"Airport Retail Hoping for Takeoff"

Thursday, June 5, 2003

AIRPORT RETAIL HOPING FOR TAKEOFF
Womens Wear Daily


NEW YORK -- A decade ago, Pittsburgh Airport had the foresight to see beyond
bad coffee and newsstands to launch the mall-within-the-terminal model. The
airport attracted national chains such as Gap, Nine West and Clinique, and
gave captive audiences facing endless delays something worthwhile to do with
their time: shop. 

Many other airports in the U.S. followed Pittsburgh's lead, upgrading
amenities from shopping to food, with generally positive results. That is,
until Sept. 11, 2001. Then came other setbacks: the war in Iraq and SARS. 

Most airport concessions operators put a brave face on the challenges,
saying that traffic is beginning to bounce back and much of the turbulence
is over. 

"Traffic was off in the range of 30 percent and, in some cases, higher,
after Sept. 11," said Paul McGinn, president of Marketplace Development in
Newton, Mass., which manages the concessions at Philadelphia and LaGuardia
International Airports. "It came back relatively quickly in Philadelphia by
the end of the third quarter of 2002. LaGuardia has been a little more
impacted."

Spending at the nation's top 50 airports was $2.8 billion in 2001, according
to Airport Revenue News' 2002 Fact Book. The industry also judges an
airport's sales record based on sales per boarding passenger, with John F.
Kennedy International Airport in the lead with $9.50 per person. 

Among the spate of mall retailers rushing into terminals in search of
alternative revenue streams, not all have been able to adapt to the airport
business model. Stores are smaller and hours of operation are longer.
Buildouts are more costly and the logistics of moving merchandise through
security can add to operating expenses. 

However, the rewards can be substantial for those that do adapt. Many
airport stores produce $1,000 per square foot, according to Pauline
Armbrust, editor of Airport Revenue News. 

With 20 million to 40 million passengers passing through each of the major
commercial airports every year, there's plenty of traffic. By contrast,
malls typically get 15 to 20 million visitors annually. 

In a post-9/11 world, people are spending more time in airports, arriving
earlier to get through security checks. Prior to 9/11, 45 minutes "dwell
time" was the norm. Now travelers spend an hour and a half on average. 

The old adage, location, location, location, applies to airport real estate
just as it does to any other property, and stores situated beyond security
checkpoints are more desirable than those outside secure zones. 

"Passenger behavior has changed," said Armbrust. "People are anxious to get
beyond security and go straight to their gate."

LaGuardia entices consumers to shop outside secure zones by clustering
stores and restaurants such as the Metropolitan Museum of Art Store,
Sunglass Hut, Brookstone and New England chef Todd English's Figs eatery. 

Retailers at Las Vegas McCarran International Airport have noticed a dip in
spending in the past year, so some changed their product offerings. "Cost is
an issue, so they're bringing in lower-priced items and food and snack items
because airlines aren't providing food services anymore," said Judy
Tabimina, airport concessions manager. L'Oreal is set to open one of its
first airport stores, but hotel-themed shops such as Caesar's and Rio have
left the terminal. Still, the ubiquitous slot machines buzz to the tune of
$30 million a year. 

Westfield America, which operates concessions at seven airports including
Ronald Reagan Washington National, Dulles International, Boston Logan
International, George Bush Houston International and Newark Liberty
International, has put its marketing muscle behind airport concessions,
advertising in tourist directories, with bus-tour companies and on
billboards inside terminals. 

"We're up 2 to 3 percent over last year," said Tim Lowe, executive vice
president of development of Westfield. "People are buying more. We're at 95
percent of pre-9/11 levels."

Newark Liberty Airport overhauled its shopping areas two years ago, adding
60,000 square feet of retail space in Terminal C., where stores include
Kenneth Cole, DKNY, Brookstone, Johnston & Murphy, L'Occitane, Occhiali da
Sole and Landau Jewelry. Two D-parture Spas provide nearly round-the-clock
pampering, said Ann Freedman, retail operations manager, noting that the
spas are required to stay open whenever there's a flight departing. 

"We spent a fair amount of money on customer-service training," said
Freedman. "And we're adamant about street pricing. All Port Authority leases
stipulate street pricing."

Most concession operators try to strike a balance between well-known
national chains and local mom-and-pop shops that add interest and
authenticity to the mix. Denver International's Susan Vale Sweaters are
designed by Susie Vale, a former Mary Quant model, who has the products
handknit in the U.K. 

Perhaps the most upscale mix of shops can be found at John F. Kennedy
International Airport, where Clinique/Estee Lauder, Coach, Ferragamo,
Hermes, Shades, American Clothier and Bulgari operate stores. 

"The customer base at Terminal One is such that the high end sells," said Ed
Paquette, executive director of the terminal. "Even during the weak economy
the shops did well. We get mostly international passengers with lots of
discretionary income."

Paquette said that world events such as 9/11, the Iraq War and SARS had a
small impact on JFK retailers, noting that the airport houses international
carriers. "Europeans tend to fly where Americans will not," he said. "In
addition, most threats have been against American carriers."

As airports attract more high-end stores, they are finding that they need to
upgrade the surrounding environment. Denver International is working with
Smart Design, a Vancouver firm, to create a master plan with a "sense of
place" for the airport's concessions program. "We're creating the
architectural aesthetic and new design guidelines for concessions," said
Shaw. "We're trying to re-create the Colorado experience."

"This has been as dramatic a time as anyone can remember in the aviation
industry," said McGinn, "but despite it all, people are still traveling and
will continue to travel. The retail component of airports has been upgraded
in the last 10 years, so it's become the rule not the exception. We see it
as a growth part of the airport business."


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