If shopping is therapy, then airports are emerging as the perfect shopping therapy destinations. Airports are self-sustained shopping enclaves, which drive in sales as they create a unique shopping experience
Experiential shopping happens in neon lit ambience. Creature comforts unfold in concept stores. Outwardly, this seems like a smart shopper’s wish-list being fulfilled in a luxury mall. A reality check reveals that this is the shopping scenario in newly developed privatized airports in India. Transit places have morphed into swanky retail destinations, with hi-end brands adorning the racks. Whether airlines are doing well or not, airports are raking in good business as they are a viable platform for retailers.
The transformation happened with the privatization of airports, which attracted infrastructure developers like the GMR Group and GVK Group. This resulted in private-public partnerships, after which airports were upgraded with the necessary infrastructure.
From then on, non air services like retail began to contribute to the airport’s revenue. “The estimated size of the travel retail in the international airports in India is in the range of Rs 1,200 crore to Rs 1,500 crore. The international traffic in US Dollar terms is growing at about 8%-10% year-on-year in India. The international travel retail growth is estimated to be 15% year-on-year in India,” said Manishi M Sanwal, Managing Director, DFS India Pvt. Ltd.
The travel retail story started to unfold in the glitzy transit of airports. An example would be when airport operator Delhi International Airport Limited (DIAL), a joint venture led by the GMR Group, shifted the Indira Gandhi International Airport (IGI) to its present location in 2010. In June 2013, the Airport Council International declared IGI as the world’s second best airport in the 25-40 million passengers category. With an annual capacity of over 60 million passengers, the airport handled around 34.2 million passengers in 2012.
While several factors have contributed towards its success, the retail pie has the right brand and merchandise mix required to make it a success. Take the case of Delhi Duty Free Services (DDFS), the country’s largest duty free service. “With 14 locations spread across 4,380 square metre, DDFS retails tobacco, liquor, confectionery, perfumes and cosmetics. Every day, DDFS records 4,000-5,000 transactions,” said Abhijit Das, Head of Marketing, Delhi Duty Free Services.
Since retail holds tremendous potential, airports are being refurbished to optimize space for premium brands to check in. This year, travelers commuting through MIAL’s Chatrapati Shivaji International Airport (CSIA), can experience the much awaited revamped Terminal 2 or T2, which carries the promise of being iconic. The captive T2 will throw open over 21,000 square metre of retail space, while the existing retail area is about 5,000 square metre. While it is designed on par with international airport terminals, one of T2’s highlights would be an Indian artwork section made available to visitors through touch screens. When commercial operations begin, it’s expected to be revenue generating evolved travel retail zone. T2 has four integrated levels spread across 439,000 square metre, which gives the airport the capacity to cater to 40 million passengers annually.
Bangalore too has upgraded its terminal, T1A in December 2013. The 150,500 square metre Terminal will be double the floor area of the current one. Bangalore International Airport Limited (BIAL), promotes Bengaluru International Airport (BIA) which is renamed as Kempegowda International Airport.
While these privatized airports are investing on scaling up their infrastructure, in September 2013 the Civil Aviation Authority announced its decision to privatize another six airports viz. Chennai, Kolkata, Lucknow, Guwahati, Jaipur and Ahmedabad. For a consumer, a privatized airport would mean five star luxury and an indulgent retail zone.
Travel Retail Takes Off
Travel retail has had a flying start in airports across the country. Factors like consumer attitudes, real estate, regulatory environment and ecosystem have fuelled its growth. Other aspects like the economic environment are also important. In the present scenario, it may not be the right decision to shop abroad always, given that the Indian rupee has fluctuated several times this year. It makes sense for passengers to pick up luxury goods at Indian airports, rather than paying an exorbitant price overseas for the same product. And so from whiskies to perfumes to stylish footwear, there’s something for everyone to indulge in.
Today, it’s not difficult to find an Armani or a Guess label at airports. Generally, beauty, personal care, alcohol and tobacco are known to be popular picks in the duty free section, while books and stationery are sought after in the duty paid section.
Successful retail chains have strategically positioned many of their offerings in the duty free section. Passengers are spoilt for choice as these goodies are more affordable than malls or hi-street stores. “The critical factors responsible for the success of travel retail are retail layout, passenger flow, passenger growth, passenger profile, mix of brands, retail categories and marketing activities,” felt Mr Ramesh Krishnamurthy, Chief Commercial Officer, GMR Hyderabad International Airport Ltd.
