|
|
Before 2020, airports boutiques hawking Gucci, Louis Vuitton, and other luxury brands were an integral part of traveling and made up 6 percent of luxury brands’ global sales, according to The Wall Street Journal.
Then came COVID.
Passenger air travel in 2020 shrank to a quarter of its previous year’s volume and 2021’s volume was 4.6 billion trips, just half of 2019’s, the Airports Council International (ACI) reported.
As a result, Dufry, one of the world’s biggest airport concession chains, reported that fourth-quarter sales in 2021 were only 66 percent of what they were during the same period in 2019.
Based on data from the first nine months of 2021, London’s Heathrow Airport was expecting only a quarter as much revenue from its concession businesses last year as in 2019.
Before 2020, airport concession sales were growing by 8 percent a year, the WSJ said, creating competition for space.
LVMH, Hermès, and similar luxury houses were willing to pay top dollar for space, especially in key international hubs where Chinese tourists would spend thousands between flights.
In return, airports could collect as much as half the stores’ sales, industry insiders reported, compared to rents downtown, which might average 10 to 30 percent of sales.
Those pricey airport storefronts sometimes generated as much as 30 percent of airports’ annual revenues, ACI figures show.
Now, by the end of this year, airports will have lost an estimated $310 billion in retail-related revenue because of the global travel lockdown.
Airports are limited in how much they can increase landing fees they charge to airlines, so airports are not able to offset retail losses by dramatically raising charges to airlines.
While U.S. domestic travel has returned to 58.5 percent of its pre-COVID volume, international travel at long-haul hubs such as Paris’s Charles de Gaulle airport or Dubai International has recovered only about 38 percent of its passengers.
Those terminals had invested heavily in fitting out luxury retail spaces that now remain largely empty.
If and when international travel returns, luxury shops might not be much better off.
Future travelers are likely to be younger and have less money to spend on high fashion, according to a report by Bain Capital. The study foresees business travelers and Chinese vacationers—both prime customers of luxury brands—declining in number by at least 5 percent.
The Chinese government is trying to persuade travelers to spend their mad money at home by tripling their domestic duty-free allowance, reflecting China’s policy of a dual-circulation economy (“China Announces “Dual Circulation Economic Policy,” 9 Sep 2020) and our “Top 2022 Trend” of countries moving toward economic self-sufficiency.
As a result, China Tourism Group Duty Free has become the world’s leading airport retailer by revenue. Its stock has doubled in value since 2019, while Dufry’s has been cut in half.
As their market shifts, purveyors of luxury goods such as LVMH Louis Vuitton Moët Hennessy are prioritizing China, not airports, as locations for new stores and are strengthening their online presences, the WSJ said.
TREND FORECAST: In the new Metaverse World, Business travel is unlikely to return to anywhere near its past volume, as we reported in articles such as “Bid Farewell to the Business Travel Economy” (29 Sep 2020), “Airlines’ Profits Crashing” (20 Oct 2020) and “HSBC Endorses Remote Work Model, Slashes Travel Budget” (14 Sep 2021).
And until or unless, government’s ease travel restrictions and do not demand vax passports, international travel, while bouncing back, will be well below pre-COVID War era levels, which will in turn keep downward pressure on airport stores of all varieties.