Melvin Broekaart ponders whether it is time for airports to reconsider their retail business models to successfully compete with online shopping and remain exciting and relevant for decades to come.
Whether we like it or not, there is an impactful and irreversible change of reality taking shape in travel retail.
The new reality seems to question the way airport retail is currently ‘outsourced’ for optimisation. It questions the type of partners needed for future success, and the business rationale and management structure needed for collaborating with these partners.
The cause of this change lies in the strong emergence of e-commerce as a transaction channel for making purchases, with the change at airports being even more evident in countries where e-commerce plays an important role in domestic retail.
And with the world in lockdown due to the Covid-19 virus, the number of countries where e-commerce plays a major role for retail transactions has risen dramatically.
In these countries, the dominant reference to purchasing in travel retail has changed to online shopping, versus traditional offline ‘physical store’ shopping in other countries. The effect of this change is mind blowing.
Traditionally, the primary function, form and purpose of airport retail stores was to distribute products. Passengers would purchase these products because they were unique and difficult to find elsewhere, and if available at physical retail in the passenger’s home market the products would be cheaper at the airport. Uniqueness and savings as two important drivers of airport retail sales.
For consumers that have massively adopted e-commerce for their retail purchases, however, uniqueness and savings aren’t automatically associated with airport shopping.
Nearly everything available at the airport can nowadays be found online, and with the extreme low-cost structure of electronic retailers, it is no wonder that for these consumers, savings are difficult to be found at the airport.
The multi-year declining spend-per-passenger that many airports around the world are experiencing is perhaps the best analytical indicator of the impact this is creating.
The size of this group of consumers is rapidly increasing, yet the stores at the airport appear to even more firmly cling to their historical purpose of distributing products while focusing primarily on price competitiveness in their communication.
By accepting this as an industry, we are selling the airport short to our brand partners, and we’re obstructing airport retail’s right to exist for another seven decades.
In a world where passengers have one click access to attractively priced products that historically might have been exclusively available at airports, the distribution of these products has all but ceased to be the issue.
When one of something can be efficiently shipped to anyone, anywhere, airport retail stores need to add moving hearts and minds to their traditional moving of products.
Selling the idea, essence and values of a brand – by facilitating passengers to touch, try and taste while spending their ‘golden hour’ at the airport.
Increasingly, the role of airport stores will not be to sell products, but rather to deliver the most impactful, and long-lasting emotional brand experience possible, to help consumers to truly understand a brand and the benefits of its products and to create an essential level of brand affinity and ambassadorship. None of which necessarily results in immediate, or location-specific revenue recognition.
Does this mean that airport stores won’t sell products anymore? Of course not, many products will still be sold. And authenticity, impulse and gifting will remain important drivers for purchase.
But unlike today, where retail is a product-first, experience-second business, the reverse will increasingly be true. As renowned retail design executive Kevin R Roche stated during the recent Trinity forum in Doha, “Travel retailers can no longer compete on price or convenience: to draw the consumer in and convert, even in the captive airport, retailers must generate excitement and a reason to buy beyond duty free.”
In order to be viable in the future, airport operators must apply this vision to how they plan, design, build and operate their physical spaces: experiences first and foremost and products second.
Product sales will simply ride on the back of remarkable airport experiences. But these sales will not solely take place at the airport, as many passengers will decide to opt for home delivery by local e-commerce retailers or directly from the shopping area of our brand partners’ homepages.
This indicates that in the long-term, sales of product simply can’t be the sole strategic purpose or metric for commercial airport operations anymore. The most successful airport operators of tomorrow will obsess over the design, execution and measurement of experiences.
Applying a calculation to the value of the experience delivered to their brand partners, on top of the direct sales realised at the airport.
When transforming from being primarily a distribution channel for products to an integrated media channel with physical product availability, the choice of how to most optimally shape the commercial operation might transform as well.
Will self-management be the best way forward to develop valuable learnings for the future while experimenting with various formats today? Or does outsourcing bring better results, leveraging global relationships with brands?
Is the current airport retailer a logical partner for the future, or is a combination between an advertising concessionaire and a retail operator a better partnership?
Does an operating model based on minimum annual guarantees (MAGs) still make sense, or should we work together in far more intertwined forms of co-operation like joint ventures, in order to better combat global e-commerce platforms?
There is no answer that applies to all situations. The future belongs to those who prepare for it today.
Let us try to use the current momentum of quietness at the airport to lay the foundations of another seven decades of airport retailing.