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Is the Multi-Billion Travel Retail Market The Salvation of Luxury Sales?

This underdog might be luxury retail’s saving grace.

Profits and sales plummet. Outlook remains glum. Retailers are forced to rethink their game or close up shop. For at least the last two years, negativity has besieged the retail sector as news of its struggle continues to hit headlines.

But in the midst of the stormy weather lies a ray of hope – travel retail. Once thought of as a sideline, this segment has become a lucrative and critical component for luxury brands in their business strategies. Transportation hubs have transcended their primary roles to become prime commercial assets.

Take Tan Su Shan, who has taken to shopping almost exclusively at airports while waiting for flights. “I have no time to do so otherwise. Most of the Ferragamo shoes you see on female executives – I bet they were bought at airports,” the managing director and group head of consumer banking and wealth management at DBS says with a chuckle.

She might be right. About 6 per cent of luxury shopping now takes place at airports, up from 4 per cent last year, according to business consultancy Bain & Company.

  • The Wine Reserve at Changi Airport’s Terminal 2 has over 350 bottles from different regions such as France, Italy and Portugal.

Philippe Schaus, chief executive of the world’s largest luxury travel retailer DFS Group, goes so far as to refer to airports as “luxury shopping malls in their own right”. While the travel retail market includes airports, ferry and cruise terminals, border shops and downtown duty and tax-free shops, airports accounted for about 58 per cent, or US$36.6 billion (S$50 billion), of the market in 2014, reported Swedish travel retail consultancy Generation Research.

Schaus tells The Peak: “The advent of duty-free meant that people began to see airport departure and arrival terminals as shopping points, but today it’s about much more than simply benefiting from lower taxes on alcohol or tobacco. Travel retail is so vast that it has been referred to as ‘the sixth continent of luxury’.”

WAITING TO SPEND

“Travel retail in general affords the opportunity of converting waiting time to shopping and browsing time,” says associate professor Ashok Charan of NUS Business School’s Department of Marketing. “Airports are of great importance for luxury retail because they draw a very large base of high income, savvy consumers with considerable waiting time at their disposal.”

Or as Lyndea Dew, marketing and business development director for Remy Cointreau’s global travel retail, sums it up: “Airports are literally small cities and the commercial opportunity is unlimited.”

It all boils down to one big advantage: a captive audience. After all, there really is nowhere else to hang around after one passes the immigration checkpoint.

“The 45-minute window that I have while waiting to board my flight is really the only time I have to shop,” says Darius Cheung, founder of Singapore-based property-listing site 99.co. “I almost never have a chance to be at a shopping mall otherwise.” He usually purchases electronics for himself, clothing or bags for his wife, and gifts for his clients at airports.

(RELATED: Darius Cheung was a speaker at The Peak’s recent Finding The Unicorns event.)

So it’s little wonder that luxury houses have invested much in travel retail. French beauty giant L’Oreal even created a group travel retail division in 2013 to address this area. Nicolas Hieronimus, L’oreal’s president of selective divisions that include luxury brands such as Lancome and Yves Saint Laurent and Shu Uemura, said in a press statement: “The creation of the new group travel retail division demonstrates our confidence in the huge potential of this channel. From now on, all of the group’s major brands will have the opportunity to develop on this ‘sixth continent’.”

While Gavin Tan shops at airports, he says he rarely buys luxury items there because the environment feels “a bit impersonal”. The CEO of local stem cell research company Cellresearch Corp says: “Shopping at airports is convenient, but it is not a replacement for shopping at downtown stores.”

Perhaps to entice would-be customers like Tan, brands have taken to launch collections that are exclusive to travel retail points. In August, Bottega Veneta released two styles from its Fall/Winter 2016 sunglasses collection in 15 DFS and T Galleria by DFS stores – two months before the global launch. Saint Laurent’s full travel range is available only at Changi Airport, as are Hugo Boss’ traveller leather belts, which have metal buckles that do not set off the alarm during security checks and feature different colours on each side.

Remy Cointreau’s Remy Martin Cellar Master’s Selection is available only at travel retail points. High-end labels that The Peak approached declined to comment on their travel retail game plan.

(RELATED: Louis XIII Cellarmaster Baptiste Loiseau: I’m Not Afraid To Experiment.)

DFS has also been hard at work, inking exclusive deals to debut spirits at Changi Airport. Its three-month-old wines and spirits duplex at Terminal 2 features three new concepts – the Wine Reserve, the Cigar Room and The Whiskey House. The design of its duplex at Terminal 3, which opened in May last year, is inspired by stylish bars and restaurants around the world, as well as the traditional and historic cellars of France and Scotland. It also features a replica of Raffles Hotel’s iconic Long Bar, where Singapore Sling was first concocted. Schaus says: “We want our airport customers to be able to discover and explore something different from their everyday experience.”

