MAHB set to future-proof airport retail

It plans to launch a nationwide commercial reset strategy at airports in response to growth trends based on data-backed insights

By MOHAMMAD NAZLI ABDUL AZIZ / Pic By TMR

Things are brewing on the retail front of airports. On its part, Malaysia Airports Holdings Bhd (MAHB) is moving forward by launching a nationwide commercial reset strategy at our airports to future-proof the total airport experience.

The idea here is to raise the retail profile of the airports, responding to growth trends based on data-backed insights and developing sustainable retail ecosystems. To begin with, let us see how airports generate non-aeronautical revenue.

The main types of commercial businesses that are viable at airports include duty-free retail, food and beverage (F&B) offerings, car park management, landside real estate and advertising.

We have projects in our own backyard, according to Mohammad Nazli (Pic by Ismail Che Rus / TMR)

Without a doubt, duty-free retail is still the most important player in the non-aero sector. At the same time, F&B is gaining popularity as “eating is the new shopping”. Everyone is now showing off what they eat through pictures online — be it in terms of value for money, food presentation or outlet reputation.

Consumers are now looking for more meaningful and memorable dining experiences. So, airports must step up their game by taking advantage of the passengers’ profile and bring in relevant F&B outlets that will meet the demands of the passengers.

Landside real estate business opportunities open to an array of possible projects such as airport hotels, office buildings and logistic hubs. They depend on a number of factors including land availability, airport capacity and connectivity options available within the area. It also depends on the profile of the airports, airlines and passengers.

We have projects in our own backyard. The Sama-Sama Hotel is located adjacent and linked to the Kuala Lumpur International Airport (KLIA). The hotel is connected by a covered sky bridge to the main terminal building which houses the arrival and departure halls, and is just a five-minute walk away.

The 442 luxury guestrooms and suites at Sama-Sama Hotel is the preferred hotel choice for transit air travellers with a few long hours in-between flights.

KLIA Aeropolis is another example. It spans more than 100 sq km of aviation, business and leisure space. With more than 1,300 flights across the Asean region, businesses within KLIA Aeropolis can reach more than 600 million consumers, and look forward to more than 20 township developments and double-digit population growth rates in the surrounding areas.

KLIA Aeropolis has three clusters — air cargo and logistics; aerospace and aviation; as well as meetings, incentives, conferences and exhibitions, and leisure.

Catalytic projects such as the Mitsui Outlet Park KLIA is an example of an enabler to drive tourism receipts. Advertising at the airport — the other non-aeronautical revenue earner — remains very much sought after by clients due to the traffic growth of passengers.

Revenue Numbers

Let us look at some statistics on the airport retail business worldwide. The global travel retail market is expected to reach US$125.1 billion (RM520.42 billion) by 2023 with its compound annual growth rate (CAGR) growing at 8.9% (2017-2023).

Since Asia Pacific is the epicentre for global aviation growth, the region would exhibit the highest CAGR of 11% (2017-2023) in the travel retail market.

The duty-free sales in the Asia-Pacific region is growing strongly, largely driven by perfume and cosmetics with a market value of US$14 billion in 2017, followed by wine and spirits (US$3.9 billion) and fashion and accessories (US$4.5 billion).

This is an opportunity for KLIA to be competitive among its peers. In 2017, KLIA sales stood at US$555 million, about a quarter of Singapore Changi Airport and Incheon International Airport sales, and one-third of Hong Kong International Airport sales. KLIA duty-free sales in 2017 were US$362 million with similar product categories that were sought after.

Changes in passenger buying behaviour are also forcing airports to rethink travel retail. Today, passengers are more informed than ever. They also have more buying options and demand extensive services.

As a result, airports need to disrupt their traditional retail business model. Some large airports are replicating their physical offers
into an online world. By creating a digital marketplace, airports can offer their customers personalised products and services, thus tapping into new revenue streams.

On the whole, the airport retail business remains dynamic as airport retail brands try to get their digital act together to compete with the digital moguls who are constantly at battle to steal business from the traditional setting.

