Airports No Longer Resemble High-End Malls As Luxury Brands Depart
Airlines Weren’t Alone in Feeling the COVID-19 Squeeze
Data shows over 4.6 billion passengers took to the skies in 2021, which is just around half the number recorded in 2019. It seems people are also buying goods at the airport less often. Duty-free business Dufry (DUFRY) reported a 44% decline in sales during its most recent quarter when compared to 2019, while retail concessions are down 75% at London’s Heathrow Airport over the past two-years.
Luxury brands consistently sought out space in airports prior to the pandemic, paying 20% higher on rent in some cases when compared to more traditional locations. Airport stores accounted for 6% of all global sales for high-end goods at that point. Travel retail sales in general had been on the rise at that point as well, increasing around 8% annually.
Luxury Brands Leaving Is Bad News for Airports
Analysts explain airports don’t have many options when it comes to boosting revenue. Leasing out terminal space to shops has been a key aspect of diversification away from aeronautical charges such as landing fees. Regulators tightly limit aeronautical fees in many markets.
Luxury goods in particular have been important for airport revenue, given that they generate high sales per square foot, and space is always limited. The higher costs for individual items is doubly significant because only two in every 10 passengers buy something at the airport, when drink and food sales are eliminated. The general decline of these sales is an unwelcome trend for airports, who face estimated pandemic-related losses of $310 billion by year-end.
The Declining Chinese Tourism Market
Since March 2020, Chinese shoppers have started spending more of their money at home. China Tourism Group Duty Free is now the world’s number one duty-free retailer by sales and has seen its stock double since 2020. Analysts say this is partly due to China’s government tripling domestic duty-free allowances in an effort to encourage such spending.
Before the pandemic, luxury brands such as Louis Vuitton (LVMUY) and Hermès (HESAY) were willing to pay high rents to secure space in airports and gain exposure to wealthy travelers. Market watchers say Chinese tourists were especially important to these brands. Now, Louis Vuitton parent company LVMH Moët Hennessy Louis Vuitton is reportedly focusing more on ecommerce sales, which partly contributed to record operating profit margins last year. Much like shopping malls and the impact of online shopping, airports could soon be headed back to the drawing board from a leasing perspective.
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