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Shopping Centers Today -> May 2004
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FLOATING SHOPPING CENTERS?
Cruise industry, waking up to opportunity, puts more retail aboard ships
BY DEBRA HAZEL
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Hermès is just one of the designer boutiques that joined the world’s newest and largest luxury liner, the 150,000-ton Queen Mary 2 that Cunard launched in January. And other cruise lines are increasing their retail offerings too.
“It’s definitely an opportunity,” said Brad Ball, director of communications at the tony Silversea Cruises, Fort Lauderdale, Fla. “We have a captive audience, and people like to shop.”
For decades, when ships were the only method of cross-oceanic transportation, shipboard retail didn’t offer much more than an opportunity to replace toiletries or sell duty-free merchandise. Even when the rise of jet travel in the 1960s forced the cruise industry to convert from a leisure to a transportation business, the amount of space dedicated to retail on ships did not increase — even though shopping is the No. 1 tourist activity on land.
But in 1995 Harrods placed a boutique on the Queen Elizabeth 2, selling store-logo merchandise, including clothing and teddy bears, similar to that found in its shops at London’s Heathrow Airport. The idea especially made sense aboard the QE2, whose trans-Atlantic crossings entailed several days without shore excursions. And Cunard’s status as a luxury vessel made brand names more inclined to promote themselves to wealthy patrons. Yet, for years after, other ships declined to follow suit.
Steadily, however, space allocated on board to duty-free retail has been increasing as newer, larger vessels are launched. Queen Mary 2 has about 5,000 square feet of retail, roughly one-third more than its sister ship, the QE2, says Poul Norregaard, Cunard’s corporate manager of shipboard revenue. (The Queen Mary 2 is taking over the QE2’s trans-Atlantic route as the older ship takes on European and Caribbean trips.)
And the Queen Mary 2 will have more of a mall feel, with freestanding Chopard, Dunhill, Hermès and H. Stern shops. Harrods will not have a boutique of its own, but it will have counters within a store on the new ship.
Whereas shipboard retail used to consist of logo merchandise, toiletries and duty-free alcohol and cigarettes, today’s vessels now offer a greater variety of apparel. Other items are being expanded too, including fine art, crystal and sculpture, says Silversea Cruises’ Ball.
“We have items that cost well over $100,000,” Ball said.
More passengers are shopping on the mass-market Carnival Cruise Line ships too, says Rob Norris, CEO of Starboard Cruise Services, which oversees the retail operations aboard Carnival ships. The amount of retail on ships in the Carnival line ranges anywhere from 500 to 8,000 square feet, depending on the size of the ship. A typical ratio is 3 square feet per passenger, says Norris.
Carnival Cruise is also improving its retail space on older vessels, Norris says, though that’s a challenge because space is tight.
“Carnival has a great retail potential, and we are now refurbishing the shops on its Fantasy ships [a line of smaller ships for lower-budget trips] in order to create a more open and light atmosphere and offer more space to the jewelry department,” said Norris.
In addition to the retail concessions of Carnival Cruise, Miami-based Starboard also operates the retail for AIDA, Costa Cruises, Cunard Line, Holland America Line, Ocean Village, P&O Cruises, P&O Cruises Australia, Princess Cruises, Seabourn Cruise Line, Swan Hellenic and Windstar Cruises.
At first glance, making the shift from land-based to shipboard sales would seem fairly easy. Certainly the managers of land-based malls would salivate at the thought of locking their shoppers in a mall with an ocean-size moat. But there are logistical hurdles.
“There’s an awful lot to running onboard retail,” said Neil Harding, a managing director of London-based Harding Bros., which provides personnel recruitment, retail merchandising and other services for Cunard, Seabourn and other cruise lines.
Stocking enough merchandise is one problem.
“Going around the world is an enormous challenge, and you can’t afford to hold three months worth of stock,” Harding said. “But you also can’t afford to run out of toothpaste or Chanel No. 5. You consistently have to resupply.”
Customs regulations are a challenge too, particularly for vessels that visit more than one country, or more than one continent, he says.
For whatever reason, retailers haven’t exactly been clamoring to get on board.
“We don’t have boutiques on ships at all, nor do our current plans call for any,” said David Bouffard, a spokesman for Akron, Ohio-based Sterling Jewelers, a division of London-based Signet Group. “Our core competency is in regional malls.” Sterling operates nearly 1,100 stores in the United States under various brands, including Kay Jewelers and Jared.
