For major hub airports, the typical split between airline-related income and other income is in the region of 40/60. And with the capacity of flight slots approaching 100% utilization for many hubs, the only way to organically grow revenue is by optimizing the retail experience. That’s a whole new skillset for airport management teams … which is why many of them are looking at the business models of shopping malls for inspiration.
And it’s not just international airports who are taking a lead from shopping malls. Regional airports are finding that improving the retail experience can give their airport a competitive edge versus other airports, and even result in income from non-travelers who only come to the airport to shop.
But how would a regional airport start to vision their retail experience. Let’s take a look at the criteria for leading retail developer Aeon Malls of Japan.
The Aeon Malls checklist applies to airports.
With 155 shopping malls in Japan and China, Aeon Mall is a leading developer of retail environments. In their 2011 annual report (link below) they list the 6 key points they consider when developing a new mall. Airport managers will likely have exactly the same agenda, but on a different scale.
1. Have two ‘anchor stores’.
Anchor stores, typically leading department stores, are placed at either end of the mall. The space in between is then filled with a wide variety of specialty stores
2. A population of 400,000 within 30-minute travel distance.
Road access is vital. Many of Aeon’s Japanese malls are also located by railway terminals.
3. Gross leasable area of 70,000 to 80,000m2.
This is the critical mass for Aeon, but regional airports will likely need to scale down that availability of space.
4. Parking area for over 3,500 cars.
Parking attracts customers and is a significant revenue source. Aeon correlate 3,500 parking spaces to 70,000m2 of retail space. Airports could use that ratio to plan their own retail/parking infrastructure.
5. Secure a large enough site for planned expansion.
Aeon understand the growth potential of retail environments as a relationship between local population and retail space and parking space. Regional airports can do the same math.
6. Maintain ratio of EBITDA to total investment at 13%.
To quote Aeon: “In the development of shopping malls, we generally prefer a model of leasing the site and owning the building. Our standard for investment profitability is a ratio of EBITDA to total investment of more than 13%.”
McKinsey insight. The future of the shopping malls.
Mangement consultants McKinsey wrote about the future of shopping malls in November 2014 (link below). In their introduction they write:
“Despite its ubiquity, the mall as it’s been conceived for the last half century is at a critical inflection point. A storm of global trends are coming together at the same time to cause malls to change the role they play in people’s lives. No longer are they primarily about shopping. Now, when consumers visit malls, they are looking for experiences that go well beyond traditional shopping.”
McKinsey specify three factors as influencing the future of shopping malls. As with the Aeon Malls checklist, these factors will be considered by airport managers who want to leverage their retail opportunity:
1. Differentiating the consumer offering, with a focus on experience and convenience.
The cost and convenience of online shopping means that malls need to re-invent themselves as community centers. Arts facilities, sporting facilities like bowling, food & beverage, temporary ‘pop up’ stores … these are some of the ways retail areas can broaden their appeal.
2. Transforming the mall experience by leveraging technology and multichannel strategies.
Airports can develop smartphone apps to enhance the shopper experience. From help with finding a parking space through to guides and promotions in the retail area, apps can bring shoppers (and travelers) back for more. Big data (which is the Milanamos speciality) also help with optimising the retail experience.
3. Exploration of new formats and commercial real estate opportunities.
To enhance the ambience of the retail experience, malls are changing their ratio of tenant/public-space ratio. The current ratio is 70/30 … but 50/50 could become the norm. Installing rest areas, planting trees and incorporating natural light are key trends in mall design.
In their conclusion, McKinsey write: “The world of retail is changing dramatically, but the mall still can have a central role in urban and suburban societies. To avoid becoming what one chief executive calls a “historical anachronism – a sixty-year aberration that no longer meets the public’s needs,” mall operators must expand their horizons of what a mall can be. They must envision themselves no longer as real estate brokers, but instead as customer-facing providers of shoppable entertainment.”
Airport sales set to grow by 73% between 2013 and 2019.
Opportunities that were once offered in shopping malls are not only still present, but growing every day: airports.’
