Travel retail in rapid growth

Long waiting hours, increasing traffic, rising consumption levels, privatisation and growing retail industry has provided a successful mix to several top retailers to cash in on travel retail market.

Airport retail is the next wave of retail revolution in India with 126 operational airports, including 11 international, 89 domestic and 26 civil enclaves at defense airfields. India is home to thousands of railways stations having over 40,000 hectare excess land, 62 existing Delhi Metro stations and an equal number under construction, where the authorities concerned are planning to lease out their space for commercial as well as for retail use.

Captive consumers with high spending power

The Indian aviation sector is growing at 35 per annually for the last few years as against 9 per cent per annum growth witnessed globally. Modernisation plans of airports have been launched with a firm eye on the 2010 Commonwealth Games. With changes in airport security; passengers are now required to arrive early, consequently finding themselves with an average of two hours time to kill before departing. In a sense, they are a captive audience and one with real spending power as well.

According to IMRB International study, 71 per cent of travellers spend one hour or more in the airport complex prior to departure, while 75 per cent or more spend at least 30 minutes post arrival and 42 per cent of airline travellers frequently make purchases at stores or restaurants within the airport.

Air travel and glamour have long been stablemates and the aviation industry is working hard to ensure that the channel maintains its reputation for glitz. Commercial activities such as office space, car parking, food and beverages and retail represent 60 per cent of the total turnover of the airport.

Duty-free retail

Duty free is the biggest potential revenue generator for retailers and airport operators. Indians on an average spend $440 at duty-free shop, which compares well with $590 that they spend on non-duty-free shops at travel destinations, according to a study conducted by the Tax Free World Association and Travel Retail Association. The five core categories of duty-free merchandise include – perfumes and cosmetics, luxury goods, wines and spirits, tobacco products, confectionary and fine foods –the first category was the largest sales contributor at 35.8 per cent or valued at US$ 5,042.3 million last year.

Airport retail modernisation, upgradation

Retail space accounts for 18 per cent of the total real estate space projections with approximately 78 million square feet of real estate space across retail, commercial and hospitality expected by 2015 with the modernisation and upgradation of 47 airport projects.

Most of this supply is concentrated at tier-III towns and cities with tier-I locations accounting for 34 per cent and tier II cities for 23 per cent of the total. These projects cover a total of approximately 40,000 acres of airport area, according to Cushman and Wakefield, Airport Realty Report. Retail sales at airports bring in an average of $1,137 per sq.ft.

According to the AAI, Mumbai airport, the country’s busiest terminal, recorded traffic of 14.9 million domestic passengers between April 2006 and March 2007, signifying a 21 per cent yearly growth. Delhi airport, on the other hand, recorded a year-on-year growth of 26 per cent, comprising 13.8 million domestic passengers between April 2006 and February 2007. Delhi International Airport Limited is planning an Airport Village adjacent to the proposed Terminal 3 for visitors coming to see off or welcome friends and relatives. The village will have a shopping arcade, cinema halls, fine dining; duty paid shopping and parking facilities.

Bangalore International Airport has 18 shopping stores common to both, domestic and international passengers with duty-free stores. Approximately 31,500 sq.ft of retail space and 9,000 sq.ft of food and beverage space is planned for the Bangalore International Airport after the initial phase of the airport becomes operational. Out of this, 4,500 sq.ft is planned for the arrival duty-free and overall investment in retail and F&B fixtures would be around Rs 30 million, said a Cushman and Wakefield study report.

Hyderabad, with its nearly 1.8 m sq.ft space, leads the retail space supply at new airports projects. Hyderabad Airport is set to handle some 12 million passengers annually and is in the process of constructing an airport village, where Shoppers’ Stop has bagged the contract to develop the retail space.

Brands beeline at airports

It is being felt that airports are a logical destination for fashion brands, which explains why brands like FCUK and Calvin Klein are on the threshold of opening shops in Mumbai, Delhi and Bangalore airports. The Nuances Group, in a joint venture with retail leader Shoppers’ Stop, is operating in retail and duty-free space. HMS Host operates a Kingfisher Sports Bar and restaurant. Besides there are delicacies available from ITC’s kitchens of India, Illy Café of Paris, Coffee Café Day and Coffee Bean and Tea Leaf. Alpha and Pantaloons are managing the retail space in the Delhi International airport.

Several other brands like Bebrueder, Heinemann, Dufry International, DFS Group, SSP, Oberoi Group, Pantaloon, Infiniti Shoppers’ Stop, HSBC Bank, Barcelays Bank, Airtel, Day, Croma, Tata Indicom, Baskin Robbins, Hard Rock Café and Gili are just a handful having strong presence within the privatised airports of Mumbai, Bangalore, Hyderabad, Kochi and New Delhi.

Croma has an 850-sq.ft store at Mumbai airport, where it retails laptops, storage devices like pen drives, portable DVD recorders, MP3 players, cameras and travel accessories, besides hair straighteners and dryers. Infiniti retail is attracting 300 customers and Café Coffee Day services 1000 customers per day.

