Airport Shopping 2025 Constant Growth? The Only Winning Retail Location? Airport Shopping 2025, GDI Study No. 24 Part I of Future Shopping Locations 2025 StudieAirport_Umschlag_def_E.ind1 1 Daniel Staib, Erin Hunt Research Board: David Bosshart, Karin Frick, Chris Luebkeman, Duncan Wilson GDI Study No. 24 © 2006 31.8.2006 13:29:56 Uhr Imprint GDI Study No. 24 Airport Shopping 2025 Author: Daniel Staib, GDI and Erin Hunt, Arup Research Board: _GDI: David Bosshart, Karin Frick _Arup FII: Chris Luebkeman, Duncan Wilson © GDI & Arup 2006 ISBN 978-3-7184-7033-4 Address for orders Gottlieb Duttweiler Institute Langhaldenstrasse 21 CH-8803 Rüschlikon / Zurich Phone + 41 44 724 61 11 studien@gdi.ch www.gdi.ch/studies StudieAirport_Umschlag_def_E.ind2 2 31.8.2006 13:30:05 Uhr 3 Content Content Executive Summary 1. Introduction 11 1.2 What is special about airport shopping? 13 1.3 Airport evolution 15 1.4 What’s next? Continuous growth? 21 23 2.1 Overview 24 2.2 Social drivers 28 2.3 Technological drivers 31 2.4 Economic drivers 34 2.5 Environmental drivers 37 2.6 Political drivers 39 3. Four opposing futures 43 3.1 Scenario axies 44 3.2 Technopolis (A) 46 3.3 ChIndia world / Wal*martization (B) 50 3.4 Stay-at-home world (C) 54 3.5 Grey days world (D) 58 3.6 So, where are we heading? 62 4. Theses and strategies for the next twenty years 65 4.1 Will all airports be shopping malls in the future? 66 4.2 Polarisation 67 4.3 Escaping the global trap of sameness 71 4.4 The airport evolves into a destination 73 4.5 The future: Modular and flexible airports 75 5. Annex StudieAirport_Inhalt_def_E.indd 3 11 1.1 Why airport shopping? 2. Driving forces of change GDI Study No. 24 4 77 5.1 Preface 78 5.2 Project overview and partners 78 5.3 Methodology 79 5.4 Workshop facilitation 81 5.5 Workshop delegates 81 5.6 Sources 82 5.7 Imprint 83 Airport Shopping 2025 31.8.2006 13:40:22 Uhr 4 Executive Summary Executive Summary Airport shopping – a success story since the inception of commercial airports Airport shopping is a classic example of high-frequency retail. Airports provide a captive audience with known retail demographics and increasingly large volumes of customers. The exponential growth of customers is naturally driven by the exponential growth in air traffic and passenger numbers. Sales at airports seem destined to keep on expanding in the future. The captive clientele has been established due to the rules and regulations imposed by aviation industry. Check-in times, security checks, gate arrival times, transferring passengers etc. all define the buffering and movement of people through a completely secured and closed environment. The 24 hour nature of global travel also means that people are travelling through the airport machine at all times of their daily cycle: Breakfast, lunch, dinner, travel goods, health products, grooming services, leisure activities are available at all times. Airports are becoming like cities, both in size and complexity. Security is paramount at airports to both the traveller and operator of the system. There is an increasing expectation that authorities know who is in the airport and where at all times. A culture of fear is resulting in it being easier to track customer behaviour in the airport context, which is creating an increased level of knowledge about the airport retail experience. Airport authorities know who is there, where they are and, increasingly what they want. Thus, airport retailing is special due to the unique environment, the well defined customer base and the regulations that define airport operations. The challenge The challenge of the aviation industry is limitless growth. It is assumed that there will be more and more of everything everywhere, including travellers of all kinds. Will the global fleet grow to 35,300 passenger and cargo jets as projected? As an industry can we assume constant passenger growth? Or will growing anxieties about terrorism and epidemics reduce passenger numbers to a few at the very top who can afford luxurious and hyper-secure circumstances? These and other polarised drivers of change are included in the scenarios constructed and examined by a joint GDI-Arup workshop held on 23 March 2006 to challenge the conventional wisdom of the future of airport retailing. GDI Study No. 24 StudieAirport_Inhalt_def_E.indd 4 Airport Shopping 2025 31.8.2006 13:40:22 Uhr Executive Summary 5 Four scenarios and key drivers that will affect change Desk research showed that two of the most important issues for the future of airport retailing were passenger numbers and anonymity. A matrix of four scenarios was set up to describe possible models of our future world. One axis defines a continuum in which passenger levels increase at one end and decrease at the other. The second axis defines the level of anonymity in the retail experience from completely tracked and known at one end to totally anonymous transactions and individuals at the other. Each was developed to a certain degree of plausibility; each could be our future business environment. strong steady increase A) Technopolis B) ChIndia n Globalised economies induce ever more real and virtual business travel n Technological innovation drive global growth n Renewable energy sources fully tapped, energy efficiency is key for success n Mass migration has necessitated higher levels of security and identity