Summer 2006 Airport Retail
In 2000, Bruce McCorvey opened his first airport location for Miami-based Better Vision Group, which primarily sells reading glasses. Today he has three retail merchandise units, two at Ronald Reagan Washington National Airport and one at Washington-Dulles International Airport, and he’s looking to open a fourth in George Bush Intercontinental Airport/Houston.
“If you’re lucky enough to get into an airport, do whatever you can to stay there,” he says. Though travel was light right after 9/11, the airport market has recovered and foot traffic has picked up considerably, he says, adding that his company’s airport sales have grown every year since. At the company’s top location in Ronald Reagan Washington National, sales grew from $224,000 in 2003 to $285,000 in 2004 to $356,000 in 2005. At a second location in the same airport, sales were $179,000 in 2003, $223,000 in 2004 and $257,000 in 2005. “We’re up 10 percent this year,” says McCorvey, noting that in March revenue exceeded $35,000 in one location, a company record.
He attributes the steady sales growth partly to increased foot traffic and partly to his accumulating knowledge of what motivates purchases in airports. “People who fly are very educated consumers,” he says. “They expect the latest merchandise, so you have to keep up with all the new styles and products. You constantly have to reinvest in merchandise and pick up on what customers want. And what they want is a little different in every airport.” Across the board, though, there is one constant, he says: “A lot of people get up early to travel and they inevitably forget their reading glasses. What else do you do when you’re flying but read?”
Airport-based retail locations, particularly those that serve business travelers, are a natural fit for Neat Receipts, a Philadelphia-based specialty retailer whose marquee product is the “Scanalizer,” which sells for $199 and allows users to scan receipts and create custom expense reports. Neat Receipts opened its first airport location two years ago and now operates in four airports—Newark International, Washington-Dulles International, Hartsfield-Jackson Atlanta International and Dallas-Fort Worth International—and has plans to expand to seven in the near future. “Our sales keep improving,” says CEO and founder Rafi Spero, who notes that the company has driven sales by advertising in airline magazines.
Neat Receipts and Better Vision Group are not the only airport-based retailers with increasing sales. According to Pauline Armbrust, editor and publisher of the trade magazine Airport Revenue News, based in Palm Beach Gardens, FL, sales for specialty retailers in airports totaled $823 million in 2004, up 24 percent from 2003. (Total sales for all airport retailers were $4.1 billion in 2004.) Armbrust notes that travel fell off sharply following 9/11, but has rebounded nicely. “Travel is up 8 percent since 2003,” she says. “Most airports are back to above pre-9/11 levels.”
Heather Petrosky, specialty leasing manager for MarketPlace/Redwood, L.P., which manages the Philadelphia International Airport’s 35-cart “Philadelphia Marketplace” program, says passenger traffic in Philadelphia International is expected to be 34 million people this year, up from 28 million last year. “I don’t think there’s a poorly producing cart in our program,” says Petrosky. “If you’re not producing numbers at the airport, the problem is with your product or your staff. The traffic is definitely here.”
According to Stephen Freibrun, managing director for the Center for Airport Management, a Portland, OR-based research and consulting firm that specializes in creating concession plans for airports, the market has a lot of growth potential for specialty retailers of all kinds. He says airports “have yet to see the threshold in which adding an additional [specialty retail] unit or more square footage of retail space has resulted in level sales.”
The Center for Airport Management has completed a concession plan for Dallas-Fort Worth International Airport. With more than 200 food, beverage and retail locations, the program has been called the largest concession planning effort in the airport industry. After a year of testing up to 30 kiosk concepts, the airport launched its permanent program of up to 40 retail and 28 food/beverage kiosks throughout four terminals.
Airport retailers are not only proliferating, they’re also going upscale. Evidence can be seen in the merchandise offered by a wide variety of independent specialty retailers, as well as those sold by corporate-owned upscale retailers like Wolfgang Puck Gourmet Express, which sells quality food products, and Zoom Shop “robotic stores,” which offer iPods and accessories, as well as other tech gadgets. There’s no doubt that airport retailers “have become much more high-end,” says David Kellerman, retail manager for Cincinnati Northern Kentucky International Airport, which over the past four years has added more than 40 in-line stores to bring its total to 92, including Brooks Brothers, Johnston & Murphy, and Brookstone.
