Airports retailers have no choice but go online: Report

Muscat: Analysts expected 2020 to set a new record of over 4.72 billion worldwide scheduled air passengers, an increase from $4.54 billion passengers in 2019, but instead the coronavirus pandemic practically brought international travel to a standstill.

Airports Council International (ACI) estimates that around 50 percent of passenger traffic will be lost in 2020. As a direct relationship exists between passenger numbers and airport revenue, the ACI predicts that over the course of the year, the airport retail market will also drop by over half in some regions. Dufry, the world’s biggest airport retailer, reported that April 2020’s sales had dropped by 94 percent compared to the previous April.

The global lockdown has resulted in massive revenue shortfalls, which has meant that airports are operating at a significant loss,” explains ACI director of economics Patrick Lucas, who says that retail and food and beverage outlets bring in around one-third of an airport’s commercial revenues.

“It is a situation where you have high fixed costs that remain constant, irrespective of a shutdown or downturn, and the consequence is that the industry is threatened in terms of liquidity and solvency,”
he said.

While online shopping brought in $3.5tn worldwide in 2019, online retail sales accounted for 14 percent of all retail sales worldwide. With e-retail sales expected to claim 22% of the market share by 2023, the Covid-19 pandemic could be a catalyst for airports to create or improve an e-commerce platform – as Coresight research shows, airport retail sales increased by 9.3 percent year over year in 2018.

“As we see the sales results for retailers during the quarantine, online sales are growing exponentially while store sales are nil, albeit the store inventory is often used to fulfill online orders,” said Marie Driscoll, managing director of luxury and fashion at Coresight Research. “Currently, in the absence of international air travel, any revenue is something.”

Lucas says the crisis means airports have not got the budget to invest in e-commerce projects, but Brisbane Airport found a way to launch a new shopping channel.

Accessible to everyone, the challenge is how airport retailers can make themselves competitive when there are so many successful online outlets. Amazon’s net sales, for example, increased by 26% to $75.5bn in the first quarter of 2020 compared with $59.7bn in 2019.

“Online players such as Amazon and Alibaba, with their strong global presence, have become direct competitors for travel retailers,” states AOE’s (a travel retail digitalisation company) whitepaper Digital Airport Commerce.

As shopper behaviour has moved away from just impulse buying, planned purchases become more important. “The share of pre-planned purchases is even higher than the share for all customers, (71%, with only 29 percent being impulse purchases),” said a report.

Driscoll says that airport retailers can make themselves competitive by having products not easily acquired elsewhere, as well as creating their own exclusive product and collaborations.

In terms of how much airport retailers can expect to increase sales with an attractive online e-commerce site, Kevin Zajax, CEO of Ground Control (industry experts in F&B and airport retailing), says that e-commerce in mainstream retail is around 15 to 16 percent.

The report suggests that only 20 percent of passengers consume food and drink, or purchase retail on their airport journey.

He says this figure is based on a combination of publicly available data, commercial studies, and industry insight. Before the coronavirus, he believed the industry could grow by making efforts to attract the other 80 percent, but now he says the problem is more to do with how to travel retailers sustain a “one in five capture rate”.

“Given the already declining trend in capture rates, and the new challenges social distancing and contact points) Covid-19 throws into the mix, retailers have no choice other than building and making available an attractive online e-commerce site,” he says.

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