screening n Asian influence; a shift in the world’s mental picture of east, west, north, south, developing and developed n The environment is in a bad state n Multiple identities to create a new anonymous n Increased global homogeneity increase demand for authentic cultural experiences State of the world State of airport and aviation industry n Air travel is a necessity. Not only flying is highly differentiated between low cost and premium offers, but so are the retail offers n Airports run at capacity limits: streamlined passengers flows, Fast track or no retailing at all n Personlised retail offers, experience and advertising total tagging and global digital avatars State of the world n A world governed with and by fear of terrorist attacks and the threat of another pandemic n The age of genetic incubation n Tracking welcomed and encouraged n Travelling has become a pleasant experience because there is plenty of room; no more queuing State of airport and aviation industry State of airport and aviation industry n n n n More airports rather than bigger (point-to-point traffic increases) Flying is more expensive and a mass affair Overcongestion of airports: lots of waiting, but little space for retailing Preorder, inflight and selling to passengers in lines win anonymity passenger personal C) Stay-at-home n n n n numbers State of the world Virtual Business travel has 75% of the market Leisure travel strong, but reduced (fewer, but longer trips) Heightened security reassures those who do travel More one-to-one airport «desire based» transactions individual personal identity control D) Grey days State of the world n Climate change related emissions taxes and the exorbitant cost of oil have dramatically altered the airline industry n Lobbyists for privacy have won the day n Primarily the aged, the wealthy, the extremists who want to see the world through young eyes n Global marketplace continues to shape the world economy State of airport and aviation industry n Flying has become exclusive... again n Exclusivity: Super rich in private jets, mass travel in big planes n Big shift from airside to landside retailing slow global decline In addition to the known trends that continue to influence the daily business of airport retailing there are a number of macro and wild card drivers that will probably impact the world and airports (and travel) in the medium to long term. The trends are grouped using a STEEP framework (Social, Technology, Economic, Environment, Political). Ageing population – Demographic change is a huge trend everywhere in the world. In the western world the number of older citizens, shoppers and travellers will rise dramatically in the next 20 years. The newly retired "baby boomers" will keep shopping and travelling after retirement age. The current advances in the health sector will help keep this group going in the future. GDI Study No. 24 StudieAirport_Inhalt_def_E.indd 5 Airport Shopping 2025 31.8.2006 13:40:23 Uhr 6 Executive Summary A high percentage of "baby boomers" are very wealthy. For example, the "over 50s" hold 80% of Great Britain’s wealth. Travelling is increasingly recognised as a human right. More physically challenged or handicapped people travel as services and special products cater for their needs. "Design for all" is a business opportunity rather than a regulatory requirement. Other social drivers include: Increased self-indulgence, new family patterns, growing cultural diversity and an increased culture of gift giving obligation. The internet of things – Radio Frequency Identification (RFID) is an automatic wireless identification method, which stores data on devices called RFID tags. An RFID tag can be attached to, or incorporated into, a product, animal, or person...essentially anything. Such technology is driving an increasingly tracked world where physical and virtual worlds (and your persona in them) become blurred. Other technology drivers include: Changes in aircraft technology, people moving machines (e.g. walkways), personalisation and customisation and intelligent environments. Energy resources – The world will not run out of oil soon, but can annual production keep up with demand? The high oil prices of recent years are here to stay. For aviation there is no real substitute for petroleum. Efficiency will happen across the entire aviation industry, but fuel prices could drive up airfares resulting in fewer passengers. Other economic drivers include: The rise of Chinese tourism, increased disposable income, unequal distribution of income and the continued rise of low cost. Climate change – The big challenge for aviation is global warming (CO2 emissions). The share emitted by aviation is 3% today but growing fast. High-altitude emissions appear to be more harmful (Economist 2006), and as concern about global warming is growing, aviation fuel could be taxed to limit air traffic. Other environment drivers include: Fewer or no new airports, carbon trading and modular expansion / refurbishment plans. Immigration / security / terrorism – Security will become the airports’ most central concern due to terrorism and potential health hazards. Regulations will affect passenger numbers, as well as operations within the airport retail environment. Other political drivers include: Regional vs. national development, taxation, public vs. privately held airports and the