The value of the merchandise isn’t the only consideration when it comes to airport retail, he adds. “The average passenger with expendable income knows the value of his time, and he knows the value of Johnston & Murphy shoes, for instance,” says Kellerman. “If he can pick up something while traveling, he won’t have to go [shopping] over the weekend. It’s a time-saver.”
PGA Tour Shops does particularly well with leisure travelers, says Kellerman. “This store sells a lot of apparel,” he says. “We have a lot of flights to the Sunbelt. If someone is heading there for vacation and something catches their eye, they might buy it.”
Upscale retailers “do very well” at the Philadelphia International Airport, says Petrosky. “You will now find [in the airport] many of the in-line stores that you would find in an upscale mall.” But they’re not the only ones landing the sales, she adds. “In our program, sales are more than $1,000 per square foot, compared with $500 per square foot for the area’s highest-grossing shopping center.”
Among specialty retailers, the most successful concepts include reading glasses, language-learning CDs and city-specific T-shirts and souvenirs, says Susan Graham, division specialty leasing manager for Westfield Concession Management, Inc. in Newark, NJ, which manages the retail, food and beverage concessions in eight major airports and currently leases more than 50 RMUs throughout Boston Logan International, Newark International, Washington-Dulles International and Ronald Reagan Washington National airports. Expansion plans include a 10-cart program at George Bush Intercontinental Airport/Houston.
Computer and cellphone accessories and jewelry sell well in airports, says Graham. According to Armbrust of Airport Revenue News, other successful specialty retail products include pens, watches and sunglasses.
At the R&R-port
Recently, spas and sleep centers have entered the airport market, offering services to refresh and renew weary travelers. “We thought our main customers would be people with long layovers,” says Arshad Chowdhury, CEO of MetroNaps, based in New York City. “But to our surprise, we have found that people who arrive early at the airport also want to rest before they get on their flight.”
The company has a “sleep center” in Vancouver International Airport in Canada, featuring “sleep pods” that recline and create a semi-private environment, giving nappers “protective privacy” without customers feeling closed-in. Bose noise-canceling headphones enhance the experience and allow customers to dose off easily. The Vancouver airport location has worked so well that the company has plans to expand into US airports in 2006.
Once travelers get on a plane, they are trapped and want to be entertained. In Motion Entertainment, which resulted from the 2005 merger of two airport retailers, Altitunes and In Motion Pictures, is there to help. The company now has more than two dozen airport locations, mostly in-line stores and large kiosks.
In Motion Pictures bought Altitunes in January 2005. Altitunes, which started as a single kiosk launched by specialty retail entrepreneur Amy Nye more than a decade ago, was mainly a music company, selling CDs and portable CD players, which eventually added movies to its offerings. In Motion Pictures rented movies and portable DVD players, in addition to selling digital cameras, camcorders and DVD players. Now combined, all 50-plus locations are being re-branded as In Motion Entertainment.
Passengers can rent a movie on DVD, for example, at a kiosk in their departure airport, watch the movie while flying, and drop off the item in a drop box at their arrival airport, or use the company’s mail-back program. In Motion Pictures was “doing really well up until 9/11,” says Barney Freedman, the company’s co-founder. “Then we had to take a step back. But since the second quarter of 2002, people have come back to the airports and both businesses have grown in leaps and bounds.”
Armbrust of Airport Revenue News says that with each passing year “more and more airports are realizing that RMUs and kiosks are important in incubating small companies and testing out products.” At the Center for Airport Management, Freibrun agrees: “In general, airports can use RMU programs for incubators for local businesses who want to test out if the airport is the right environment.” Each new retail concept contributes to the overall energy of the specialty leasing program, boosting both the retailer’s and airport’s revenues. “By adding RMUs, airports will offer consumers greater product variety, which will increase spending,” Freibrun says.
Going forward, specialty retail programs will continue to expand in airports, predicts Deborah S. Kravitz, president of Provenzano Resources, Inc., a Sherman Oaks, CA real estate consulting company that develops and manages common area programs in a variety of high-traffic retail venues including airports. Her company is currently working with Los Angeles International Airport (LAX) on its concession program. The bottom line is that, “Airports want additional revenue and they want to offer travelers increased product offerings,” she says. Translation: airports want more specialty retailers with interesting products that appeal to the traveling public.
