Consumer confidence is deteriorating, but one channel of retail that will continue to boom.
While many retailers around the world are suffering from deteriorating consumer confidence, there is one channel of retail that will continue to boom.
Airport retail is now the fastest growing sector after the internet. Despite reports of a global economic downturn, retail sales figures are increasing.
Driven by the rapid increase in air travel and major investment in new airports and facilities, sales at airports are exceeding expectations and the Middle East is a hotbed of opportunity for airport retailers.
Between 2002 and 2007, retail sales in the four key Middle East markets of the UAE, Qatar, Bahrain and Oman more than doubled from US$461 million to $1.2 billion and sales are set to double again.
According to the latest report from Verdict Research, a Datamonitor company, retail sales at airports will grow by 11% in 2008 to US$30 billion and it is the emerging markets of Asia-Pacific and the Middle East that offer the most exciting opportunities for retailers.
The clean slates of emerging market airport development provide huge scope for growth that is less feasible - physically or financially - in regulated and restricted mature markets, and this is now being taken advantage of by airport operators.
Increasing passenger numbers are a key driver with the strong growth witnessed over the last five years set to continue, particularly in emerging markets, says research company, Verdict.
"The key factors stimulating this growth are increased affluence, growing tourism, rapidly expanding airline networks and new routes, especially those of low cost carriers. The increase in business travel as a result of globalisation is providing a further boost to airport retailers," says Nick Gladding, lead research analyst and author of the report.
The Middle East has seen the fastest growth in passenger airport traffic over the last five years and will remain the fastest growing region over the five-year forecast period.
Between 2002 and 2007, retail sales in the four key Middle East markets of the UAE, Qatar, Bahrain and Oman more than doubled from $461 million to $1.2 billion and the report reveals that sales are set to double again, and reach $2.5 billion by 2012.
At the forefront of this growth is Dubai international airport, which recorded 50 million passengers in 2008. With the addition of a new concourse and terminal, retail space has more than doubled and with it, it brings a broader range of jewellery, luxury and fashion items than are already available.
As Dubai Duty Free headed into the last quarter of 2008, sales reached $780 million, a 27% increase over the same period in 2007.
Perfumes maintained the number one category as sales rose to $110 million, while sales of gold rose by 35% to reach $92 million from January to September 2008. Another notable increase was in confectionery, which rose by 36% with sales of $58 million.
Over the next 10 years Dubai Duty Free is expecting its sales to reach $6 billion and Colm McLoughlin, company managing director is more than optimistic for the company's future.
"In four years time retail space will reach 30,000m2 at Dubai international. Over this period we expect sales to double to just over $2 billion. By 2016 sales should exceed $4 billion and in 10 years our sales at Dubai international airport will be $6 billion."
McLoughlin is quick to add that currently Dubai Duty Free's profit is three times bigger than that of UK-based luxury goods store Harrods.
Other Middle East airport authorities are to upgrade their retail infrastructures too. A new terminal is under construction at Abu Dhabi, enabling it to compete more effectively against Dubai when it opens in 2010, while a third UAE airport at Ajman is due to open a year later.
Other Gulf states, most notably Qatar and Bahrain also plan terminal extensions that will include substantial retail facilities.
India also offers rich pickings for airport retailers. As a country that already has a strong trading culture and an international mindset, India is fast becoming a key market in global airport retailing with investment from international airport operators including the Swiss-based Nuance Group and Britain's Alpha Airports Group, now owned by Italy's Autogrill.India's emerging middle class, strong consumer culture and rising number of passengers -both domestically and internationally - will drive growth, experts believe.
The air travel market is being buoyed by the development of low cost airline carriers, as well as the reconstruction or extension of antiquated airports. Around 100 airport schemes are planned, following on from new airports in the key cities of Bangalore and Hyderabad that opened last year.
Low cost carriers are still in their infancy of development in India, but have huge potential to make air travel more affordable and increase footfall at airports.
India is fast becoming a key market in global airport retailing with investment from international airport operators, including the Swiss-based Nuance Group and Britain's Alpha Airports Group.
The thriving Indian economy will also boost demand for business travel, both within the country and internationally from western companies that outsource operations. Together these factors are expected to lift retail spending at Indian airports from $127 million in 2007 to $318 million in 2012.
Alan Brennan, regional sales manager for Nestle International Travel Retail explains how the company's partnership with Dubai Duty Free has evolved.
"Some 93% of Nestle's sales come from food and beverage and our product portfolio is very diverse. We sell everything from pet food, waters, nutritional products, ice cream and premium confectionery.
We are a global company and employ over 276,000 people worldwide. To bring the focus a little closer to home, Nestle International Travel Retail was first set up in 1999 and we have offices based all over the world, including Dubai.
Confectionery is a huge market for us in the Middle East, and KitKat is the region's number one snack brand. Smarties are our leading children's brand. Quality Street is also a strong regional brand.
Since pursuing a partnership with Dubai Duty Free we have seen some successful figures. In 2007, we doubled our business in comparison to 2003. In this region, our dried milk powder brand is something of a phenomenon and sales of Nido have been hugely successful.
Now we are seeing a 50/50 split in sales of Nido and KitKat in terms of our core business with Dubai Duty Free.
Last year we sold over 700 metric tonnes of milk powder, which is the equivalent of nearly 2 tonnes per day. Equally the figures for KitKat are even more impressive.
Last year we sold 6.5 million, four-finger bars of KitKat. With 34 million passengers passing through Dubai international, that means one in five bought a KitKat, or every minute we sold 12 units.
This shows the partnership has achieved great success, but we need to be adaptable. Economic changes, rapid growth and keeping up with the supply chain is constantly monitored, as is assessing our consumer profiles.
The product range has to be in line with new shopper profiles. In 2010 we predict that our core shopper profile at either Dubai international or Al Maktoum international will fit that of a blue collar worker travelling from annual or bi-annual leave.
However we also have to factor in that passenger numbers are increasingly made up of tourists in this region, both from the west and east. So our shopper profile is fragmenting. We have to assess if Nido and KitKat, fit the needs of our shopper profile.
Shopper profiles today show more impulsive buying behaviour. Around 70% of confectionery is purchased on impulse and brand owners and retailers can control this behaviour.
Trends are also changing and people have become more sophisticated. Sales of dark chocolate are increasing and consumers want more functionality from their confectionery.
All of this culminates in making our products a purchasing need to passengers passing through Dubai airport. We have developed a KitKat Destination Pack, which is 450g in weight and priced at US$10, which is a premium.
We make no apologies that it is a souvenir purchase for people travelling to Dubai. It has done well in terms of sales and has opened up new marketing channels for us with Dubai Duty Free.