Owais Crawford
Airports are a lucrative opportunity for many companies, from small businesses to global luxury brands. With hundreds of thousands of people passing through each day, airports provide a unique, transitory environment that encourages spending. This has led to a shift in the types of companies placing stores in airports, with local, authentic food and beverage businesses, as well as well-known luxury brands, moving into airport retail spaces. The growth of airport retail is also fuelled by the fact that airports are often owned and operated by private companies or a combination of government and private funding, which means that retail spaces are accessible to a wider range of businesses.
| Characteristics | Values |
|---|---|
| Companies | Airport Retail Group, LLC, International Shoppes, Autogrill, Dufry, Duty Free Shops or DFS, Areas, LVMH, DFS Group, Uniqlo, Estée Lauder, Moncler, and more |
| Target Audience | Time-pressed but well-heeled travelers and business people |
| Benefits | Hundreds of thousands of people walk by, and a delayed flight can create a captive audience |
| Challenges | Bureaucracy, difficult to get into, complicated set of codes to crack |
| Opportunities | Quick returns, duty-free shops, high sales, a rare opportunity to connect with the younger generation of luxury buyers |
| Airport Management | A combination of local, state, and federal government |
| Airport Retail Sales | $44 billion in 2019, an increase from $79.24 billion in 2023 to $90.41 billion in 2024 |
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What You'll Learn
- Luxury brands are increasingly opening stores in international airports
- Airports are becoming a popular shopping destination
- Small businesses are attracted to the high footfall at airports
- Airports are run by government bodies and private companies
- Master-concessionaires bid for terminals and sub-lease to smaller businesses
Luxury brands are increasingly opening stores in international airports
For luxury brands, airport retail offers a rare opportunity to connect with younger generations of luxury buyers who feel intimidated by traditional physical retail stores. Gen Z and later are consumers who have deviated from traditional brick-and-mortar retail experiences, opting for more immediate omnichannel shopping experiences. Airports offer luxury retailers avenues for growth through innovative engagement tactics such as pop-up stores, dedicated spaces, and seasonal items, specifically targeting luxury travellers in business or first class.
The trend of luxury retail expansion in airports is evident worldwide, with North American airports like Los Angeles International Airport (LAX) featuring stores by renowned names such as AllSaints, Porsche Design, and Coach. However, it is not limited to North America; Schiphol Airport in Amsterdam is undergoing a substantial makeover aimed at redefining the luxury retail experience, with brands like BVLGARI and Louis Vuitton. Similarly, Aeroporti di Roma in Italy has intensified its focus on luxury retail, introducing 14 high-end fashion brands, including Golden Goose and Twin Set.
Asian airports have also led the way in luxury travel retail, with mega-airports like Dubai and hubs in Shanghai and Singapore offering enhanced infrastructure and premium experiences that attract luxury brands. European airports have followed suit, with Paris airports undergoing a major revamp since 2005, resulting in more spacious stores with desirable ceiling heights for luxury brands. Rome airport's retail strategy also focuses on luxury offerings, particularly for passengers flying outside Europe, as the spend per passenger for flights to China is five times that of other long-haul destinations.
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Airports are becoming a popular shopping destination
The airport retail market is experiencing significant growth, projected to increase from $79.24 billion in 2023 to $90.41 billion in 2024, a compound annual growth rate of 14.1%. This growth is not solely driven by sales, however, as airports are also becoming a way for cities to showcase their local culture and products, with local food, beverage, and craft items on offer. This provides an opportunity for smaller, local businesses to gain exposure and access a wider audience.
Large companies, known as master-concessionaires, often win bids for whole terminals and then sub-lease sections to smaller businesses. This allows airport management to streamline their operations and provides smaller companies with the benefits of working with a larger, more established company.
Luxury brands, in particular, are recognising the benefits of airport retail. The duty-free prices of high-end items can be significantly more affordable than purchasing the same product outside of the airport, avoiding international import duties. Airports also provide luxury brands with the opportunity to connect with younger generations of luxury buyers, who may feel intimidated by traditional brick-and-mortar stores.
With the combination of high footfall, a captive audience, and the unique buyer mindset of travellers, it is no surprise that airports are becoming a popular shopping destination.
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Small businesses are attracted to the high footfall at airports
Airports are bustling hubs of activity, with travellers from all walks of life passing through their gates daily. It's no wonder, then, that small businesses are attracted to the high footfall that airports promise. With hundreds of thousands of potential customers walking by their storefronts, small businesses at airports have a unique opportunity to reach a diverse and ever-changing audience.
Take, for example, the story of Sarah's Candies at Chicago O'Hare International Airport. Sarah Levy Imberman, the owner, has successfully partnered with restaurants at four different airports. Or consider Steve's Snappin' Dogs, a popular hot dog spot that opened at Denver International Airport. Keith Montoya, a partner in the business, was drawn to the high footfall, with 58 million passengers passing through in 2016. He acknowledged the potential for quick returns, especially with delayed flights providing a captive audience.
Similarly, CHALO Seattle, a small business selling Seattle-themed items like totes and socks, found success at Sea-Tac Airport. Owner Danialle An shared that attending a Dining and Retail training workshop gave her the knowledge and courage to apply for a kiosk space at the airport. Floret, a vegetarian restaurant at the same airport, has also thrived, seeing the same number of customers as its larger sister restaurant, Café Flora, located outside the airport.