‘Sales at airports are expected to increase by 73% from 2013 to 2019, predicts Verdict Retail (The Economist). According to Datamonitor Retail, the global airport retail market will grow by more than 60% to worth US$44.1 billion by end of 2015. With global airport retail sales set to surge over the next six years there are huge opportunities for retailers to grow their presence.’
‘The experience of traveling inspires people to shop and spend money. For leisure travelers, it is all about creating memories or milestone experiences, so they may be in the mood to splurge on items they wouldn’t usually buy. For business travelers, it is about convenience of an expense account or the opportunity to shop, which is something they may not have that time to do on a regular basis.’
‘According to a DKMA report (lZoomSystems of San Francisco is a leader in the field of automated retailing. They operate at over 1,500 locations worldwide and partner with companies like Nespresso, Best Buy and Amazon.
In a thought-provoking July 2015 article (link below) titled ‘Are Airports the Shopping Mall of the Future?’, ZoomSystems articulate the idea that retail space will drive airport profitability in the future.
Here’s some highlight quotes from the ZoomSystems story.
Even as malls and shopping centers across America, the UK, and Europe shut their doors or convert into mixed-use spaces, there is one place where the retail ink below), passengers who spend more than 60 minutes at the airport are +33% more likely to buy F&B (food & beverage), +27% more likely to buy retail and +13% more likely to buy duty free than passengers who spend fewer than 60 minutes at the airport. This is extremely important, especially for leisure travelers.
Retailers pay 10% more rent for the airport shopping experience.
If airport managers can create the right retail infrastructure, they won’t just win the approval of consumers … they’ll find that retailers will pay a premium to have outlets at airports.
In a 2011 New York Times article (link below) titled ‘The Airport Experience Now Includes Shopping for the Family’, retailers express their support for airport shopping.
To quote one retailer: “Airports are becoming, really, a service facility, like a shopping mall,” said Jose Gomez, senior vice president for business development for Mango, the fashion retailer.
But airport retailers have found they need to adjust their normal store layout to match the airport experience. For example, getting rid of the traditional shop window and displaying goods by the door attracts more shoppers. And stores need wider aisles, to cater for people pushing their luggage around.
“The relationship between the airport and the airline has changed dramatically, in that the airport can’t just put its costs on the airlines,” said Paul McGinn, the president of MarketPlace Development, which manages and leases retail space at the Philadelphia International Airport and La Guardia. “Airports have to be self-sustaining,” he said, and retail “has become a valuable source of revenue.”
In fact the New York Times reports that rents at airports are generally higher than in malls. “It is street pricing plus 10 percent at most sites in Atlanta airport,” the NYT writes.
New Europe1 Brescia/Verona airport includes massive leisure investment.
Airport World (link below) reported on a 15 billion euro investment for a new ‘Europe1’ airport hub between Brescia and Verona in northern Italy.
Designs are already in place for the 38 sq km site (with a further 17 sq km available) to have a major airport hub capable of handling 100 million passengers a year.
But the development site is also in the middle of major Italian conurbations, plus sophisticated road and rail networks.
So Airport World reports that the developers are planning a conference center, casino, hotels, museums, theatre, cinema, fitness and sports facilities, office complex and exclusive retail malls.
In short, Europe1 is defining the future of airport operations, where the business of managing flights is on the periphery of the commercial agenda, rather than at its center.
Big data is the cost effective way to identify retail opportunities.
Milanamos; big data tools can help hub and regional airports to identify income opportunities. Specifically:
– demographic research can attract new carriers.
– predictive travel helps with route planning.
– multimodal transport improves service for travelers.
– demographic and traveler analyses give retail insights.
Aeon Malls / 2011 annual report.
McKinsey. The future of the shopping mall.
Zoom Systems. Are airports the shopping malls of the future?
DKMA survey. Dwell time, choice and value key to driving airport retail revenue.
New York Times. Airport experience includes family shopping.
New Europe1 airport between Brescia and Verona