Airports Shield Retailers From E-Commerce
E-commerce has cut through brick-and-mortar retail in a Darwinian fashion, establishing clear winners and losers and drastically re-shaping landlords’ approaches to leasing.
Purveyors of certain soft goods — apparel, jewelry, electronics — have seen their footprints at malls and retail centers dwindle as online shopping has infiltrated American consumer behavior. But given a little financial credit and strong branding that integrates local culture, these same concepts can find success in airport settings.
“Local concepts create a sense of place and introduce travelers and visitors to what’s special about that place,” says Nicole Linton, marketing manager at Paradies Lagardere, a travel retail company that operates more than 1,000 stores and restaurants across 100 North American airports. “By adapting local concepts to airport settings, we help our partners create brand recognition, which leads to increased sales.”
Of course, no airport is clamoring for any retailer — local or not — whose sales are declining and whose stores are closing. But once a retail or restaurant concept makes it onto an airport’s tenant roster, it enjoys higher price points and a captive audience, two key facets of sales growth that have increasingly eluded brick-and-mortar operators in the e-commerce era.
“Retailers like the insulation from large economic trends that airports offer, including the closing of stores via e-commerce,” says Ramon Lo, publisher of the magazine Airport Experience News. “Only a handful of large retailers operate in airports; the rest are local concepts. So it’s a very specialized environment, which can be a barrier to entry for many retailers.”
In addition to providing insular settings, airports today generally offer retailers a larger customer base to target than they have in years past. According to the International Air Transport Association (IATA), overall demand for air travel in the United States is ascending.
The IATA reported that the total volume of air traffic in January 2019, the latest available at the time of this writing, increased 6.5 percent relative to January 2018. Stronger demand is unfolding in the face of rising airfare prices that are driven by heftier fuel costs and labor shortages among technicians and maintenance professionals.
The presence of more people in American airports translates to more overall foot traffic, eventually leading to stronger sales. Couple that demographic trend with some semblance of protection from e-commerce, and the inevitable result is greater user demand for a limited amount of space.
Airport Retail 101
Operating a store or restaurant business in an airport is vastly different from doing so in traditional store formats, and inventory replenishment is perhaps the most glaring operational example of this difference.
In many airports, retailers and restaurants restock supplies, which are generally stored in a separate location, on an as-needed basis. Depending on the size of the airport, that central storage space could be located multiple miles away and may only be accessible during certain times and by specific employees. These complexities make can cause retailers to incur additional costs tied to tracking and cataloging supplies.
In addition, airport retailers generally have smaller storefront spaces, meaning they must be highly attuned to their display merchandise, says Robert Miville, concessions manager at Dallas Love Field Airport.
“Because branded units in airports are typically smaller than brick-and-mortar locations, the type and quantities of merchandise and display fixtures must be taken into consideration,” says Miville. “Storage space for backstocked merchandise is minimal within the unit, so the merchandise really becomes the focal point of the space utilization.”
When new space becomes available in an airport, the government agency that runs the airport issues a request for proposals, or bids from interested users. These requests are targeted toward retail categories that align with the demographics of passengers who use the airlines in that terminal or concourse.
In determining what type of retail is best suited to a certain location, airport officials consider several factors, but perhaps the most important criteria centers on the financial benefit that the retailer can offer the airport. For this reason, national and local users with strong credit have a clear advantage.
“For some retailers, it’s difficult to get into the airport because they lack the knowledge of how to operate in those settings, or the finances to bid on contracts for space,” says Lo. “So there are pursuit costs associated with just getting a seat at the table. That precludes a lot of small businesses from getting in, so they partner with larger operators.”
In those cases, Lo adds, the retailer’s business model can shift from an independent operation to a licensing of the brand or concept through a new channel: the airport.
To keep this process of filling new or vacated space running smoothly, airports work to get to know their airlines and passengers. Basic economic and demographic information of airlines’ prototypical passengers is assessed in an effort to create a balanced mix of retail categories that offers items based on the conflicting forces of necessity, convenience and luxury. Curating this mix also involves weighing international brands against national, regional and local names and concepts.