Retail rental rates

The retail stores are leased to retailers with rentals varying between Rs 450 to Rs 1,200 per sq.ft. Reliable sources have commented that the Railway Ministry has flouted the tenders for retail space in its stations across the country and the highest bidder will given the space.

Retailing at Delhi Metro

Delhi Metro is the new travel retail destination in the country. Metro has become the lifeline for a traveller within Delhi. Delhi Metro has earned over Rs 500 crore between 2000 and 2006 from advertising, hoarding, kiosks etc. The DMRC is exploring options of starting duty-free shops, hotel, office and shopping spaces in the upcoming stations at the airport express link stations, subject to approval, to maximise its revenue.

Delhi Metro is planning to utilise the excess spaces available at its 62 stations at present for retailing and commercial use. At present, around 13 stations are leased out to Parsvnath for the construction of shopping malls while it is understood that Omaxe Ltd and Vishal are tying up to open retail stores at about 50 such stations in Delhi. Paper work is yet to be done in this regard.

Subject to approval, DMRC is toying with the idea of setting up a hotel at Dwarka, Sector 21 metro station, while two floors of about 17,000 sq.feet at Chawri Bazar are leased out to Omaxe Ltd on a 12-year concession and the developer is considering the retail format here. Parsvnath Developers are developing Akshardham station area of around 3,65,000 sq.ft and plans to lease out to large retailers and fun food courts.

Presently, food outlets, ATMs, tea, coffee and cold drink kiosks etc are being set up inside concourses, depending on the requirements at most of the station on 6-12 year licence period. Shopping malls are also being set up through developers on licence basis for a period of up to 12 years inside station buildings having larger concourses to target millions of urban commuters. Indralok and Netaji Subhash Metro stations are leased out to Big Bazar while Kashmere Gate Metro station has stores like McDonald, Comesum etc at present.

Rental rates at Chawri Bazar Metro Station, which is leased out to Omaxe Ltd by DMRC, is Rs 85 per sq.feet for second floor, while Rs 75 per sq.ft for third floor. The first floor rental charges are around Rs 100 per sq.ft. Omaxe has leased out first floor to Bikanervala. The Metro stations, which are being developed by Parsvnath Developers, have not yet fixed the rental rates for its malls, which are under construction, but the matter is under active consideration for fixing the rental rates, a communication from Parsvnath informed.

Retailing at railway stations

Indian railways are going to offer around 4,800 hectares of land to retail and logistics companies to set up retail outlets, agri-retail infrastructure and warehouses. Around 3,000 sites have been identified by the railways across the country for the purpose. The Railways has a total Rs 4.23 lakh hectares of surplus land, out of which 43,000 hectares is vacant land.

New Delhi and Nizamuddin railway stations are expected to play a major role for retail shopping. There is a proposal to have shopping arcades, food courts, bookstalls and pharmacies. The New Delhi station alone receives 10 lakh visitors during the peak season and the growth rate is around 7-8 per cent. A ready market is available to retailers at the railways. The idea is that stations will not be viewed merely as an area where passengers board trains or goods are loaded and unloaded, but as activity hubs.

Sources say that retail heavyweights such as Future Group, Reliance Retail and RPG are among the top contenders for the project. Recently Kishore Biyani, MD, Future Group, had said that they are interested in the railways privatisation plans and will consider all options of retailing. Railway authorities are planning to set up about 40 food plazas at select railway stations. Food retail players such as McDonald’s, Yum! Foods and Haldiram’s are keen on the food plaza project. Big retail companies are in contact with the Railway Ministry for taking real estate spaces across the country and its seven cinema halls are among them, it is said.

Moreover, railways are also looking to foray into the entertainment business. The public sector behemoth has chalked out an ambitious plan to set up about a dozen cinema halls at various railway stations in metros to utilise its surplus land and existing prime space at stations and plans to privatise 44 “yatri niwas” and National Rail Museum cafeteria. It has also identified 100 sites for setting up food plazas, integrated parks, budget hotels, laundries and base kitchens at various railway stations along with private players.

A five-star hotel at the Delhi railway station, a shopping mall at Mumbai’s Chhatrapati Shivaji Terminus or an entertainment centre at Chennai’s Central could soon become a possibility, as the Railway has decided to allow commercial use of space available at New Delhi, CSTM Mumbai, Howrah, Chennai, Bangalore, Patna, Anand Vihar (Delhi), Mathura, Jaipur, Amritsar, Agra, Pune, Lucknow, Bijwasan (Delhi), Chandigarh, Varanasi, Trivandrum, Secunderabad, Ahmedabad, Bhubaneswar and Bhopal. Reconstruction of the Delhi station alone would involve an investment of Rs 7,000 crore.

Airports as shopping destinations

Airports and railway stations are important junctions for rendezvous. The day is not far when shopping at the airports/ railways / metro stations would be the viable alternative to shop in the high street, both for the traveller, the greeter and for citizens, who dwell near these soon-to-be shopping destinations.

However, it would not be entirely incorrect to say that the upcoming retail environs of the airport lounges will bring massive profits for retailers and the airports while bettering the flying experience for the passengers at the same time.