Landlords have also upped their game in the face of fierce competition. When it opens next year, Changi Airport’s Terminal 4 will have a retail space of about 17,000 sq m, with more than 80 retail and dining outlets. Meanwhile, 70 per cent of the 300 shops at the upcoming Jewel Changi Airport, a new lifestyle and retail complex opening in 2019 that will connect the terminals and Changi Airport MRT station, will house retail outlets. Its iShopChangi website was launched in 2013 to encourage travellers to shop two weeks before their flight. Purchases can be collected before departing or upon arrival at Changi Airport.

Charan says: “The 55 million passengers who passed through Changi Airport last year represent an enormously greater reach than the estimated six million tourists who visit Orchard Road yearly or the country’s 5.5 million residents. It is not surprising, therefore, to see the high level of investment that is going into retail at Changi Airport.”

Changi Airport has also been switching up its layout to make it a more conducive shoppers’ paradise. The transit areas are more like wide shopping boulevards. Retail space at Terminal 1 expanded by 15 per cent to 20,000 sq m after an upgrade in 2012, while the lush greenery and unique roof structures at Terminals 2 and 3 allow more natural light in.

Germany’s Frankfurt Airport – the presence of over 300 stores is said to make it the country’s largest mall – is also expanding into online hopping by allowing travellers to purchase while still up in the air and pick up items upon arrival or arrange for home delivery.

  • Book a fashion stylist at London’s Heathrow Airport.

Not to be outdone, London’s Heathrow Airport allows travellers to book a complimentary personal shopping session with a stylist. According to news outlet The Telegraph, the service sees 2,000 customers a month and regularly rings in sales of over £100,000 (S$180,000) per transaction. Muriel Zingraff -Shariff , the airport’s former retail concessions director, told news website Business of Fashion in 2013: “For some of the luxury brands, I can tell you that their store (in Heathrow Terminal 5) is second only to their Bond Street or New Bond Street stores in terms of productivity – and for some, it’s the most successful in terms of productivity per square metre.”

Even payment processing platforms want in. Two months ago, Visa introduced its airport companion digital programme, which offers card users exclusive privileges and discounts to amenities, services and duty-free outlets at over 850 airports. Users can also make in-app purchases and receive recommendations generated based on the cardholder’s profile, physical location and user input, says TS Anil, Visa’s senior vice-president and head of products in the Asia-Pacific.

CASHING IN

With so much potential – and money to be made – how else can retailers capitalise on this golden hour before passengers board their flights?

For one, airports are a treasure trove of information about passenger profiles and flight information. World Duty Free Group uses such data at Heathrow Airport to make sure speakers of the right languages are on the retail floor and cultural sensitivities are practised, and to reconfigure shop displays to cater to passengers, The Economist reported.

Interaction will also be key. “Retailers may make use of large screen displays that allow consumers to engage and learn about products in an innovative and engaging setting,” says Charan. “This would help them expand their retail space, which is both limited and expensive at airports.”

Retailers should also treat all points of sale as an ecosystem, instead of individual entities. Relating his personal experience, Srinivas Reddy, professor of marketing at the Singapore Management University (SMU) and academic director of LVMH-SMU Asia Luxury Brand Research Initiative, says: “I’ve asked downtown stores if I could complete and pick up my purchase at the airport where they have an outlet, so I wouldn’t have to lug the item around and save me from filling out tax refund forms, but they are not able to do so.

“Retailers should embrace an omni-channel model, and that includes online shopping. The goal for businesses is to improve bottom line and to get there, the point is to make it as easy and convenient as possible for the shopper to spend.”

IT FIGURES

With such a promising future, the travel retail market proves to be a force to be reckoned with.

US$85 BILLION

Forecast value of global travel market in 2020.

30%

Percentage spent on beauty products.

$2.2 BILLION

What travellers spent at Changi Airport last year.

#1

Seoul’s Incheon International Airport’s ranking in global travel retails sales last year – travellers spent US$8 billion there.

5

Number of airports in Asia-Pacific that boast retail sales of over US$1 billion.

5.4%

Annual rate at which global tourism is forecast to grow over the next two years.

CHEERS!

Changi Airport is a treasure trove of many world’s firsts, including the debuts of many spirits such as the following four.

  • 01 Martell Cordon Bleu Extra

(RELATED: Martell Cordon Bleu Launches New Duty Free Vintage.)

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