passenger doesn t differentiate between the commercial and operational aspects of your airport why should you? As I ve said, alignment of the agendas of the key players is crucial to successful implementation. Walk through can t be carried out in isolation. The BAA/WDF model is geared around the airport and the retailer working Initial promotional results Total promotional sales mix: Pre 33%, Post 41% Promotion Pre mix Post mix Malt 4.8% 11.0% Value 15.5% 15.5% Cognac 2.6% 3.3% Deluxe 5.8% 7.5% Champagne 4.1% 3.3% Source: World Duty Free seamlessly, investing together in the retail business for the long term. The support we at WDF have from the brand owners only exists because they know that they can work with us for the long term without risk of the knee-jerk strategies which are all too often a retailer s reaction to a poor week s trading. I m delighted that many of Europe s airports have longterm arrangements with their retail partners showing commitment to each other. However not every arrangement reflects what I believe is good practice. It s natural that you, the airport owners should want the best income from your space. So beware of accepting overbids there will be no investment from the retailer. They will try to elicit support from the brands which risk losing patience with this industry they have to be profitable too. It causes severe pressures for them they are the lifeblood of the offer. Ask yourself, how does the customer benefit from this scenario? A bad experience at any airport creates in the customer s mind an image for the whole industry. Let me leave you with a final thought: whether you re the airport, the retailer or the brand owner. This industry, from a commercial revenue perspective, is unique in retail terms. Every year, year after year, we as an airport industry handle more passengers more potential customers the high streets and shopping malls would die for the guarantee of more and more customers. I m sure our industry will not miss the opportunity to maximise what has been gifted to us. There can never be too many passengers every one of them is capable of becoming a shopper, if you put them where the shops are. No mystique. Common sense. 76 The Moodie Report