Visual Merchandising is of huge importance in making the brand a stand out of sorts. It’s extremely important to display visual communication to ensure that a traveler can easily locate his/her favorite brand and the associated promotion.
Like the proverbial early bird that catches little worm, some early retailers pulled out of airports because they felt retails were high. Others eventually survived because of revenue sharing models and there is community of retail brands which specifically opt for an airport presence because of great visibility and branding exercise. The mandate that travel retail stores are designed to benefit from their location holds good for them. “Having store presence in airports is important for us since the typical air traveller is our target audience. Also, writing instruments are ideal gifts for men and nearly 70% of air travelers are men,” said Nikhil Ranjan, CEO, William Penn — The World Pen Store, which retails some of the best writing instruments including Caran d’Ache, S.T. Dupont, Sheaffer, Pennline, Lapis Bard and Sailor at its outlets in Delhi and Mumbai airports.
Delhi Duty Free Services (DDFS), the country’s largest duty free service operates in Delhi, and offers more than 1,500 brands across all categories. “As concessionaire we are on revenue share model as it’s done worldwide. With suppliers/ brands it’s more function of margin on sales and related incentives,” said Das.
A clever product mix has boosted sales. Liquor is the highest selling among all categories, and contributes 55% of all sales at the duty free shops in Delhi. Though deluxe whisky continues to be the dominant category, DDFS has managed to chalk out a program that has helped grow the malts, cognacs and premium whisky range by over 40% from last financial year. DDFS has increased revenue in its malt section by retailing an exhaustive range that suits most tastes. Favourable price points have been worked out along with heavy duty promos which have worked well. Perfumes and Cosmetics is the second biggest contributor within the category (it contributes 25% to total sales), followed by destination – 10%, Confectionary- 5% and others- 5%. Perfume, cosmetics and luxury segments have been leading the growth.
DDFS is currently working on improving sales in its cosmetics and perfume section. This is being done by bringing in the appropriate skin care range suitable for the Indian skin. The range is being projected by internationally trained behind-the-counter personnel. “Over the last three years we have re-defined the travel retail and specifically the duty free market in India. We have nearly had a 40% compounded annual growth rate (CAGR) over the last three years even while international passenger traffic has grown 8% CAGR,” added Das.
Overall the retail scenario has various stimulating concepts. “We offer Mega Promotions/ raffle draws- for cars, Gold Bars, Free trips, Bike and much more to engage our customers,” said Dunkan Lawley, CEO, DDFS and added, “We have 16 LCD screens and four Video walls running 24×7 with information on – flights, gates, custom allowance, destinations and brands & offers available at DDFS.”
DDFS has a pulse on the market and quite appropriately so because the Indira Gandhi International Airport’s Terminal (T3) alone accounts for nine lakh passengers travelling through it every month. Terminal 3 is considered one of the world’s swankiest and largest terminals. DDFS decided to raise the bar for retail by establishing its presence in the digital medium. This is India’s first duty free service to tap the potential of the social media, and the viral initiative has cast the dice in their favour. “Having launched the DDFS Facebook page in December 2011, DDFS has garnered a fan following in a short span. Within less than two years the brand has built a community of 200+ fans and a healthy engagement rate of 3%-4% on an average till now,” revealed Das.
When the message went viral on the social media, it established an audience-connect. The Delhi Duty Free Facebook page networks with international travelers by offering insights on best holiday destinations, shopping capitals of the world and airport navigation tips. The effort has paid rich returns in terms of reaching out to customers, influencing their choices and purchase intentions, brand recall, establishing relationships beyond retail transaction and driving overall brand growth in the most cost effective manner with focused measurability. “With digital media being the only medium of customer communication beyond shop environment, the marketing efforts had a significant impact in building the 59%-62% of planned purchase habit/behavior amongst our shoppers,” he revealed.
In financial year 2013-14, when the Facebook community began to expand, DDFS increased its social media engagement. Journalist, columnist Vir Sanghvi stepped in as its social media guest editor. The digital campaign, titled World Traveler is represented by Sanghvi because he is well traveled. Through World Traveler, Sanghvi interacts with those who have refined tastes, suggesting a tip or two when they travel, depending on their personality traits and preferences. Within five-six months, World Traveler has grown into a community of 2.10 lakh people, which according to Das is the highest among the world’s travel retailers.
