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Travel retail: Cleared for take-off

Fashion retail is making rapid inroads into travel hubs as airports and rail stations invest to satisfy demand.

With the likes of Heathrow, Gatwick, Network Rail and Transport for London (TfL) ploughing investment into developing their retail offers, you don’t have to look far to see that travel retail is on the up. And with forecasts that the sector will grow 60% by 2015, it’s not hard to see why.

That activity is all too clear at Heathrow, which is set to open the doors to its shiny new Terminal 2 on June 4 next year. The airport attracted 69.9 million passengers in 2012 and generated retail sales of £1.7bn (20% of which was fashion) and sales per square foot well ahead of department store rivals at £2,782. So it’s little surprise that T2, which has 134,548 sq ft of retail space, received an average five tenders for each of its 67 store units. T2 will house concessions from the likes of Harrods, Burberry and Kurt Geiger, as well as John Lewis’s first foray into travel retail.

“With T2 we could see a change in attitude and strategy from fashion retailers to more encompass travel retail,” says Muriel Zingraff-Shariff, retail director at Heathrow.

On schedule : the retail area is under construction in Heathrow’s Terminal 2, due to open next year

On schedule : the retail area is under construction in Heathrow’s Terminal 2, due to open next year

She says the big players in the market value the international platform a large airport provides, as well as its 95% ABC+ passenger profile.

Thomas Pink has concessions in Terminals 1, 3, 4, 5 and will open in T2, and operates stores at St Pancras and Waterloo rail stations. “Internationally we are in a few US airports as well, so it is part of a global strategy,” says chief executive Jonathan Heilbron.

Cath Kidston has had a concession at T4 for four years, trialled kiosks and pop-up shops in T3 and T5 this year, and is set to open in T2. “We’ve seen a lot of success from them and they will be part of our retail strategy going forward,” says commercial director Chris McKendrick.

Martin Morgan, director at property consultancy Harper Dennis Hobbs, expects the sector to grow and says that while the Asian airports are strong, the UK’s airports are some of the best out there. “Being a bit more innovative, bringing in some new ideas, not just new retailers, but new ways of doing things, Heathrow does rank among one of the best,” he says.

Fiona Hamilton, retail director at property consultancy Jones Lang LaSalle, says airports have avoided the homogenised pitfall that many shopping centres have made, with a more bespoke offer. “Copenhagen Airport is one of
my favourite destinations because of its ‘Scandi cool’, which has been achieved through its unique design and local brand delivery,” she says.

Gatwick - which will serve about 35 million passengers this year and has retail space of 260,000 sq ft, which generated income of £123.2m in 2012 - is also going through a period of investment, following its acquisition from the British Airports Authority (BAA) by private equity firm Global Infrastructure Partners in 2009. Gatwick’s head of retail Spencer Sheen says £1bn will be spent on the airport by 2014, with retail space increasing 17% by the end of this year.
Gatwick’s South Terminal was revamped this year to the tune of £21m, with 11 concessions opened over the summer including Hugo Boss, Lacoste and a 6,000 sq ft mini Harrods department store, which brought brands such as
M Missoni, Michael Kors and Paul Smith to the airport for the first time.

New destinations: Gatwick’s £21m refurbishment of its South Terminal added luxury stores to its line-up

New destinations: Gatwick’s £21m refurbishment of its South Terminal added luxury stores to its line-up

“Travel retail is very important to Harrods as our customer base is increasingly international,” says Raj Assanand, Harrods director of business development. “The customer has not had the opportunity to shop luxury at Gatwick before and we saw a gap in the market. We are delighted with the initial results. The brands on offer at Harrods at Gatwick have been very well received.”

Gatwick will open 11 more shops before Christmas, with concessions from Superdry, Fat Face, Victoria’s Secret, Ted Baker, Snow + Rock, Mango and, at 4,500 sq ft, Zara’s largest airport shop. However, Sheen describes this as “the end of the beginning”. “What we’re planning now is the bigger expansion project for the North Terminal as well, which could see us add probably another 32,000 sq ft to 43,000 sq ft in terms of retail space, which in airport terms is significant,” he says. The airport, which Sheen says is forecasting a £90m investment for the North Terminal’s international departure lounge, will begin speaking to retailers about the development in January.

However, it’s not all about airports. Network Rail launched a vision for its station retail offer a year ago, with research commissioned for the first time to identify passenger profiles for key stations and brands then mapped against those requirements. The most notable facelifts have been those of Waterloo and King’s Cross, and the strategy appears to be working. Network Rail saw overall like-for-like retail sales increase 6.4% in the three months to June 30, while sales of accessories rose 8% and clothing 3%.

“With the opening of new retail space at King’s Cross and mezzanine at Waterloo it enabled us to broaden the mix of tenants and attract new premium brands into our stations, including Oliver Bonas, American Apparel and Thomas Pink, alongside more familiar names like Accessorize,” says Daniel Charles, senior category manager at Network Rail.

However, travel retail still has a long way to go. Given that the average dwell time in an international airport is just 116 minutes, travel hubs must embrace multichannel to maximise time spent in the airport.

“UK airports acknowledge the need for multichannel but they are still figuring out how to monetise it. And in part the answer lies on a closer partnership with the carrier who in many instances initiates the customer relationship and for a large part owns the customer relationship,” says travel retail specialist John Brooks, who advises retailers such as American Apparel.

Looking ahead he forecasts that airports may need to group airline carriers by terminal and create specific assortments around likely purchase motivations to maximise conversion. However, he says the benefits are clear: “Retailers are looking for growth and airports are affording entirely new markets, because they capture both domestic and international customers and effectively allow retailers to ‘soft land’ their brands in overseas markets.”

However, he adds that with 3 billion passenger journeys annually, which he says is the equivalent of about 20% of the entire global air traffic, Transport for London is the one to really watch, adding that it has the makings of a loyalty card with the Oyster card.

Retail is firmly on the agenda at TfL, which has hired commercial development directorate Stuart Anderson, formerly of Westfield and Marks & Spencer, at the beginning of this year. Anderson says: “Retailers increasingly come to me for solutions. We’ve got very restricted space but we’ve got high footfall and it is really them altering their proposition to help suit the environment, and technology is beginning to help them to do that.”

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