Think Tank • Andrew Gardiner
The Moodie Davitt Report recently introduced a new guest column, Think Tank, in which we invite alternative, fresh perspectives on the travel retail and aviation sectors. Our introductory contributor was Andrew Gardiner, Chief of Retail at Melbourne Airport and Chief of Launceston Airport in Australia. In this challenging article, Gardiner says that the hand-wringing over the airport concession model should stop. The model is not broken, he says, in a hard-hitting rebuttal of much of the retailer and brand conversation from recent industry conferences. In the next feature, industry consultant Keith Hunter addresses the theme and offers his own candid views on the business model.
I recently completed my seventh TFWA gathering in Singapore, which was a bit like ‘Groundhog Day’, writes Andrew Gardiner.
On the first day of the show, the first plenary session of the conference, my business (airports) was again in the firing line, as has been the case in recent conferences and forums we attend, and I am tired of it.
I heard the same at The Trinity Forum in Bangkok in November… “The duty free model is broken and has to be changed…”
Melbourne Airport’s new airside precinct, unveiled in 2017, is a prime example of how airport companies are continuing to invest heavily in commercial and operational infrastructure.
The TFWA plenary session panel was made up of three duty free operators, one retailer (by far the best speech of the conference in my opinion), one consultant and one airport commercial representative… (the thorn amongst the roses).
The subject, as always, was how we the industry have to change, because of change… but really, the plenary was just another opportunity for the duty free operators on the panel to air their views on how airports are charging too much rent.
I found this entertaining, given the recent announcements by some of the major duty free operators posting record financial results. Of course, CEOs of publicly listed companies, given the stage, will communicate potential ways to improve EBITDA – it’s their job to do so!
But I find myself bored to tears with the argument that continues to place the blame for the situation with the airports. Last time I checked, the OFFER for TENDERS has the retailer OFFER A BID for the right to exclusivity to serve millions of customers, growing at (in my airport’s case) about +9% per annum.
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The key words here are “offer a bid” and “exclusivity”. The airport does not demand or extort the rent from the retailer, hold a gun to their head, threaten to take their firstborn or hold them to ransom, quite the contrary. The duty free operators offer a number which they believe they can afford, and one, you would think, which will bring them EBITDA.
Unlike downtown retail, where department stores and shopping centres are doing it tough, generally, our duty free partners have little to no competition, and have a continually growing customer base.
The airport representative, an impressive speaker at the Trinity Forum, suggested that the industry needs to change, and that his airport is open to change… because the current system is too onerous for the retailers and Amazon is the elephant in the room.
Maybe he is right in his market, at his airport. I have no visibility of that airport’s retail numbers, but in Australia, retail sales and revenues are growing rapidly and have been for the past five years, on the back of continual passenger growth, both domestic and international, and continual capital investment in all the major airport’s infrastructure.
A thriving business: Travel retail still offers exclusivity, price and convenience, backed by exciting environments, notes Andrew Gardiner.
Do what you need to do to improve your numbers, and that might require a review of your financial structure with your duty free partner, but please do not purport to be a spokesperson for the whole industry. You can’t… one size does not fit all!
Some airports are state- or government-owned, some are privately owned, owned by consortiums of shareholders and some are publicly owned with shares traded on their respective stock exchanges.
Each has a different consideration level and return requirement. Each market is different with operating costs and profits varying significantly.
Over the past 17 years I have been fortunate enough to sit on both sides of the fence, bidding and losing tenders as a duty free operator, and then creating RFPs to take to the market from an airport’s perspective. To date I have not experienced anything but a positive response from duty free operators when an RFP is published, and not much has changed in 17 years with respect to the bid values.
Andrew Gardiner: “Good airports will work with their retail partners to agree financial outcomes that are acceptable to both parties”.
For the last seven years I have heard the same “It’s broken” message but, unsurprisingly, the tender process at many airports across Asia/Pacific have gleaned quite similar financial results.
I am not for one minute suggesting that all is rosy in retail land. It is clear that there are major structural changes afoot in the downtown space, for example. Many department stores and fashion boutiques of old have been usurped by shopping centres, and online providers, and no longer offer customers a point of difference. But those that offer continual newness/a value proposition and excitement continue to grow (think Selfridges and Primark).
Some traditional fashion retailers are doing it tough and some are doing well. Some online retailers are doing well and some not. We need to understand the specific reasons for success and address those.
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Capital gains: Robust passenger growth offers a strong underlying shopper base at Melbourne and other airports in Australia.
Recent research suggests that customers who purchase online do so for many reasons but three of the major ones are:
Travel retail offers our customers:
- Exclusivity: travel retail exclusives across the merchandise assortment.
- Convenience: dwell time of up to 100 minutes.
- Price: Duty free prices are still better than the High Street in Australia.
Let’s remain focused on the prize. Let’s develop more and more reasons for customers to buy in our stores – exclusive items and items that are of clear value to each customer we serve. All backed by exciting environments and prices that can’t be achieved downtown.
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Airports will continue to invest billions of dollars in infrastructure to accommodate the passenger growth on the back of successful route development, thus bringing more and more airlines to our cities. Retailers will invest tens of millions in store refits to continue to offer outstanding shopping venues, and good airports will work with their retail partners to agree financial outcomes that are acceptable to both parties.
We live in exciting times. Our channel continues to grow, our major duty free partners continue to grow and announce record profits; customer satisfaction levels continue to improve. Airports continue to invest capital to accommodate the growth that is predicted out of the burgeoning middle class in China and the sub-continent.
The model is not broken but it is prudent to continue to review our own specific businesses and to consider other financial models where appropriate.
There is no reason to be crying in our pretzels!
The Moodie Davitt Report • The Online Magazine • September 2018