Luxury, with a Touch of Class
Story of travel retail has undergone a rewrite, as some of the edgiest fashion labels consider the airport as important as hi-street locations. Like Da Milano, the well known leather accessories brand has established its outlets at six airports. “Our new outlet which is our 10th at an airport is at Terminal I C MIAL. It is a stand out of sorts. This is our first airport retail outlet where we’ve brought both our brands, Da Milano and our international footwear brand Rosso Brunello under one roof. It made sense because footwear and leather goods go hand in hand. It also increases revenue and is a better airport square feet deal,” highlighted Sahil Malik, managing director, Da Milano.
This strategic positioning is strengthened by the fact that airports are driven by passenger numbers, which is not the mall crowd. “We are targeting an annual revenue of around Rs 3.5 crore to Rs 4 crore at MIAL. The passenger traffic growth year-on-year is 15% to 20% and our proportional growth would also be around the same,” added Malik. As a marketing tool, this new outlet has seasoned sales personnel who guide customers through the touch and feel of the product. Location also has a role to play. The spotlight is on this outlet as Da Milano has positioned itself in the middle of the terminal. Customized small leather goods and gifting items are part of its product portfolio.
Airports, which have traditionally been transit places, have evolved as self sustained luxury coves. As Malik put it, “Our outlets at the airports create a sublime shopping experience for the international traveller with a range that spoils him for choice. With our experience at all airports the brand is being craved for by an international traveller.”
The Promise of a Game Changer
Global luxury retailer Duty Free Service (DFS), a subsidiary of DFS Group, is preparing to pamper its elite passengers in IGI airport with a new international luxury brand. “Ferragamo is on our radar. This would be a game changer because this is the first time an Italian brand will have a full-fledged dedicated luxury boutique in an Indian airport,” assured Manishi M Sanwal, Managing Director, DFS India Pvt. Ltd.
The Ferragamo boutique will land at Delhi T3 International in the duty free section in 2014. It will exhibit a stylish line of shoes, bags and accessories for men and women. DFS has already whetted the market when it launched Tumi, the American hi-end luxury travel brand that unpacked briefcases, trolleys and women’s bags at the Delhi and Mumbai airport.
DFS has four stores in Mumbai International Airport, whose total floor area is about 25,000 square feet. DFS also has a presence in Delhi International Airport where the total floor area is about 5,000 square feet. Together both places retail all core duty free categories like liquor, wines, tobacco, chocolates, perfumes and cosmetics. DFS also retails indigenous goods like Indian tea, coffee, spices and artefacts. There’s also a section comprising luxury brands like Coach, Mont Blanc, Swarovski and luxury watches like TAG Heuer and Longines. In all, DFS represents over 200 plus brands.
Liquor is the highest selling category contributing to about 65% of revenue, Food and confectionery 10%, Fragrance 10%, watches and fashion 10%, others 5%. “Duty free contracts are usually on revenue sharing models. All our operations in India are on revenue sharing basis with a guaranteed minimum,” he said.
With its multi-brand offering, DFS’ entire retail calendar is chock-a-block with around 15 big ticket promos on various brands, complete with a lucky draw. Traffic for each promo depends on the merchandize and time of the year. “Both December and June are peak months for passenger traffic, though each has a different passenger profile,” observed Sanwal. December is the time when NRIs come to India on a personal visit. “These are affluent passengers who opt for international variants of chocolates, exotic food, expensive gifts and watches. They invariably pick it up for their relatives because they find it is cheaper to shop at Indian airports than abroad,” he reasoned. On the other hand, the June traffic is represented by domestic travelers who buy liquor as they fly out of the city.
Airport terminals double up as shopping malls that cater to a section of on-the-go travelers. “Our airport stores cater to this travelling section. We focus on having our best sellers always available at our airport stores,” said Nikhil Ranjan, CEO, William Penn — The World Pen Store.
Visualizing Merchandizing (VM) at the airports needs to be eye-catching and strong to create a quicker impact. The traveller is either in a hurry, impatient or bored at the airport. “Our VM needs to make a statement and attract this traveller. We do special VM several times a year at all our stores. At some airport stores where space is a constraint, we use elements of VM like easels and festive props,” reasoned Ranjan.
William Penn has various store formats, which depends on location, availability of space and other logistics. At Delhi, in the T1 Domestic Terminal it has a store format, similar to a mall store. At T3 International and T3 Domestic, it is envisioned as a large kiosk, while T3 International is a duty free store. In GVK CSIA, Mumbai the store is located at Terminal 1C and is like a mall store.
“We spend approximately Rs 10K per square feet. This is because we need to use higher grade material for our fixtures, keeping fire safety in mind,” said Ranjan, revealing investment costs. Various formats from the retailer area meant to optimize returns. “We have four company operated stores and two shop-in-shops in airports across India. We expect approximately Rs 10 Crore business from our airport stores in 2013-14,” he said expectedly.