creation of “airport states”. GDI Study No. 24 StudieAirport_Inhalt_def_E.indd 6 Airport Shopping 2025 31.8.2006 13:40:30 Uhr 7 Executive Summary The central challenges to airport retailing in the next 20 years These drivers of change raise a series of potential challenges that may be faced by the airport retail community. Key themes are listed below. Polarisation of passenger and customer profiles – The premium and discount segments of the aviation market may continue to grow over-proportionally in coming years. More of the very affluent will travel the world as incomes continue to polarise on both a national and global scale. Private jets, regular business class only, long-distance flight schedules and, at the other end of the scale, low cost, no-frills, short and medium distance travel will continue to increase. Polarisation of traffic – Globalisation, liberalisation and privatisation continue to drive the consolidation of the airport and aviation industry in coming years. We have already seen the consolidation of flag carriers beyond national boundaries. This will have an impact on the structure of traffic. Long distance traffic will be consolidated into very large hubs, while smaller hub airports will become less economically important. Smaller, specialised highend airports close to preferred destinations will divert a slice of the ultrawealthy from large-hub connections. Airports and their shopping will have to adjust to this shift and attract other customers when passenger numbers are no longer growing. Global hubs as the ultimate shopping malls – The shopping areas within these airport cities will become the shopping areas of the world. Major brands will build flagship stores at these hubs. As passenger numbers increase, these hubs will have to fight congestion on their shopping areas. Passenger / shoppers will get lost while shopping. Thus, the management of customer flows emerges as the central issue for maintaining both a streamlined and pleasant shopping experience and the operating efficiency of the hub. Shopping evolves continuously from today. Continuous growth, leading edge exclusivity and product range will be the key. Specialist airports – Focus and specialisation will be all-important for the smaller airports: Focussing on a specific customer need and setting up the corresponding shopping environment. The entire airport shopping landscape will become more driven by these specialised and probably very highend offers (gifts, but also personal luxury items). Examples include: the super-luxurious airport experience, the no-frills airport shopping malls or the fast, comfortable, convenient frequent fliers airport. The global trap of sameness – Airport shopping around the world is the same everywhere, regardless of airport location. One-time travellers want something different than frequent travellers. Putting the thrill back into airport shopping will be the constant challenge of the global market place. Every GDI Study No. 24 StudieAirport_Inhalt_def_E.indd 7 Airport Shopping 2025 31.8.2006 13:40:30 Uhr 8 Executive Summary successful new retail format will race around the world at jet speed. This will make it more difficult to escaping the trap of sameness in future. But some of the items travellers buy will be just the same. Here, the best response is to offer the best-selling global travel-related products. The airport as a destination – The airport is a destination rather than transit point. The role played by services in airport shopping will dramatically increase. The relatively new airports in Asia and the Middle East demonstrate this trend. Large scale airports are becoming destinations themselves, the leisure hub Dubai is inseparably connected to the airport feeding customers into this tourism hot spot. Smaller scale destination concepts – Airports become more like destinations on a smaller scale through the clever introduction of a service or a very specific and more exclusive focus on retailing. For example, health and beauty services, personal or collective events such as weddings and business collaboration environments. Future focus Constant growth of airline traffic and passenger numbers is the official future of the industry but should not be taken for granted. Many drivers exist that could derail predicted growth patterns. So which is the most likely scenario for 2025? The qualitative results from the study are shown in the figure below. Which is the most likely scenario for 2025? Number of votes of the workshop delegates strong steady 13 09 06 01 numbers increase personal anonymity individual personal identity control passenger total tagging and global digital avatars slow global decline Source: Arup & GDI-Workshop Airport Retailing 2025 GDI Study No. 24 StudieAirport_Inhalt_def_E.indd 8 The technology driven optimistic view of an expanding industry was most popular, but it is important to note the blurred boundaries between the quadrants. The ideas expressed in each quadrant are not exclusive to that category. Whether airport retailing in the future is about selling ever larger volumes of the same goods as today or implementing dynamic shopping strategies to reflect waves of customers arriving from different destinations, customers' expectations of products and services in airport retailing will continue to increase. Airport Shopping 2025 31.8.2006 13:40:30 Uhr