BACK TO BASICS

Concentrating on the basics and keeping things simple can prove the catalyst for improved duty free revenues at airports, writes Paccaya Resource’s Andrew Ford.

Like so many of us, I often read articles promoting the virtues of improved retail ideas and increased non-aeronautical revenues, but where are the articles highlighting the real grass roots benefits of simple and improved retail standards in airport duty free shops?

Of course, at this or that conference, or in article after article we are all bombarded with target scenarios, including expanding the commercial environment with 100% passenger penetration, improving store design, sense of place, brand selection etc, etc.

But while these are all important initiatives, where are the articles highlighting, explaining and promoting the fundamental need for simple and sensible retailing standards?

After all, without these, then none of the scenarios touched on above – or many I have listed later – are likely to have any significant impact.

All of which is potentially problematic considering that the airport duty free business globally accounts for approximately 30% of the channel’s non-aeronautical revenues, which in turn account for an average of 40% of total airport revenues – excluding North America where car parking takes the lion’s share.

Considering this, it is very important to get the airport duty free business right, although much depends on the airport and concessionaire working hand-in-hand to maximise retail spends by adapting to different passenger profiles and numbers – and ensuring all partners focus on improving spend per passenger (SPP).

In fact, spend per passenger should be the key base measure point for all airport commercial managers, even though other yardsticks such as productivity per square metre, per FTE (full time employee) and others still remain very important.

Spend per passenger also needs to be specific and broken down by key nationality and product category (for example, fragrances/cosmetics; wines/spirits; tobacco; fashion; watches and jewellery; sunglasses/accessories; foodstuffs; and destination products).

While this is all hard work, the rewards are great, and the good news is that determining spend per passenger levels is not rocket science. All it requires is a simple division of the duty free concession’s total sales value by the number of departing international passengers (or arriving – where arrivals shops exist).

SPP can also be significantly improved via three main avenues; raising conversion (passengers buying product), increasing units per transaction, and of course, increasing the dollar value per transaction.

Regular monitoring of this data will allow airport executives and duty free operators to track progression and improvement levels and identify any areas that need attention early. Now, while some may question recommending such a basic, simple calculation, I make no apology for it, since I’m regularly surprised at the number of airport executives who do not fully understand or even use this key performance indicator (KPI).

Spend per passenger is the vital essential ingredient that every airport executive and concessionaire should know by heart if they expect to monitor, manage and improve financial returns from a duty-free concession.

Now we have reached the part where I’ll unashamedly promote my company’s ‘raison d’être’ and expertise in this area, using our team of approximately eight retail specialists who make up the Hong Kong-based Paccaya Resources Ltd.

These specialists concentrate on improving airport duty free operations by effectuating a commercial audit and implementing its recommendations, or by helping airports to assess and improve the potential value of their duty free space through a non-financial exercise that we call ‘ACP360’ (Airport Commercial Pulse).

After studying passenger profiles, nationalities, numbers, etc, the ACP360 exercise involves walking the commercial environment at the airport and examining a list of criteria to ascertain the opportunities for improvement by both the airport and the duty free retailer.

While it is difficult to cover all of the criteria in this short article, here are a few key questions we try to resolve positively for optimised key retail success:

– Does the airport and the retailer have clear and engaging communication with the key passenger nationalities to promote the duty free shops? Is the value proposition clearly communicated? Does this communication engage the traveller before, during and after the visit? Is the communication in the key appropriate nationality’s language?

– On the retail floor, is the assortment of categories and brands aligned with the nationality profiles? Product assortments must also make sense for the traveller. This includes relevant sizing, Stock Keeping Units (SKUs) highly demanded and marketed in their home country, and newness and sufficient stock availability in store.

These are important drivers of SPP, which also deliver an authentic experience. In addition, is pricing and value the centrepiece stating clear saving propositions and positioned for the customer to clearly and readily see? Here it is also very important to remember that value drives units per ticket, as well as dollar value per transaction and ultimately spend per passenger.

– Are SKUs intelligently and clearly priced alongside clearly communicated promotions which are easy to understand, and do they promote a value proposition? Also, what is the key brand strategy on the floor?

– At a staff level, is there a desire to interact with the customer to make the shop interactive and engaging? Additionally, and crucially, do staff possess the depth of product knowledge and ability required to up-sell and cross-sell?

Also, does the store impart an air of curiosity and interest to customers related to promotions and new product lines and is the floor team focusing on the kind for service that makes duty free retail a pleasurable customer experience?

–  Is the shop easy to navigate, or is it cluttered with product and particularly around the check-out areas? Are the categories well laid out and complimented by a good brand line-up by category which matches key customer nationality interests? Are the gondola units working hard to promote value and is the shop using technology to help the customer understand pricing with full transparency?

It may surprise some, but these are just a few criteria and to comply with all the above, and other positive and desirable standards, is seriously hard but nevertheless rewarding work.

This really does require minute attention to detail if the ultimately conducive retail environment is not just matching customers’ needs, but also helping to convert browsers into buyers.

Having said that, these are fairly simple retailing standards. When we work with airports, we also provide our assessment of observations and a prioritised list of recommendations for the commercial executive to review with the duty free operator.

These executives do a commendable job managing the range of businesses generating non-aeronautical revenues (F&B, advertising, parking, foreign exchange, etc) and often are not retail experts. It is here where companies such as ours offer solutions to quickly identify retail areas needing improvement.

Interestingly, the more airports we work on, the more we find lack the application of professional – yet simple – retail standards. Getting these right across an overall operation is our business, and the bottom-line benefits can be very impressive indeed.

About the author

Andrew Ford spearheads Paccaya Resources Ltd (www.paccaya.com), an ACI World Business Partner, which specialises in advising clients on how to improve their strategic direction and commercial performance.