Three of the company operated stores are in Delhi, two stores in the Delhi Domestic Airport and one store in the International Airport. There’s also a store in the Mumbai International Airport. William Penn operates in a shop-in-shop format at Hyderabad and Bangalore airports respectively.
It’s the same pricing strategy at both the city and airport stores, except for the T3 international store in Delhi which is a duty free outlet. Forthcoming plans include opening stores in the airports of Chennai and Kolkata.
Brands that make a Difference
Ever since its inception, the GMR Hyderabad International Airport Ltd which manages the Rajiv Gandhi International Airport (RGIA) at Hyderabad strategically aligned its retail space with the passenger profile. “We have a deep understanding of the passenger profile and their shopping behavior/need based on market research. It is for this reason that we have managed to get several firsts i.e Hyderabad Airport has been the first airport featuring brands like Mont Blanc in the domestic side of the terminal, Mochi – an attractive footwear store, Samsonite Black for premium luggage,” reasoned Ramesh Krishnamurthy, Chief Commercial Officer, GMR Hyderabad International Airport Ltd and added, “Mochi’s footwear sales have surprised us although we were always confident that footwear is fast becoming an impulse category – it is the quality of merchandise and local flavor which works well. Likewise there is a clear segment of “understated luxury” travelers at Hyderabad and hence Mont Blanc works well for domestic travelers in comparison to other luxury brands.”
This merchandise mix caters to the passenger volume, whereby the daily domestic departure is 12,000, and daily international departure is 3,000. Notwithstanding that, RGIA records a daily footfall of around 30 k. Over and above the passengers, the airport has a large number of visitors and also the airport community itself which makes the daily footfalls at the airport at almost 50 k per day.
Overall the best performing retail categories at the airport are confectionery, beverages, electronics, watches, footwear and fragrance showcased through a mix of high frontage stores and kiosks. The large stores of 400square feet-1,200 square feet work well in terms of the brand experience they offer, and the branding opportunities that lie therein.
Whereas the kiosks formats offer fast moving impulse items with low average ticket value. “With air traffic and occupancy increasing, airports are become an ideal destination to cater to the time bound individuals with high disposable income. Apart from sales, these stores are also a great branding medium,” said an official spokesperson of Mochi.
The footwear brand has a stand-alone store at the airport. “We have kept a simple and open entrance which is more inviting to the travelers. Designed for travelling customers, the outlet has a clean display of the shoes in the shelves that facilitate easy browsing. Additional focal point created at the entrance to enhance new arrival and exclusive merchandise. The outlet is expected to generate annual sales to the tune of Rs 3 crore,” added the spokesperson.
RGIA is exploring newer formats, like retail carts/pop up stores which sell impulse merchandise in the gifting segment like candles, organic food or health products. The airport is working on an assortment of brands which can engage with the customer, educate him/her and create interest through sampling or live demonstrations.
Work at RGIA is in full swing. “Our priority is to complete our International Terminal modification in the first half of 2014. This project materialized after we saw the success of our domestic terminal modification which was much appreciated by both passengers and retail partners. We will also be prioritizing the project on smaller format shops,” explained Krishnamurthy.
Travel Retail, still a Challenge
Airports are a concentrated hub of various cultures, gender, age groups and ethnic groups. The traditional understanding of airports are giving way to much broader, more encompassing concept known as the Airport City which has became the 21st forward for many airports.
Any mainstream retailer would agree that airports offer multiple branding opportunities. It’s a platform to address a diverse range of clients. The challenge lies in the fact that most of them are extremely expensive which makes it difficult for many to invest in.
Other stumbling blocks unfold. Getting airport passes and the security clearance procedures are stumbling blocks that any retailer would face while operating in airports as opposed to malls and high streets. Sometimes it takes weeks for a new member of staff to get an airport clearance.
“Prior to important days and national holidays like Independence/Republic day, the security procedures are elaborate and sometimes we face delays in getting merchandise to the stores. We also face product restrictions where some pens are considered dangerous items because of their shape. Lighters cannot be stocked at our airport stores as well,” added Ranjan.
Yet, travel retail continues to fascinate both the retailer and consumer as well. “Airports need to be designed to be more retail friendly. Most of our airports in the country today are not so. Also airports need to keep in mind that retail stores are a service for air travelers and build retail spaces accordingly,” summed up Ranjan.
*This article was originally published in the March 2014 issue of IMAGES Retail.