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Retail on the go: Exploring the sixth continent

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typically plays second fiddle in brand communications, which emphasise flagship mono-brand stores. However, people travelling account for 40 per cent of global spending on personal luxury goods, with 12-13 per cent captured by the specialised and globally dispersed channel.

Retail on the go, exploring the 6th continent
Travel retail typically plays second fiddle in brand communications, which emphasise flagship mono-brand stores

Airport malls account for almost 60 per cent of the travel retail market, but the travel retail channel also includes ferries and cruises, border shops and downtown duty and tax-free shops.

In India, travel retail started kicking off since the time privatisation of the airport started. As we went along, other travel options opened up like DMRC in Delhi and other metro trains across the country, highway retailing and a lot more.

MD, Retail Services, , , says,  “Airports have huge amount of opportunity as the Indian population is growing and till now we have not been able to give them the international level of experience. The blame can be put either on the operators, or government or the retailers. It is the eco-system that is yet to get mature and developed to the next level. And then, if we look at the metro corridors where retail has developed and Delhi has always been at the forefront as it has changed the landscape of how the Indian society is changing with the new transportation system coming in. It has opened a huge opportunity but the question is how successful have been in capitalizing the opportunity.”

“Maybe, we have capitalized the opportunity in some forms like to de-congest the roads but did we capitalize in terms of eco-system around it like retailing which you see in international cities, not yet! Because the metro company and the government looked at it like a contracting job, they wanted to focus on the core of running a metro and wanted to give it out to private to run the developments around it like developing stations or the real estate around it. So, it has been a bottleneck there where we have not been able to see the full potential getting unlocked around it,” he continues.

“Highways also have an immense opportunity which has not been tapped yet. We have not seen highway malls or big motels coming up. The only pioneer which has succeeded in doing something in this field in McDonald’s by putting up highway stores,” he adds.

All the different channels have their own characteristics. Airport operators typically charge rent as a percentage of sales, which limits the potential upside for retailers as it reduces their operating leverage. Additionally, airport locations normally come with guaranteed minima attached. These can be expressed as absolute dollar amounts, in which case the retailer bears a traffic, consumer mix and execution risk. More frequently however, the dollar amounts are linked to traffic volume, in which case the retailer carries the consumer mix and execution risk only.

By contrast, the economics of downtown travel retail are similar to those of traditional luxury retail operations under fixed rental cost agreements. These stores typically have higher potential for operating leverage. Downtown and border shops compete directly with tax refund and display the same fundamental dynamics; fast growth with the continuing rise in traveller numbers, susceptibility to travel disruption and dependence on key brands. However, downtown tax free stores follow the business logic and constraints of the traditional high street, where tax refunds are available.

Director and CEO, CROSS, , says, “There are some very key advantages of travel retail that can be harnessed. The primary advantage is that it is not a geography, it is segmented by a channel. So, any Indian business desirous of global footprint can very easily contact 3-4 operators and the moment you partner with them, you could be in over 100 countries. However, travel retail is a low-hanging fruit which Indian business can really benefit from. Secondly, it gives instant global visibility and it can be achieved within a time frame of 0-2 years via the travel retail channel. Thirdly, it does represent a great shopping environment. Average retail shopping environment is always superior as compared to the average mall shopping environment.”

The overall market is growing fast, by an aggregate 8.4 percent a year in the past 10 years. This is several percentage points faster than the broader personal luxury goods market and nearly three times as fast as GDP. If we include spirits, cigarettes and electronics, the travel retail market has doubled in value during the period, to about $63 billion.

CEO, , , says, “ Travel retail seems to be a very good opportunity not just for the conventional categories but also for fashion products. The operating costs is comparatively high in airport retail but the entire store mints profit.”

The result is a positive double-whammy outlook for travel retail, as emerging market nationalities are also the biggest spenders per passenger. Travel retail should therefore continue to grow faster than the personal luxury goods market.

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GMR invites bids for development of retail assets on Delhi Airport land

GMR Infrastructure Ltd on Wednesday said its subsidiary Delhi International Airport Ltd (DIAL) has initiated a two stage “international competitive bidding process” inviting applications for the development of retail assets on about 23 acres at the Delhi airport.

The company initiated the second stage of the bidding process for the land on 6 April, based on the applications received, GMR said in a BSE filing on Wednesday. The shortlisted players have been invited to share their financial proposals, the filing said, as reported by e-paper Livemint.