Flying Into the Sunrise
Flying Into The Sunrise – Airport retail in a 'recessionary' market
In the old Westerns, people galloped off into the west as the sun set to get away from all their troubles. Well if current stats are correct, people may want to fly off into the east into the rising sun instead. Since shopping and traveling are human ways of escaping cold hard reality, it may explain why emerging market countries’ airports are doing a roaring retail trade in the aftermath of the world financial crisis.
But let’s not get ahead of ourselves, airport retail seems up everywhere. The world’s airport retail sector is set to emerge as one of the best performing in retail, and is likely to grow by as much as 60% by 2015, worth approximately R322.8 billion. Recently the Financial Times cites spending by passengers at London’s Heathrow increased 16.4% year on year in the first half of 2014. Clearly someone did their homework since Kurt Greiger, Reiss, Burberry and ‘handbag company’ Mulberry have all recently popped up at Heathrow. Throw in a new Harrods mega store and you’ve practically got a shopping renaissance at the airport.
Looking at the international airport market as a whole for 2014, it’s estimated worth is approximately R220billion. Having grown as much as up to 40% in the last five years, emerging markets have led the way. By way of example: Europe held 46% of market share and the US 23%, in 2005. That’s down to 40% and 20% respectively. Big winners here are Asia-Pacific up to 29% and Middle East at 10%. Top of the class is Dubai Duty Free, the world's largest airport retailer, recently reported 13% growth in sales and is due for a record year.
In the old Westerns, people galloped off into the west as the sun set to get away from all their troubles. Well if current stats are correct, people may want to fly off into the east into the rising sun instead. Since shopping and traveling are human ways of escaping cold hard reality, it may explain why emerging market countries’ airports are doing a roaring retail trade in the aftermath of the world financial crisis.
But let’s not get ahead of ourselves, airport retail seems up everywhere. The world’s airport retail sector is set to emerge as one of the best performing in retail, and is likely to grow by as much as 60% by 2015, worth approximately R322.8 billion. Recently the Financial Times cites spending by passengers at London’s Heathrow increased 16.4% year on year in the first half of 2014. Clearly someone did their homework since Kurt Greiger, Reiss, Burberry and ‘handbag company’ Mulberry have all recently popped up at Heathrow. Throw in a new Harrods mega store and you’ve practically got a shopping renaissance at the airport.
Looking at the international airport market as a whole for 2014, it’s estimated worth is approximately R220billion. Having grown as much as up to 40% in the last five years, emerging markets have led the way. By way of example: Europe held 46% of market share and the US 23%, in 2005. That’s down to 40% and 20% respectively. Big winners here are Asia-Pacific up to 29% and Middle East at 10%. Top of the class is Dubai Duty Free, the world's largest airport retailer, recently reported 13% growth in sales and is due for a record year.
What is it about emerging markets that’s causing all the flutter? A symptom here would be an increase in airport traffic. Asia-Pacific, Latin America, and the Middle East have experienced double-digit percent growth in the number of airport passengers. Meanwhile the mature destinations of Europe and North America are not only experiencing weak growth, they are struggling to reach pre-doubledip levels of airport traffic.
From here we notice a two pronged effect on airport traffic. Firstly: stronger economic growth in emerging markets and secondly the drastic lowering of airline ticket prices. Going back a decade air-travel in the east was horribly expensive but now there’s Malaysia’s affordable AirAsia, India’s SpiceJet and Singapore Airlines' new Scoot service among other budget airlines capitalizing on the increased demand. Thai budget airlines launch in mid-2012, so the competition has been hotting up for a while now.
From here we notice a two pronged effect on airport traffic. Firstly: stronger economic growth in emerging markets and secondly the drastic lowering of airline ticket prices. Going back a decade air-travel in the east was horribly expensive but now there’s Malaysia’s affordable AirAsia, India’s SpiceJet and Singapore Airlines' new Scoot service among other budget airlines capitalizing on the increased demand. Thai budget airlines launch in mid-2012, so the competition has been hotting up for a while now.
And there’s more… despite a faltering global economy, luxury retailers have reported stronger than expected earnings, with demand from emerging economies boosting their success. Many high-end retailers announced unusually high profits. Louis Vuitton Moet Hennessy (LVMH) reported profits of over R123 billion through the third quarter—a 15% increase over the previous year, with strongest demand from Asian markets. According to a recent consulting firm Bain & Co. Mainland China is likely to push Japan out this year as the second-largest market for luxury goods after the U.S., increasing market share to R257.5 billion. Chinese consumers spend an additional R132-165 billion on luxury goods outside of China in order to avoid the high luxury tariffs in their own country.
This year saw LVMH opening at South Korea's Incheon airport, the store is expected to bring in approximately R533 million in annual sales, thanks to the growing numbers of Chinese passing through.
Within retail, it is beauty sales which are the fastest growing. Over the next five years this segment of airport retail is predicted to grow by as much as 80%, while growth in liquor and tobacco is expected to ease. Fashion and electronics are also areas which show growth potential over the same period.
