Dropping into the duty-free shop for a bottle of perfume or a last-minute gift has become a standard feature of the airport experience. In the post 9/11 world, with travelers arriving earlier and often spending more time at airports, retailers have capitalized, opening more concourse retail locations. In fact, airport retail has become so popular, some airport officials are looking into building full-scale retail additions, including big boxes as anchor tenants (see box on next page).
But the industry got a stark wake-up call in late August after London authorities broke up an alleged terrorist plot to blow up airplanes through the use of liquid explosives hidden in everyday containers. In the immediate aftermath liquids have been banned on U.S. flights. In addition most electronic devices are now forbidden for international travelers. Some retailers have seen sales fall between 10 percent and 15 percent after the liquids ban while others have been forced to shut down terminal locations entirely to reassess merchandising strategies. Airport retail experts, however, are looking for a silver lining, arguing that the bans could actually drive up sales for retailers with locations beyond security checkpoints since passengers now allow even more time when arriving at airports.
It's too early to say whether the bans will become permanent. According to U.S. Homeland Security Secretary Michael Chertoff, the new measures will be evaluated on a regular basis. This assurance is of little consolation to retailers like The Body Shop, a supplier of skin and hair-care products, which was forced to temporarily close half of its 14 airport locations in August because most of its merchandise could not be taken on-board. The Body Shop would not return calls for comment.
London's Heathrow Airport, one of the highest-grossing airports in the world, with approximately $900 million in annual revenues, has been hardest hit. The airport has instituted the most stringent restrictions as a result of the failed alleged attack. Immediately after the alert announcement on August 9, passengers on international flights were limited to the barest essentials. No reading materials or electronic devices (including cell phones, cameras, iPods or even car keys) were allowed.
Retail experts say it's too early to access whether there will be any long-lasting damage, but they are confident retailers will find a way to work around the new rules. At some airports, for example, like Los Angeles International and San Francisco International, the procedures have been changed to allow store employees to deliver purchased items directly to a passenger's flight, thus ensuring the items are legitimate.
Long term there is a chance more retail operations will compensate by moving their locations beyond security checkpoints. Alex Evered, senior account manager with U.K.-based retail, travel and leisure advisory firm Pragma Consulting, notes that he and his colleagues expected a spike in sales beyond the security checkpoints after the new antiterrorism measures took effect. Pragma Consulting works with airport operators around the world.
“In the first couple of days, we thought this would benefit retailers [with locations beyond checkpoints] because if you are traveling, you generally don't want to get on the flight without a newspaper or some kind of reading material,” Evered says. “But now the picture is murkier because at some airports they have loosened the restrictions. The problem is we are not quite sure how long this is going to last, so any predictions involve a certain amount of crystal ball-gazing.”
Pauline Armbrust, president and CEO of Airport Retail News, an industry newsletter, believes that retailers, airlines and airport operators will work together to come up with viable solutions for the problem. For example, newsstands that derive a large portion of their revenue from sales of bottled water can redirect most of their stock to post-security locations and sell smaller units so travelers can finish their drinks before they board flights.
“There is no way to get around the Transportation Security Administration mandate, but retailers' mentality has always been about how they are going to serve the customer,” she says. “If this will have a huge impact on sales, they will work with the airport on [new strategies].”
“There is also the possibility that as people will have a lot more time at the airport [because of extended security procedures], they will spend more, consume more food,” she adds. “It's a phenomenon that happened after 9/11 as well.”