Airport-based specialty retail is a symbiotic relationship that benefits airports and retailers. Kravitz notes that as an airport-based retailer, “you have an affluent, captive audience that’s waiting around with nothing to do but shop and eat. They’re not cruising by you like they do in the mall—they’re surrounding you.”
Plus, retailers in airports have a new customer base every day, one with a definite impulse-purchase mindset. “No one goes to the airport thinking they’re going to buy a Brighton belt,” says Freibrun. “But if the airport has created a shopping environment, the travelers’ subconscious tells them ‘this is the place to shop,’ and if they see [a belt], they might pick it up.”
Though airport retailing can be financially rewarding, it brings with it some unique challenges, according to retailers and airport management. “It’s not like opening a cart in the mall,” says Kravitz. “Everything is more expensive because of security.”
Spero of Neat Receipts says it’s “difficult to find quality people to work for you” in an airport. Once a candidate is found, like all airport retailers, Neat Receipts must devote extra time and expense to obtaining security clearance for all its employees. (In addition to employees, all merchandise must clear security.) Because employees work beyond security checkpoints, they must each be badged, which according to Kravitz can cost about $100 per employee.
“It varies by airport, but the badging process can take two to four weeks,” says Graham of Westfield. “Managers must attend Issuing Officer classes and complete the application and fingerprinting before other employees can start the process. Our company works with new operators to help them with security background checks and badging.”
Because many airports are not located near residential areas, it might be quite a trip for employees to get to the airport—and once there, they might have to pay for parking. All of this translates to higher salaries. “If someone is considering working in the quick-serve industry, why work at the airport McDonald’s when you can work at a McDonald’s down the street?” asks Freibrun. “You have to help people make the decision to work in the airport by offering higher wages.”
“If people earn $7 per hour in the mall, I would probably pay them anywhere from $9 to $13 an hour,” says McCorvey of Better Vision Group. Corresponding commissions tend to be higher, too.
Chowdhury says MetroNaps’ airport employees often come from other jobs in the airport. “An airport is its own community,” he says. “Many people who work at one job at an airport move on to other jobs there.” He recruits at local colleges in addition to the airport itself. “A lot of times people who work in the airport will have friends or family members who are looking for a job,” he says.
Of course, the flip side of that “community” is a base of customers. MarketPlace/Redwood, L.P. advertises that retailers in its “Philadelphia Marketplace” program benefit from “a strong secondary customer base of more than 22,000 airline, airport and concession employees.” Other airports have even larger employee numbers and these employees do buy from airport retailers as they come and go each day.
Retailers who think they can charge higher retail prices to compensate for higher overhead have to think again. Airports require retailers to adhere to a “street pricing” policy, meaning that prices must be equal to (in some airports, within 15 percent of) non-airport local retailers. Airports began inserting street pricing provisions into contracts about 10 years ago. “The airport doesn’t want passengers to think they are being gouged,” because they’re a captive audience, says Armbrust.
Securing an airport location may take longer than some retailers expect. “It is best to start the process for bringing in a new business at least three to four months prior to the designated start date,” Graham says.
Once the business is up-and-running, specialty retailers can expect to spend a lot of time there. “Our carts are open from 7 am to 10 pm,” says Petrosky, speaking about the Philadelphia airport. “You might do half your day’s sales by 10 am, whereas in a mall, you don’t see much action until after noon.” Also, airport locations are open 365 days a year.
McCorvey says he puts in 60 to 80 hours in a typical week. “But it’s fun for me,” he says. “I enjoy what I’m doing. You get to meet so many interesting people—politicians, actors and people from all over the world.” Graham of Westfield puts it a slightly different way: “Operating an RMU in an airport is a great opportunity for small business owners to gain domestic and international exposure.”
It’s hard to imagine a better traffic pattern for specialty retailers than a location at the airport. Affluent crowds milling about your business, with nothing to do but shop and eat. The traffic starts early, changes all day and ends late. And each day brings an entirely new set of customers. Add to that a year-round secondary customer base of thousands of airport and airline employees, and you’ve got a recipe for retail success.
