Editor’s Note: The September issue of Airport Experience News includes a feature article on how luxury brands are repositioning amidst general decline in airport specialty retail. Below is an abridged version of the article. For full access to the article, please log in, subscribe, or check your printed edition of the September issue.
Consumer shopping habits have changed drastically in recent years, and this is particularly clear in airports.
“People can get anything they want, likely cheaper, at the press of a button now,” points out Alan Gluck, principal consultant for the global airports’ commercial service line at ICF. Because of this, he argues, airport retail outside of travel essentials has taken a substantial hit. “Specialty retail has cratered,” he says. “And luxury brands, if non-duty free, are along for the ride. The market for duty free luxury brands is much smaller now.”
David Bisset, executive vice president and chief development officer for Paradies Lagardère, similarly acknowledges the shaky ground that specialty retail, including luxury, is on. “Duty paid concession trends in North American airports are dominated by food and beverage, accounting for approximately 70% of passenger spending, followed by travel essentials at around 20% and specialty retail at 10%,” he says. “Airports continuously seek the most productive concession programs, often measured by spend per passenger or sales per square foot – in these metrics, luxury retail in duty paid environments struggles to compete with more productive sales categories.”
Bisset lays a lot of the blame on changes that occurred during and in the years since the Covid-19 pandemic.
“Luxury retail sales trends in travel markets have historically been driven by specific consumer groups, and in more recent times it was the Chinese passenger who was driving the luxury market demand,” he says. “The new post-Covid economic environment, characterized by higher interest rates, the strong U.S. dollar and increased inflation, has significantly reduced the Chinese consumer demand for luxury products,” he says.
Amber Ritter, CCO and managing deputy commissioner of the Chicago Department of Aviation (CDA), notes that Chicago O’Hare International Airport (ORD) has seen a reduction in luxury brand sales, and while some of this is due to the overall decline in concessions sales related to the pandemic, there are other factors at play that began even earlier than 2020.
Like Bisset, Ritter notes that the decline in demand from Chinese travelers has hurt luxury retail sales, but she dates this change back to 2016. “That was when the influx of Chinese travelers decreased significantly due to aggressive fare strategies by airlines like Hainan and China Eastern targeting China-bound routes,” she explains. “American Airlines also ceased direct flights to mainland China, further reducing the number of passengers from China.”
In addition, Ritter points out that the Chinese government imposing a 20% tariff on duty free purchases exceeding $750 USD in early 2017 had an impact, coupled with a strong U.S. dollar. And then specifically for ORD, the airport began a construction project in 2019 that directly affected luxury brands.
“O’Hare’s Terminal 5 – traditionally its international terminal – began a significant terminal expansion and improvement project, displacing some of the existing concessions, including Ferragamo, Mont Blanc and Armani.” These locations did not reopen after the project was completed. ORD is currently home to two standalone luxury retail locations – Brooks Brothers in Terminal 3 and Coach in Terminal 2 – though luxury brands have strong placement in the airports’ duty free shops as well as the duty paid concept Gallery ORD, operated by Hudson.
Still In The Mix
Rachel Parmelee, North American vice president of category management for luxury for Avolta, notes that the evolution of luxury retail in recent years varies market by market and depends on the specific airport and its traveler demographic.
“Generally, we’re seeing more multi-brand stores that offer travelers the opportunity to browse numerous luxury brands in a single unit instead of in separate, standalone stores,” she says. “The shift occurred with changes in consumer behavior; travelers want to make better use of their time.” Avolta offers a vast portfolio of luxury brands in both its Hudson-operated duty paid and Dufry duty free stores across numerous categories, including perfumes and cosmetics, apparel and accessories, watches and jewelry, wine and liquor, and private label goods.
“Having said that,” Parmelee adds, “there will always be certain high luxury brands that are more selective and will only consider certain mono-branded commercial environments that allow them to underline their luxury image and positioning among their perceived peers.”
Some examples of standalone luxury retail locations that Hudson operates throughout North America include a newly renovated Hermès boutique in Vancouver International Airport (YVR), Tory Burch in John F. Kennedy International Airport (JFK)’s Terminal 1, Longchamp in Dallas Fort Worth International Airport (DFW) and Hugo Boss in Los Angeles International Airport (LAX)’s Tom Bradley International Terminal.
Parmelee adds that there is “absolutely” demand for luxury brands among today’s travelers. “One of the recent changes in consumer behavior is that people are more willing to treat themselves,” she says. “There is oftentimes a reward mentality in travel, so consumers are inclined to indulge or purchase a gift. Offering luxury brands outside of duty free stores only increases their access to those brands.”
Dave Jones, deputy executive director of commercial development for Los Angeles World Airports (LAWA), says that the landscape for luxury brands at LAX has remained consistent over the past decade, with duty free serving the majority of luxury retail demand, particularly in the Tom Bradley International Terminal.
“In addition to duty free and duty free- affiliated spaces for Hermès and Burberry, LAX also houses retail spaces with standalone luxury brand concessions,” he adds. “These include standalone locations from Hugo Boss and Tumi in the Bradley Terminal, as well as Allsaints in the West Gates Concourse. In Terminal 2, travelers can visit the recently opened Larchmont Junction, which offers luxury brands like Louis Vuitton, Chanel, Dior and Gucci.” YVR currently offers standalone locations of several luxury brands, including Hermès, Cartier, Burberry, Bulgari, Chloé and Moncler, among others.
“In recent years, some brands, including Gucci and Bottega, have exited airport locations as part of their ongoing retail strategies,” notes Benedict Ma, director of passenger retail experience. “At YVR we recognize that there has been a shift in demand for luxury travel retail since 2020. While contributing factors to the travel retail shift vary, we can point to considerations such as frequency of trips, age and income of travelers, and origin and destinations as well as geopolitical and macro-economic factors.”
Many travelers and airports today are demanding more local representation in concessions – but industry professionals don’t believe this has played a part in luxury retail’s declining demand.
“Local and luxury brands cater to different types of customers,” Ma says. “At YVR, while we are working on enhancing local representation to best serve our community and align with our long-term engagement goals, this doesn’t minimize demands for luxury items. Our goal is to balance both, so we can meet the diverse needs and preferences of all our passengers.”
Paradies Lagardère’s Bisset points out that local brands typically have similar financial productivity to luxury brands. “Local representation is driven more by sense of place needs from airport stakeholders,” he says, “and therefore isn’t correlated to the recent changes we’ve seen in luxury demand.”
