BUSINESS INTELLIGENCE Airport Retail Study May 2007 The pursuit of knowledge Last month Moodie International acquired the assets of acclaimed business intelligence title The Airport Retail Study from its founder and Publisher Ivo Favotto, who has joined The Nuance Group as Executive Vice President Business Development & Strategy. Published every two years since 1998, The Airport Retail Study is a much-respected work that benchmarks relative commercial performance across a range of airports. Here, Ivo Favotto previews the fourth edition of the Study, which appears next month. One of the key driving forces behind the success of the Airport Retail Study (ARS) is the constant innovation and improvement that occurs with each new version, and the soon-to-be released fourth edition is no exception. For, in keeping with past innovation, it not only continues with the now familiar performance measures and analysis of the past, but adds new participants, new performance measures and new key trend analysis. In terms of global coverage, the latest edition currently being finalised by The Moodie Report after it acquired the Study in late April brings together data from 45 airports and airport groups from all regions of the world. The chart below shows the distribution of the participating airports across three regional categories developed for the study. The record number of participants also made it possible for analysis to be undertaken on the basis of size for the first time 35% of the gateways handling more than 20 million passengers per annum (mppa), 30% between 10 and 20 mppa and 35% less than 10 mppa. Distribution of study airports by region Europe 40% North America 35% Ivo Favotto: the study covers airports with a combined US$12.2 billion in retail sales Asia Pacific and Rest of the World 25% 156 The Moodie Report
May 2007 BUSINESS INTELLIGENCE Airport Retail Study Between them the participating gateways account for around 850 million passengers (520 million international, 330 million domestic), around US$12.2 billion in retail sales, more than 600,000sq m of retail floor space and nearly 4,600 outlets (including over 400 duty free stores and 1,400 speciality shops). New participants include Geneva, Munich, Prague and Marseille in Europe and the US airports of Houston, Kansas City, Edmonton, Louisville, San Diego and Miami. At the other end of the spectrum Incheon, Hong Kong, Los Angeles, Brisbane, Beijing and Narita were among the gateways taking part in the study for at least a second time. Also new this time is the inclusion of News/Gift as a separate retail category (it was previously included in speciality retail), more detailed analysis of terminal dwell times, penetration rate estimates for each retail category and analysis of different spend rates between passengers flying on legacy airlines and those with low-cost carriers. As for every previous study since 1999, the performance indicators were gross sales and retail revenue per square metre. These are still considered to be the best measures of superior retail performance, due to the fact that they can be directly related back to the cost per square metre of providing terminal infrastructure. One of the key advantages of the ARS as a benchmarking publication is the fact that the study contains data that is normally difficult to obtain. This, coupled with the broad range of airports covered, means it is possible to examine performance on a region-by-region basis at a meaningful level. In terms of gross sales and retail revenue per square metre, undertaking this analysis highlights some interesting regional performance differences. These differences are shown in the index of gross sales and retail revenue graph by region, shown right. It is particularly interesting to note the performance of the Asia Pacific/Rest of the World airports compared with the other study regions, its airports recording +45% higher gross sales per square metre and retail income per square metre than the global average. A regional comparison of these indicators is of greater interest. In this comparison, Asia Pacific airports outperform European airports in terms of gross sales and retail income per square metre by +48% and +27% respectively, although European airports reported higher retail yields. Index of gross sales & retail revenue per square metre by region Index 200 150 100 50 0 Index of gross sales per square metre Asia Pacific Europe North Asia Pacific Europe North & Rest of America & Rest of America World World Index of retail revenue per square metre The chart also shows that Asia Pacific airports outperform North American airports by a significant +119% and +177% respectively. This analysis is of interest as a number of the Asia Pacific airports participating in the ARS are Asian hubs and their on-going ability to maintain this level of performance will be challenged by the current uncertainty related to EU and US restrictions on liquids and gels. This is a key area of future analysis that will be monitored as part of the ARS. Arrivals retail It has long been understood by airport retail managers that most gross retail sales are derived from airside outlets. Indeed, the new edition of the ARS reports that nearly 60% of retail space is located airside. Understandably, as a result of the traditional approach adopted by airport designers and planners, a significant proportion of total retail programme area is located in the airside Departures precinct. Contribution of airside retail space to gross sales Contribution to gross sales 100% 80% 60% 40% 20% Departures airside Arrivals airside 0% Retail space Gross sales Retail space Gross sales The Moodie Report 157