“As an operator, we’re always doing research and talking to our airport partners and travelers’ needs,” says Linton. “This ensures that when we prepare bids and stock certain stores and restaurants, we’re meeting the needs of the airport’s key demographics.”
No Size Fits All
Every major airport approaches its tenant roster differently in terms of concepts, lease structures and degrees of collaboration with operators.
“There’s a saying in this industry: ‘Once you’ve seen one airport, you’ve seen one airport,’” says Lo. “They’re all different in terms of approaches to tendering space, and some airports are more progressive than others in working with tenants on practices like marketing in common areas.”
Lo notes that there are a growing number of professionals in airport retail with backgrounds in commercial real estate, on both the operations and development sides. The presence of these individuals helps fuse marketing tactics for brick-and-mortar retailers with the unique challenges that come with operating in an airport. For example, some airport retailers are now utilizing apps like Grab, which allows customers to order items from stores while deplaning and pick them up in the terminal, not unlike TSA Pre-check.
Bringing in seasoned retail professionals keeps the retail mix fresh and appealing, which is important since those mixes vary greatly from airport to airport. At Love Field, for example, Miville says that the leading retail categories include electronics, cosmetics and niche apparel, such as women’s clothing or sports merchandise.
“The lineup of tenants based on specific airport demographics and program size helps determine how much variation in merchandise can be offered,” says Miville. “A resonating brand can be successful for years, and you may have three to four years to determine how successful a concept is, then rebrand the unit if it’s not meeting performance expectations.”
Miville adds that Love Field officials work closely with their operators in analyzing sales data, marketing of merchandise and other operations. Roughly half the airport’s specialty units feature news stand locations, accounting for a key portion of net retail sales.
Austin-Bergstrom International Airport recently completed Phase I of its $350 million expansion project, which includes construction of new concessions space. The airport also handled a record volume of passengers in 2018.
In addition, the airport has partnered on a 10-year contract with a new concessionaire, Maryland-based HMSHost, to open a food hall that will feature several local concepts. These include Austin Beer Drop, Hardies Fresh Food Market and Noble Sandwich Co. HMSHost is also working to bring another location for two other urban restaurants, Parkside and 24 Diner, into the airport.
“Austin is a vibrant place in terms of food,” says Eddie Silva, HMSHost’s restaurant portfolio director. “Airports’ food and beverage industries are seeing more competition, and Austin is no exception. We bring trends of street-side dining and aim to provide an experience that is indistinguishable from the location on the street.”
Silva believes that strong competition for airport space among restaurants is a positive for consumers, as it creates a natural driving force for a high-quality experience. In addition, it helps the operators grow their brand recognition among a wider variety of customers.
By engaging in outside recruiting and identifying key skill sets for a certain operation, airport officials also help their retail partners with staffing — another obstacle of retailing that is exacerbated by being in an airport.
Finding talented employees who are willing to endure long commutes, deal with security and work long shifts that almost certainly include holidays and weekends — all on a regular basis — is challenging to say the least.
“Airport retailers, especially on the food and beverage side, have concerns about finding quality labor,” says Lo. “Operators spend a lot of time training their staffs because in an airport, you only have one shot to make a good impression on a customer, unlike in a sporting arena or neighborhood store.”
Particularly in times of low joblessness, airport retailers face uphill climbs on labor. In such markets, retailers are sourcing labor from smaller pools and are competing with other industries, not to mention their non-airport equivalents. In other words, they have to sell employees on working at the airport.
This challenge is most pronounced within the food and beverage segment. But much like their counterparts in soft goods, airport restaurateurs are increasingly bringing in experienced — and in some cases famous — chefs and celebrities to put their names on restaurants spaces. Having that type of brand association and expectation of high-quality food and experience helps operators staff their establishments with qualified talent.
—By Taylor Williams. This article first appeared in the May 2019 issue of Texas Real Estate Business magazine.