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AIRPORT RETAIL AMONG HARDEST HIT

By Debra Hazel

Newark Airport’s The Museum Company in happier times. Airport retailers have had little to smile about lately.

In an odd irony arising from the Sept. 11 terrorist attacks on New York City and Washington, what may have been the best guarded shopping arenas in the United States — airport retail — are suffering the greatest declines in business.

The closure of airports in the days after the attacks and a subsequent drop in passenger traffic resulted in sales declines of 25 percent to 30 percent at many leading airport retailers in September. Business was also hurt by stringent security measures restricting the number of persons allowed at departure gates. (The retailers were already suffering from an already slowing economy.) Duty-free sales fared even worse, dropping 40 percent to 60 percent, according to Marjorie Brink, principal at consulting firm Leigh Fisher Associates, San Mateo, Calif. While passenger traffic had bounced back a bit by late October, the recovery of retail sales remained uncertain.

Last year passengers bought $2.3 billion worth of merchandise, food and beverages at the nation’s 25 largest airports, which represent the vast bulk of the airport retail industry, according to the annual Fact Book published by industry magazine Airport Retail News.

The greatest losses come from the drop in airport retail’s biggest customers: travelers and airport employees. Airports were shuttered for at least two days following the attacks, and airlines subsequently reduced the number of flights offered. Passenger miles in September 2001 dropped 45 percent from the same period last year, according to the Air Transport Association (ATA), Washington, D.C. By late October, flight loads were increasing, but had yet to reach precrisis levels, and most airlines were cutting staff, resulting in fewer employees working at the airport.

“In the past when we had a level 4 [security alert, such as during the Gulf War], I didn’t see a tremendous shift in business,” said Dick Dickson, president of Paradies Shops, Atlanta, which has shops in 57 airports. “Now it’s beyond that.”

Even those who are traveling may not be the shoppers they were before.

“Nervous passengers are not good shoppers,” said Richard Talbot, president and managing director of Talbot Consultants International, Toronto, which has made a specialty of airport retail. Perhaps not coincidentally, Dickson reports an exception to the trend — liquor sales have increased.

The next greatest loss comes from the ban on what the airport industry calls “meeters, greeters and weepers,” the nonpassengers who drop off or pick up travelers. Since Sept. 11, they can no longer pass security checkpoints, and thus cannot patronize shops located gateside. Bethesda, Md.-based Host Marriott, which manages retail at 72 airports, estimates that 10 percent to 15 percent of its business has been lost as a result.

Food and beverage sales appear to be the least affected, depending on the efficiency of the airports in processing passengers. Those with a smooth system often will have travelers with plenty of time left to eat; in fact, some sit-down restaurants located gateside have seen increased business.

“We’re seeing customers trading off from quick-service restaurants to TGI Friday’s or Chili’s,” said John J. McCarthy, CEO of Host Marriott. “On the retail side, we’ve seen a higher degree of capture. People are spending more.”

But most report that the slowdown in passenger traffic still outweighs the increased dwell time at the airport. In 2000, 72.4 percent of seats were filled; this year, the ATA projects that only 67 percent of airline seats will be occupied, rising to an estimated 71 percent in 2002. With airport shops expensive to operate compared with downtown or mall stores, even a 2 percent or 3 percent drop in traffic can be serious.

Specialty retailers in particular are concerned about the FAA’s mid-October restriction on carry-on luggage. With passengers allowed only one bag or package in addition to a small personal item such as a purse, many may be reluctant to buy larger goods they would be unable to carry aboard. But the saving grace for retailers may nevertheless be the passengers, who now check in much earlier to accommodate more elaborate security procedures.

“The trend toward shorter dwell time has been stopped in its tracks,” Talbot observed.

The FAA’s mid-October restrictions on carry-on luggage have left many specialty retailers concerned that passengers will be reluctant to buy larger items.

And another development could help some vendors: Some airlines drastically reduced or eliminated meal service following the atrocities, benefiting food and beverage vendors in the airports. At least one airline advised passengers to purchase food prior to boarding.

“Airlines are free to make their own rules regarding food service,” said Tim Lowe, vice president of airport business development for Westfield America, which manages retail at seven U.S. airports, including Reagan National. “Obviously, if they elect to do that, it creates an opportunity for us.”

Meanwhile, many airport retail managers have offered rent relief, in some instances waiving guaranteed rents for September, although not October. But airports are limited in what they can do: The closure and the slowdowns have affected nearly every source of revenue, such as car rental agencies, which pay rent to the airport.

“Airports are in a tough place. If they have outstanding bonds, they also have obligations to meet. Everyone is between a rock and a hard place,” Brink said. Even if business bounces back, some changes likely will be permanent. Cuticle scissors, nail clippers and other sharp objects have been removed from gateside stores, and food vendors stopped providing plastic knives.

Deliveries, difficult before because of security considerations, are now subject to even greater scrutiny, although newer facilities, such as Pittsburgh’s AirMall, utilize a central distribution facility, allowing faster searches of incoming merchandise.

“That’s been a lot easier,” said Mark Knight, regional director of BAA/USA, Pittsburgh, which also operates the retail at Logan International in Boston and Indianapolis International.

The configuration of the retail itself might also change: Eventually, more stores could be located landside to accommodate meeters and greeters, if the space exists.

“Prior to the attack, the focus was to be behind security,” said Deborah Kravitz, principal at Provenzano Resources, Sherman Oaks, Calif. “Now there may be more of a balance in the concession program pre- and post-security.” Some enterprising food and beverage merchants have been bringing carts with coffee and easily transported food items for purchase by those waiting to clear security.

But don’t expect too much growth in airport retail, at least for the time being; many airports are now reducing expansion plans. Los Angeles Mayor James K. Hahn has proposed cutting back a planned $12 billion expansion of Los Angeles International. Yet most believe, based on the improving passenger counts by mid-October, that the industry will find a new equilibrium. “Global commerce depends on air travel,” McCarthy said. “We will get back to people feeling comfortable.”

But while eventually airports, passengers and retailers may return to “normal,” U.S. air travel has been forever changed.

“We’ve got to understand,” McCarthy said. “Security issues are not going to go away.”

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