Airports are recognizing the benefits of supporting small businesses. Programmes like Gateway to Growth and SOAR ATL at Hartsfield-Jackson Atlanta International Airport aim to educate and empower small businesses, helping them navigate the unique challenges of operating in a busy airport. San Francisco International Airport's Social Impact programme also connects small businesses to resources and contract opportunities, promoting diversity and inclusivity. These initiatives level the playing field, ensuring that small businesses can compete with larger companies and thrive in the dynamic airport environment.
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Airports are run by government bodies and private companies
Airports are hubs of activity, with travellers and commuters constantly passing through their doors. With such a diverse range of people, it's no surprise that airports are attractive locations for businesses. From small boutiques to popular franchises, many companies see the potential in the high footfall and diverse customer base that airports offer.
While airports are indeed run by government bodies and private companies, the stores within them are often operated by external businesses. These companies, like Airport Retail Group, LLC, manage a variety of retail stores and food and beverage outlets across multiple airports. They bring well-known brands to the airport, such as Starbucks, Subway, and Hugo Boss, offering travellers convenience and familiarity.
However, setting up a business in an airport is not without its challenges. Entrepreneurs must navigate a complex set of rules and a lengthy research process. The unique environment also presents unpredictable obstacles, such as flight delays or bird strikes, which can impact sales. Despite these difficulties, the potential rewards are significant, with a guaranteed stream of potential customers passing through the airport daily.
For smaller businesses, the challenge of standing out among the prominent brands can be daunting. However, some small businesses, like Sarah's Candies at Chicago O'Hare International Airport, have successfully navigated this challenge by partnering with restaurants and offering unique products. The high volume of travellers and the potential for quick returns make airports an appealing location for businesses, despite the hurdles they must overcome.
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Master-concessionaires bid for terminals and sub-lease to smaller businesses
Airports are attractive locations for small businesses due to the high volume of foot traffic and the potential for quick returns. However, setting up a business in an airport comes with its own set of challenges and a complicated set of codes to crack. The process of placing stores in airports often involves a bidding and concession system, where the airport authority or government agency aims to maximize revenue by leasing terminals to terminal operators or master concessionaires. These master concessionaires then have the option to sub-lease their spaces to smaller businesses.
Master-concessionaires play a crucial role in the airport's retail landscape by managing and operating multiple stores, duty-free shops, food and beverage outlets, and lounges. They acquire the rights to these spaces through a competitive bidding process, submitting tenders that outline their financial proposals and demonstrating their expertise and reputation in the industry. The awarding authority, such as the airport company or a public port authority, evaluates these bids based on various factors, including price, efficiency, and the ability to meet the needs of port users.
Once selected, master concessionaires become responsible for managing and sub-leasing the allocated spaces. They may choose to operate some stores themselves, especially if they have sister companies or established brands in the industry, as seen with TAV Airports and their management of duty-free and F&B outlets at Madinah International Airport. However, they also have the option to sub-lease to smaller businesses, creating a diverse range of retail offerings within the airport.
The process of sub-leasing allows master concessionaires to further maximize their revenue and provide additional services to airport users. It also presents an opportunity for small businesses to establish a presence in a high-traffic location, despite the challenges of operating within an airport environment. Sub-leasing arrangements can vary, with some master concessionaires choosing to sub-lease individual stores or groups of stores, depending on their business strategy and the demand from potential sub-lessees.
While the specific terms of sub-leasing agreements are not always publicly disclosed, they are typically governed by concession agreements or contracts between the airport authority and the master concessionaire. These agreements outline the rights and obligations of both parties, including the duration, fees, and any specific requirements or restrictions on the use of the leased spaces. By carefully structuring these agreements, airports can ensure that concessionaires meet or exceed environmental, social, and economic sustainability goals while also promoting competition and a diverse range of offerings for travelers.
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Frequently asked questions
Airports are often viewed as upscale shopping malls for affluent travellers and business people. Therefore, many luxury brands and retailers are leaning into placing stores in airports to meet luxury buyers. Examples include Dior, Gucci, Hermes, Saint Laurent, and Louis Vuitton. However, smaller local businesses and DBE's also have opportunities to place stores in airports by partnering with larger companies that win bids for terminals and then sub-lease sections to smaller companies.
Airports are one of the few places where e-commerce cannot compete with physical retail stores. Airports are also viewed by travellers as in-between spaces of constant renewal, creating a unique environment where the "tourist gaze" takes over, and buyers are less influenced by everyday stresses, rules, and pressures. This presents an opportunity for companies to capture the attention of luxury buyers. Airports are also becoming magnets for small businesses due to the high volume of foot traffic, with hundreds of thousands of people walking by stores.
Airports are typically owned and operated by government bodies, which means that information about airport retail, such as passenger traffic, sales, rents, and leases, is available to the public. However, it can still be difficult to access this information and navigate the process of placing a store in an airport. Companies that want to place stores in airports should consider whether they are willing to deal with the bureaucracy involved and the unique challenges that come with operating in an airport.