This year saw LVMH opening at South Korea's Incheon airport, the store is expected to bring in approximately R533 million in annual sales, thanks to the growing numbers of Chinese passing through.
Within retail, it is beauty sales which are the fastest growing. Over the next five years this segment of airport retail is predicted to grow by as much as 80%, while growth in liquor and tobacco is expected to ease. Fashion and electronics are also areas which show growth potential over the same period.
Retailers are also modifying their product lines to appeal to Asian consumers. The French luxury fashion house Hermès intends tapping into the growing luxury market in India with its new limited edition range of saris based on that label's celebrated scarves.
There is also an increased significance of direct-owned stores at Airports. According to the same Bain study mentioned above, the physical distribution of luxury sales has undergone a significant shift, with direct-owned stores experiencing 14% growth, which is more than 50% higher than the growth rate of wholesale and department stores. Direct-owned retail now accounts for nearly 30% of luxury sales worldwide. Finally, currency volatility is a big player too. Travelers from different countries will seek the best bargain relative to the exchange rate.
There is also an increased significance of direct-owned stores at Airports. According to the same Bain study mentioned above, the physical distribution of luxury sales has undergone a significant shift, with direct-owned stores experiencing 14% growth, which is more than 50% higher than the growth rate of wholesale and department stores. Direct-owned retail now accounts for nearly 30% of luxury sales worldwide. Finally, currency volatility is a big player too. Travelers from different countries will seek the best bargain relative to the exchange rate.
Examining South African Airports, one may note that Cape Town International, OR Tambo and Durban’s King Shaka came first, second and third, respectively, for Africa in the World Airport Awards a while back. ORT shuffles 13 million passengers every year, the most in Africa, yet we are remaining an emerging market.
ACSA is reporting a double-digit sales increase in business at Johannesburg’s O.R.Tambo International Airport (ORTIA) following flagship store refurbishment and a little help from the recent weakening of the Rand.
Big Five - completed renovation work on its ORTIA main store in October after starting the refurbishment and upgrade scheme in mid-2012. The company operates the five core duty free departure shops and two core duty free arrival shops at Johannesburg Airport, including the main 1,500sq m mixed category main store that all passengers must pass after leaving passport control and completing security checks.
ACSA is reporting a double-digit sales increase in business at Johannesburg’s O.R.Tambo International Airport (ORTIA) following flagship store refurbishment and a little help from the recent weakening of the Rand.
Big Five - completed renovation work on its ORTIA main store in October after starting the refurbishment and upgrade scheme in mid-2012. The company operates the five core duty free departure shops and two core duty free arrival shops at Johannesburg Airport, including the main 1,500sq m mixed category main store that all passengers must pass after leaving passport control and completing security checks.
South Africa.net reports that South Africa rates as one of the world’s best airport shopping destinations. Of course local may not be lekker for some locals but curios have come a long way since the artillery shell ash trays and dung pots. This OT airport curio shop was voted the 'best destination' retail outlet in the world back in 2006 by well respected duty free retail commentators in the Moodie Report, but alas not much word since!
However Gerbr. Harilaou from Big five spke to TR Business and explained: “Our existing main shop in O.R. Tambo was about seven years old which is a long time in duty free. We have put in newer brands and newer product sections. We decided to do a whole renovation as it has created more convenient shopping.
“Our renovated store has an international feel, but we also display a lot of South African liquor. The shop renovation was a challenge as the location was planned as an F&B area overlooking the runway and not as a shop. We have brought the overhead lighting down to a new level to lighten the store.” Harilaou adds that the new Johannesburg shop design is working and ‘sales growth is increasing satisfactorily.’
However Gerbr. Harilaou from Big five spke to TR Business and explained: “Our existing main shop in O.R. Tambo was about seven years old which is a long time in duty free. We have put in newer brands and newer product sections. We decided to do a whole renovation as it has created more convenient shopping.
“Our renovated store has an international feel, but we also display a lot of South African liquor. The shop renovation was a challenge as the location was planned as an F&B area overlooking the runway and not as a shop. We have brought the overhead lighting down to a new level to lighten the store.” Harilaou adds that the new Johannesburg shop design is working and ‘sales growth is increasing satisfactorily.’
Interestingly the International Travel Blog enthused that: “at The Out of Africa stores, almost all the handcrafts you've been eyeing on your trip, from 6-foot wood giraffes to Ndebele beaded dolls, are on offer here at better-than-retail prices.”
Yes it’s a long way from Prada but travelers want what they can’t get on their own turfHarrod H and everyone is doing the booze and smoke. Having said that South Africa has much more to offer than mere curios and duty free jewelers, as important as those stores may be. This is surely an untapped market for South African retailers. It’s time we encouraged the geese to fly down South for the winter.
Yes it’s a long way from Prada but travelers want what they can’t get on their own turfHarrod H and everyone is doing the booze and smoke. Having said that South Africa has much more to offer than mere curios and duty free jewelers, as important as those stores may be. This is surely an untapped market for South African retailers. It’s time we encouraged the geese to fly down South for the winter.
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