BUSINESS INTELLIGENCE Airport Retail Study May 2007 free) resulting from the November 2006 security requirements for travellers to the EU and North America. This trend also has important implications in terms of the layout and planning of future terminal and retail programmes. Indeed the move to airside Arrivals retailing highlighted by ARS has already begun, with the recent announcement by the Swiss government of the introduction of Arrivals retailing. ARS further understands that Arrivals retailing is also soon to be introduced at some Swedish airports. However the gross retail sales contribution made by the Arrivals airside retail space, first measured in the third edition of ARS and again in the fourth edition, represents a substantial growing opportunity for airports. In fact, airside Arrivals retail space has been a feature of airport retailing at airports throughout Australia and New Zealand for over a decade. The lower chart on page 141 illustrates the scale of the relative contribution, in terms of share of gross sales, of airside Departures and Arrivals retail space. While providing 53% of the retail space, airside Departures contribute 66% of the gross sales and Arrivals contribute 7% of gross sales despite providing just 6% of the retail space. Compared to the third edition of the ARS, the relative contribution in Departures airside has remained more or less the same, when 55% of space provided 67% of gross sales. However the trend is more pronounced for airside Arrivals, where the space allocation has tripled from 2% and the share of gross sales risen by 2% from 5%. This represents an important trend, which recently has gained a degree of momentum, particularly with the potential adverse impacts on traditional airport retailing (particularly duty Key trends A number of key trends have been identified and included in the analysis conducted under the fourth edition of ARS. They include: Amount of space the amount of retail floor space provided per thousand passengers has remained steady compared to the third edition. This potentially reflects the recovery of passenger numbers over the past two years. However this ratio may change in the future with a number of substantial terminals and retail programmes expected to be commissioned in the next couple of years (Heathrow T5, Beijing T3, Changi T3, etc). Location of retail space the trend by airports to locate the majority of their retail space airside continues, with almost a 60:40 split of space between airside and landside. This compares with the approximate 50:50 split of previous ARS editions. This trend is expected to continue. Financial performance of space the reported financial performance of retail floor space per square metre is significantly higher than in the previous study. This is potentially due not only to the inclusion of additional highly retail focused airports in the current study but also to the recovery of passenger numbers improving the efficiency of existing retail space at participating airports. Yields (income to sales ratio) yields appear to have stabilised from the previous study and potentially reflect both the recovery of passenger numbers in the ARS regions and the growth of higher-yield retail categories (i.e. speciality retail). Conclusion In today s ultra-competitive operating environment, making money from non-aeronautical revenues has never been more important to airports, and those failing to take the maximum advantage of their retail opportunities will ultimately lose out. [This feature first appeared in the aviation title Airport World.] 158 The Moodie Report
LIQUID AND GEL SECURITY SITUATION - DUTY FREE SALES CONFISCATIONS OFFICIAL COMMUNICATION FROM TFWA TO WORLDWIDE TRAVEL RETAIL AND DUTY FREE PARTNERS TFWA is the global association of suppliers to the worldwide travel retail and duty free markets. In this capacity, we strongly believe it is essential to communicate the following: The current unclear situation frequently surrounding the sale of duty free goods to passengers who will be in transit to their final destination, poses very serious short term and long term threats to our joint businesses. The short term impact can be measured, but we must not ignore the longer term loss of passengers who have been frustrated by confusion over the rules and their interpretation, irritated by incomplete explanations or worst of all, have suffered the confiscation of a valued purchase. We therefore urge all of our Retail Partners to ensure that they are taking the most stringent and effective action to ensure that all passengers who will be in transit to their final destination understand fully the risks of confiscation and, whenever necessary, are actively dissuaded from purchasing merchandise which will, in all likelihood, be confiscated at the transit stopover. We appreciate the difficulties involved in this and also that these are strong measures but we believe they are necessary for the industry s credibility and the continuing good health of our joint businesses. On a very positive note, we would also like to draw your attention to the recent communication from the ICAO on the subject of the agreed design of the Sealed Tamper Evident Bag and the recommendation from ETRC that its retail members begin sourcing. The exact dimensions of the bag have not been recommended and TFWA urges its Retail Partners to consider at least three sizes to accommodate purchases ranging from perfume and cosmetics brands to spirits brands with elaborate secondary packaging. TFWA thanks all its Members and Retail Partners for the responsible actions taken to overcome this threat to our joint businesses.
Announcing The Airport Retail Study The acclaimed international benchmarking study of airport retail revenues* Measuring commercial performance by: Gross sales per square metre Airport retail revenue per square metre Gross sales per passenger Retail revenue per passenger * Includes duty free, specialty retail, food & beverage and foreign exchange Out in June For information and pricing details please e-mail Martin Moodie at Martin@TheMoodieReport.com