Several other major U.S. chains either did not return calls or declined to comment for this article. As long as there are opportunities on land, it seems that space on the sea will have to wait.
“It’s fair to say that retailers are not imaginative in terms of marketing and other venues,” said Walter Levy, a managing director at New York City-based consulting firm Kurt Salmon Associates. “And unless you have an awful lot of cruise ships, there isn’t the critical mass.” Levy says he consulted with a cruise line three or four years ago about adding retail stores to its vessels, but the plans fizzled.
As things stand, shipboard retail is much more comparable to a floating department store, in which manufacturers rent boutique space within a larger store, than to a floating mall. Cruise lines hire outside experts to create a merchandise mix that will appeal to their demographics. Deals typically run about five or six years, with manufacturers required to pay base rent plus a percentage rent on sales.
Retail remains a small component of shipboard revenues. According to industry giant Carnival Corp., the operating entity, fiscal 2003 passenger ticket sales totaled $5 billion, with onboard revenues (which include drinks, casino revenues, excursions, and spa services as well as retail) amounting to $1.4 billion. (None of the cruise lines would give figures for retail sales alone.)
The majority of onboard dollars are spent at the bar, says Cunard’s Norregaard; casinos likely come next, with retail taking third or possibly fourth place as spa services increase.
The cruise industry hasn’t yet arrived at the point where it tracks retail transactions on a per-square-foot basis. Retail dollars depend on the passenger profile of the ship, industry experts say.
“Sales vary greatly from ship to ship, depending on the size of the shops, the number of passengers carried, the number of days at sea, the number of ports visited, the quality of competitive retail in each port, the socioeconomic class of the passenger and the marketing help afforded by the cruise lines,” said Norris.
But the importance of onboard revenues will probably increase, observers say. Rapid expansion has meant that the cruise industry has never been more competitive. Carnival alone has a fleet of 71 ships, including seven launched in 2003. This has led to a price war among most lines, even for the most upscale vessels.
“You pay less for a cruise now than you did in 1980,” said Buck Banks, a spokesman for Stuart Newman Associates, the public relations firm that represents Carnival.
With ticket prices declining, the industry must make up revenue out of the maritime equivalent of impulse purchases, whether at the bars, the art auctions increasingly held on board, or the stores.
“We see retail as a moneymaking stream that could be improved on,” said Silversea’s Ball. And this could in time draw traditional retailers.
“Eventually, I can see a cruise line trying to get a Bloomingdale’s on board,” said Norregaard. “I think that would be more the direction [than mall leasing].”
With one spectacular exception, perhaps. Freedom Ship International, a Sarasota, Fla.-based design and construction company, seeks financing for its Freedom Ship — a $9 billion-plus floating city that would include condominiums, hotels, a school, a library, a hospital, entertainment facilities, an airport and 1.2 million square feet of duty-free retail. Plans call for the vessel to circumnavigate the globe once every three years.
“This would be a cross section of not just America, but international retail,” said Lawrence S. Witko, the principal of the Milton, Mass.-based Witko Group, a retail real estate consulting firm (a consultant to the project). Witko calls it “an opportunity for retailers to show their merchandise worldwide.”
At 4,500 feet long, 750 feet wide and 350 feet high, the ship would be four times the length of the Queen Mary 2. It would accommodate up to 40,000 full-time residents, 30,000 daily visitors, 10,000 hotel guests and 20,000 full-time crew members. Some $100 million in seed money is already in place, and the shipbuilders are planning an IPO for this fall. If the offering is successful, the vessel could launch sometime in 2007.
But even if such projects seem fanciful, the idea of putting malls into existing ships should not be scoffed at, says Ian F. Thomas, chairman of Thomas Consultants, Vancouver, British Columbia.
“Who would have thought 15 years ago that you’d see airports built around a shopping center?” Thomas quipped. “Now more than 50 percent of airport revenues come from retail, and Westfield, among others, is doing airport retaking and making it a profit center.”
Turning upscale vessels into floating malls could be especially appropriate, he asserts.
“The consumer certainly wants something different,” Thomas said. “They want to buy something special, so it’s the Hermès, Pradas and Furlas that would be right.”
There’s at least one mall development and management firm considering cruise ships as a management opportunity. “We are always looking at new possibilities,” said Katy Dickey, the spokeswoman for Westfield America, which also manages airport retail as well as its own regional malls across the United States.
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