"Sky Harbor's Terminal 4 tripling its retail space"

Sunday, March 13, 2005

Terminal 4 tripling its retail space 
Shops add opportunities for diversity of ownership
By Yvette Armendariz
The Arizona Republic


The hottest retail center in the Valley doesn't have a Tiffany & Co., Ralph
Lauren or Louis Vuitton. 

But shoppers just can't seem to pass up the goodies sold inside Sky Harbor
International Airport's Terminal 4. There, stores hawking T-shirts, books
and gum, raked in nearly $1,689 per square foot in 2003. Ritzy malls
Scottsdale Fashion Square and Biltmore Fashion Park pulled in $520 and $490
per square foot, respectively, during that same period. 

The sales volume make the airport's retail space a hot commodity for
businesses large and small. Not counting food, Terminal 4 retailers pulled
in a healthy $28.4 million. One 400-square-foot newsstand rang up nearly
$1.6 million.  

The airport is tripling its retail space, sparking fierce competition to get
into Terminal 4, the airport's busiest terminal, serving America West and
Southwest. Airport officials also want to be sure the ownership of the new
shops is diverse.

"We're pretty much sorely underserved," said Paula Kucharz, business
development manager at Sky Harbor. "The additional retail was to make a good
dent answering passenger needs."

Airport administrators nationwide are making the investment to spruce up
retail offering for two reasons. They want to satisfy customer shopping
needs and meet federal goals for contract diversity that come along with
federal funds. 

"Airports know they are part of the community and they want to be an
economic engine to the community," said Pauline Armbrust, publisher of trade
publication Airport Revenue News. 

At Sky Harbor last week, four stores opened. Twelve other stores, awarded in
phase one, should open by summer. And a few restaurants, under a food vendor
contract, will open in the next few months. By next year, the airport will
have added 43 stores. 

Phase 2 is well under way. An additional 15 stores will be identified by
mid-May. Around the same time, contracts for 12 more stores will be out for
bid.

The goal is to bring highly valued concepts to the airport to boast revenue
to pay for shuttles, parking and flight monitors. Airport business
developers also want to make an impression on passengers and help them bide
their time after pushing through the long security lines that became the
norm after 9/11. 

Just move passengers

"Way back 20, 30 years ago that was never a consideration, the food and the
retail. They built facilities to efficiently process passengers," Armbrust
said. "Now every airport understands it (retail) to be an excellent revenue
source." 

Pittsburgh's airport led the changes. It brought in traditional mall
retailers to the mix, while still offering traditional gifts and newsstands.
Shops include Clinique, Brookstone, Bath & Body Works, Sunglass Hut and Nine
West. 

It remains the leader in pulling in passenger revenue. The average passenger
getting on a plane spent $10.08 in 2004, according to Airport Revenue News.
Sky Harbor ranked No. 16, at $6.89 per passenger. 

Pittsburgh taught the industry to be choosy for their passengers. So
airports began seeking out national brands from Godiva Chocolatier,
Victoria's Secret and Borders Books. Still, the mix needed need local flair:
gifts that offer a Southwest experience at Sky Harbor or the beach and
Hollywood in California. Plus, business-owner diversity was a must. 

"To simply have an airport full of national brands . . . misses a benefit of
what makes Arizona so great. . . . So we provide access to a spectrum of
businesses," said Paul Blue, Sky Harbor's deputy aviation director of
business and properties. 

"We think it's absolutely essential to have the local community participate
in what we do at the airport." That's why outreach to local small and women-
and minority-owned businesses is essential.

National brands

Food in particular has become brand-heavy. Passengers who may remember the
generic hot-dog stand now are bombarded with national franchises, from
Starbucks and Krispy Kreme to McDonald's and Pizza Hut. 

A third of airport food, beverage and retail concessions are owned by women
and minorities, Blue said. Some big local players include Pam Del Duca,
Bettye Jackson and Yolanda Kizer. 