Airport retailing isn’t hassle-free but as many specialty retailers have already discovered, it’s worth the effort to be part of the dynamic and growing airport-retail industry.
Napping at the Airport
Traveling can be tiring, and sometimes people want to rest their weary bones on something more comfortable than a seat at a gate packed with other travelers. That’s why sleep centers are popping up at airports-to tap into travelers’ need for a clean, comfortable and quiet place to grab some shut-eye.
New York City-based MetroNaps, which has “sleep pods” stationed in the Empire State Building and in the city’s downtown financial district, also has a sleep center in Vancouver International Airport. According to chief executive officer Arshad Chowdhury, the company expects to open additional US airport locations this year.
In MetroNaps’ Vancouver airport location, travelers pay $15 Canadian for up to two hours of nap time in a pod. They set the timer and when nap time’s up, the pod wakes them gently using vibration and light, and the pod returns to the upright position.
MetroNaps has designed an Express Model sleep center specifically for airports. The center can hold anywhere from one to 32 sleep pods. Although the Vancouver location is fully staffed, the company’s new Express Model is unmanned and requires only temporary cleaning staff. According to Chowdhury, the unmanned model helps address some of the staffing challenges that airport retailers face. “In airports, there are peaks and troughs throughout the day,” he says. “Having a 24/7 automated center is the best way for us to make the model work.” That business model includes franchises. For specialty retail entrepreneurs who want to get in on the airport sleep center trend, see the “Article Resources” box for MetroNaps’ contact information.
New Concept Set for US Launch
Bico Pacific, the North American arm of Bico Australia, is seeking entrepreneurs who want to own their own airport-based Bico jewelry “concept kiosk.” The Bico line started as a hobby 11 years ago by two young entrepreneurs in Bondi beach Australia, and has turned into a successful brand of fashion jewelry now catering to 48 countries.
The Bico Australia unique tribal-inspired jewelry was first introduced to the US market in 2002. The company’s pendants, chains, bracelets, spin rings, key rings and mobile accessories now sell in hundreds of US stores and on kiosks and carts in major malls. The full line includes more than 2,500 items bearing 500 different symbols that have specific meanings in “old cultures around the world,” including Japan, Australia, the US and more, according to Bico Pacific’s President Josef Nahum.
Nahum says the “contemporary, unique and beautiful line of fashion jewelry along with generous profit margin has already proven a success in high tourism and high traffic locations,” including airport locations in Australia. The company’s new focus on US airports is designed to capitalize on that success.
“Bico Australia is suitable to airport costumers with time to kill or those who are in a hurry,” Nahum says. “The option to buy a meaningful gift-‘symbol-meaning catalogs’ are presented in every location-makes the buying process different and lovely… With the change of security procedures in the airports, travelers end up with more time to spend in the duty-free area waiting for their flights. Bico is the perfect place to spend their time and money.” For contact information, see the “Article Resources” box.
Zoom’s Robotic Stores Take Flight
Zoom Systems of San Francisco announced in February that within five years the company hopes to have 10,000 Zoom Shop “robotic stores” in airports, hotels and other high-traffic areas selling everything from iPods and accessories to printer cartridges and DVDs. Zoom placed its new systems in both San Francisco International Airport and Atlanta-Hartsfield International Airport (shown here) in April, 2005 and later announced that the Atlanta location had “set new revenue performance records.” For more information on Zoom Systems, see “iPod iPassion“.
Trade Show Takes Off
Airport Revenue News will hold its third annual Airport Revenue Conference at Shingle Creek Resort in Orlando, FL, Feb. 18-20,
2007. The conference provides a forum for airport professionals, concessionaires and consultants to come together to share ideas, network and learn new and better ways of doing things in the dynamic airport-retail industry.
The show includes an expo and educational sessions. According to Pauline Armbrust, editor/publisher of Airport Revenue News, there were 523 attendees at the 2006 conference, held at Caesar’s Palace in Las Vegas, representing a 70 percent attendance increase from 2005, when the trade show was first launched. For more information, go to AirportRevenueNews.com.
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