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USA:Retail sales at Airports take off as airlines remain grounded |
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2004-9-23
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Whereas major airlines may be struggling, airport retailers are not. Despite the financial woes of companies like Atlanta-based Delta Air Lines Inc. and US Airways Group Inc., passenger traffic is back up to pre-Sept. 11 levels and people are spending more time in the airport due to changes in airport security and flight schedules, all of which means more business for airport concessionaires.
In fact, Gregg Paradies, president and CEO of Atlanta-based The Paradies Shops Inc., is betting his company can sell $333 million worth of soft drinks, clothing, food, coffee and magazines next year.
Paradies has announced plans to renovate or open 119 stores at 22 airports across the United States in the next 12 months. The Paradies Shops, a privately held company, will then operate nearly 400 concession shops at 60 airports.
"Right now we are in the biggest growth period in the company''s history," Paradies said.Paradies isn''t the only airport concession company that is growing. Rival Hudson Group, based in East Rutherford, N.J., operates more than 400 shops in airports and commuter terminals across North America.
Privately held Hudson Group bought London-based WH Smith Plc''s U.S. airport retailing business on Sept. 18, 2003, for $64 million. WH Smith''s U.S. airport retailing business had been based in Atlanta, and that office closed with the sale.
Hudson Group expects to open or has opened new airport stores in Memphis, Tenn; Jackson, Miss.; and Myrtle Beach, S.C., said Joseph DiDomizio, Hudson Group''s executive vice president and chief operating officer.
Despite the growth in airport retail, airline uncertainty is having some negative effect.
Delta, which is facing possible bankruptcy, announced Sept. 10 it would restructure its network, including "de-hubbing" Dallas/Fort Worth International Airport.
Delta will shrink daily flights at Dallas/Fort Worth from 254 to just 21, shuffling those planes and most of that traffic to other hubs in Salt Lake City, Cincinnati and Atlanta.
"But even if Delta closes its Dallas hub, American
[Airlines Inc.] is picking up some of it,"Paradies
said. "So revenue may be down only slightly at Dallas airport."
Although airline traffic was flat last year, the rate of dollars spent per passenger since Sept. 11, 2001, is up 30 percent, Paradies said.
One reason is airline travelers are spending more time in airports because of increased security, he said. Passengers must get to the airport earlier, and often have extra time on their hands after passing through security screening.
And airline traffic is finally back up to pre-Sept. 11 levels, said Evan Futterman, chairman of aviation services for Kansas City, Mo.-based HNTB Corp., who said he expects retailers to see 5 percent to 10 percent growth over the next two to three years.
DiDomizio agreed that although airlines are suffering financial losses, airport retailing is not.
But the airport retail business is very different, said David Herskovits, consumer business leader for Deloitte & Touche''s Southeast office in Atlanta.
"In traditional retail, you build a store and advertise," he said. "Airport retail is all about service and ''Are you at the right place when I need you?'' It''s not about price. It''s really a location business. You compete on location, not price or promotion."
To get an airport location, a company often must win a competitive bid from the governing authority
of the airport, Herskovits said.
"And you can get in only when a [prior airport retail] contract is up," he said.In the past two years, The Paradies Shops "won a lot of good-sized contracts and we are just now fulfilling them," Paradies said.
That means more shops in such airports in Houston; Fort Myers, Fla.; Memphis,Tenn.;
Sacramento, Calif.; Kansas City, Mo.; Oklahoma City; Portland, Ore.; Boise, Idaho; Milwaukee; and Cincinnati.
The Paradies Shops has had no presence at Hartsfield-Jackson Atlanta International Airport since 1995, following the conviction of its former president on federal charges of mail fraud and conspiracy to bribe former Atlanta City Council member Ira Jackson in a scandal involving leases at the airport.
Hudson Group is among those companies that operate
retail stores at Atlanta''s airport.
The Paradies Shops contracts with major retailers,
such as PGA Tour Shops, Harley-Davidson and Brooks Brothers to add national brands to airports. Paradies said he is also negotiating with other national retailers to begin putting their stores in airport locations.
The Gap and Victoria''s Secret, for example, entered the airport retail market several years ago. All have locations at AirMall, which has 100 retailers at Pittsburgh International Airport.
"But most of the branded retailers have gotten out of airport locations now," Paradies said.
"Airports are very costly to operate in. It''s tough to operate one or two stores in an airport."
It''s more efficient for a company like Paradies Shops to operate multiple stores and leverage the costs of one accountant and one general manager, for example, he said.
Founded in 1960, The Paradies Shops now has 2,300 employees. It will finance the new stores through internal cash flow and through some bank loans, he said.
Paradies did not disclose his company''s net income, but did say the company is profitable.
For the fiscal year ended June 30, the company had $290 million in revenue and a 14.5 percent increase in same-store sales.
The Paradies Shops had revenue of $247 million in FY 2003; $223 million in FY 2002; and $215 million in FY 2001. |
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