But Blue wants to see more competition.

"We are concerned that we don't just have the same people that have done it
over and over and over," he said. But at the same time, the airport is
seeking a strong track record. 

The process of breaking into airport retail isn't exactly easy or cheap. The
money that can be made in some ways is misleading because operating costs
are higher. Moving merchandise through security checkpoints and paying for
employee background checks add up fast. 

Plus retailers can't just call a leasing agent and try to work out a deal.
They have to win contracts. Airport developers consider how the concept fits
with customer needs and the potential for airport revenue.

"Money is absolutely important," Blue said. "But we have to have a
high-quality experience for our customers."

Lease deals are based on a percentage of sales, which can make rents much
higher than malls and strip centers. Contracts will also guarantee a minimum
rent if retailers don't meet their sales goals put forth in their bid.

$10,000 deposit

Just making a bid on a contract will require a $10,000 refundable deposit,
known as a proposal bond, just to show you're serious. 

And beating big and experienced players can be tough.

Even though the airport was seeking diversity, Christopher Payne worried
about his chances to break into what could be viewed as a close-knit system.

But instead of retreating, Payne decided to seek out longtime airport
retailer Bettye Jackson, who operates Jackson Airport Enterprises, for help.

"She might have been one of the most valuable resources," said Payne, who is
opening two Pass the Popcorn shops. "We talked about what was important to
put in the proposal . . . what the city might be looking for . . . whether I
should pursue it from based on revenue and time.

"Without that, it would have been very intimidating."

The airport retail scene is dominated by large operators such as the
Paradies Shops and HMSHost. But those outfits are increasingly looking for
minority and women to partner with them so they too can meet diversity goals
imposed by airports.

Sky Harbor developers spent months identifying concepts that could generate
more sales in Terminal 4. Even as busy retailers are in Terminal 4, sales
aren't nearly where they could be with more retail. Now sales per enplaned
passenger -an industry standard for airport retail - stand at $6.85,
including food, according to Sky Harbor data. In Terminal 3, which a few
years back got a retail makeover, sales for every passenger getting on a
plane climbed to $9.56.

Popcorn shop books airport slots 

Christopher Payne hadn't given airport retail a thought when he opened his
gourmet popcorn shop 2 1/2 years ago.

A friend pointed out the retail opportunities opening up in Terminal 4, the
busiest at Sky Harbor International Airport. He would have a captive
audience. Nearly 14.5 million people got on planes operated by America West
Airlines, Southwest Airlines and others in 2003. 

He thought it was a long shot.

"At the time, I was concerned we were a fairly new business and (thought)
the airport wouldn't want us," said Payne, president of Pass the Popcorn in
Phoenix. 

The 479-page document outlining what airport developers were seeking was
intimidating. The $10,000 deposit just to bid would create havoc for the
company's cash flow.

Then there were the logistics. How would they move merchandise past security
in a timely manner and find employees willing to deal with security and
parking hassles daily? 

Another concern was construction costs. He had heard the average investment
was $200 a square foot; that would mean $60,000 for the 300 square feet he
was looking at.

If he was discouraged, Payne found hope in the airport's historical retail
numbers. Retail sales for 16 stores occupying a mere 16,842 square feet of
space were $28.4 million in 2003. Looking at it in mall terms, sales per
square foot were about four times higher than many high-end malls. And even
with the setback in sales after Sept. 11, retail receipts have grown 19.3
percent since 2000. 

"It's a lot of money (to invest), but it was worth coming up with the money
(because) the potential is incredible," he said.

So Payne and his wife, Nina, made that deposit and invested an additional
$7,000 in legal, accounting and other consulting fees. In the end, the
gamble would pay off with two outlets.

He's still waiting to sign the lease but plans are for his first shop to
open within 90 days and a kiosk location to open by early 2006. 

"I think we did luck out," Payne said. "But we tended to have the ideal
concept at the right time as well."


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