Airports still have the brick-and-mortar stores as they contribute to the overall ambiance of the airports. Well, it’s glitzy, glamorous, cosy, hip and happening. At the same time, there are passengers who just want to get to the boarding gates right away and the airport retail stores are giving them all the stress by being in their way.

The revenue from duty-free sales is substantial. MAHB’s subsidiary, Malaysia Airports (Niaga) Sdn Bhd, operates the largest airport duty-free brand in the country, Eraman.

With Eraman as the retail arm, the company earns revenue straight from the sales generated. It has the privilege to be present at the international airports operated under MAHB. This opportunity creates better brand visibility.

By having its own duty-free chain, MAHB has the exclusive rights to sell high-ticket items like liquor and tobacco through Eraman. This helps to position Eraman as one of the major duty-free players in Malaysia.

Digital Era

As with most things, nothing is sitting idle.

The same goes to consumer buying patterns which have changed radically.

A survey conducted by mindset on some 20,000 passengers in 12 hubs showed that digital engagement prior to travel will capture 70% of duty-free purchases.

The survey suggested that 35% make their decisions at home before leaving for the airport, 10% decide at the travel destination before leaving for the airport, 6% decide on the way to the airport and 14% decide at the airport.

Airports and their retail brands will now have to embrace the digitalisation of travel retail to capture the 70% of purchases. How do we do this? We have to provide duty-free shopping information online as 40% would like to do online duty-free shopping before the trip.

At the same, the players will need to integrate online flight bookings with duty-free online shopping as 62% are motivated to visit duty-free shops upon receiving offers/coupons on their smartphones. Another key element is making available fast WiFi.

Moreover, by embracing digitalisation, airports and retail brands are also covering the demographic shift to the likes of the digitally-savvy millennials group, as they grow older and have larger pay cheques.

The digital era commands the passenger experience to happen both in and out of the airport. Hence, we need to be ready to offer consumers with options — shopping, facilities and services — both physically and online.

With these rapid changes taking place, retailers and airport operators will have no choice but to embrace the digital era. They need to recognise the changing demographics.

Accordingly, they need to provide engagement through both digital and ground activation activities, offer one-click micro services such as fast-track service and walk-in lounge access and F&B offerings. At this critical juncture, they need to transform from retailing to fulfilment.

Reset Plan Framework

At this juncture, MAHB shall undergo a commercial reset for its airports nationwide, starting with the international airports, with an aim to raise the retail profile at these airports and heighten passenger experience along its journey, prior to reaching the airport and during their time at the airport itself.

To achieve this, the reset plan framework covers these four phases in transition:

1) A benchmark and comparative study had been conducted with our peers to understand where we stand among comparable airports, and to strategise on the best way to move forward that touches on maximising revenue through optimal product category and brands positioning, creation of “Sense of Place”, increased awareness of Malaysian-made products and services, and improved contract terms and tenure for better return on investment and business sustainability.

2) As a gateway to Malaysia and a showcase of the best of Malaysia, the reset shall also raise the retail profile and become a platform for international businesses, and also an international platform for the best of local businesses, and shall be achieved via obtaining customer insights, brands collaboration with the airports, embracing disruptors via online businesses, bookings and e-payment methods, and learning and experiencing first-hand information through airport visits and benchmarking exercises.

3) To implement a new commercial format that takes into consideration individual airport positioning, product category zoning for better sales yield and a reformat of the retail layout to maximise footfall and leasing strategy.

4) Also to further explore other sales and communications channels by converging “online” and “offline” retail data across a single value chain, which shall involve the digitalisation of five key processes — customer, products, orders, payments and loyalty.

This brings us to the question as to what is the ultimate shopping experience for an airport in the future?

It is vital to understand shoppers’ expectations with regard to travel retail shopping today. Consumers, especially millennials, expect to see consistent brand execution both in-store and in the online environment seamlessly.

The online service should also offer browsing, pre-ordering, good and friendly payment solutions and fulfilment at the airport. With around 70% travellers checking out information about the duty-free shop online, a strong online presence is key to successful conversion.

By creating a digital marketplace, airports can offer their customers personalised products and services, and create long-term customer loyalty.

  • Mohammad Nazli Abdul Aziz is the senior GM for commercial services at MAHB.