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Insights / Business

DF&TR must learn to be less dependent on footfall

March 31, 2020

With the Covid-19 pandemic showing no sign of easing, companies such as Shilla Travel Retail Hong Kong, Tallink Grupp, British Airways and Lotte Duty Free have all taken the opportunity to highlight their omnichannel strategies.

On the flip side, those companies which are yet to develop an online strategy or have decided against this, might well be wishing they did not have to rely on footfall, which is virtually non-existent during this unprecedented period for DF&TR.

Kian Gould, CEO and Founder, AOE, emphasises to TRBusiness the need for companies to not underestimate the importance of omnichannel solutions now and in the future.

What impact is the Covid-19 crisis having on your own business?

We have to look at it on two fronts. The first, is that we are a software development company, so the fact we have 250 people all working from home office has had limited impact. The teams are coordinating, so it is working very well. Luckily, we also have customers outside travel and travel retail and these projects have been unaffected.

The travel projects in terms of our airports and airlines have, however, been affected pretty severely. As you can imagine, we have seen major cuts to the budget for Q2, Q3 and Q4 so far with no clarity on when things will normalise. We have lost about 50% of the predicted business with the OM3 digital platform over the past few weeks. It is an unpleasant situation and we are trying to compensate however possible. At the same time, we see this as a wake-up call for the industry in that there is huge potential once the recovery kicks-in.

AOE has a number of prominent clients in the channel including Singapore Airlines, Heathrow Airport and Auckland Airport to name a few. How have they been affected?

It depends on what stage each customer is at in terms of their omnichannel development. London Heathrow, for example, has focused a lot on making luxury shopping more accessible. It is still, however, very much dependent on people travelling through the airport to shop as it does not have home-delivery yet.

For Heathrow, the sales impact is of course much more immediate than for Singapore Airlines, which has worked hard over the past few months to move away from inflight delivery to home-delivery. In the months prior to Covid-19, the Singapore Airlines KrisShop platform registered home-delivery rates of up to 60%. Now that nobody is flying anymore, inflight sales are disappearing completely and home deliveries are taking place.

By being much more of an omnichannel travel retailer, companies can set themselves up to be much less reliant on people travelling."

What is the mood among your duty free and travel-related clients?

It all depends very much on liquidity. It is unfair to say that the great leaders are still investing in digital and the bad leaders are not. Some have the right liquidity buffers to continue investing, while others simply have to stop doing so until they can evaluate the situation properly. The main focuses for most airports and airlines we work with is shutting down every cost possible, preserving cash and hoping for a swift recovery. New strategic digital initiatives are being largely placed on hold.

How should airports and airlines be positioning themselves for the recovery?

Airlines must position themselves more as lifestyle brands which can sell things to passengers other than tickets. They must communicate with passengers when they are not thinking about flying which is currently the case. I think this is a very clear path for airlines and the conversations we are having with some of them are moving in that direction. They recognise the fact they need to be ready to maximise ancillary revenues when things start picking up. This is because they understand there will not be a scenario where everyone begins flying again immediately. If an airline can make a passenger spend slightly more by having a compelling digital offer, that is a big bonus.

On the airport front, the Covid-19 crisis is making them realise they need to be ready for home-delivery. If more airports were ready for home delivery before the crisis, this would have mitigated some of the impact on sales. Home delivery is definitely something to consider down the line and there is great potential in terms of airports really positioning themselves to not be so dependent on traffic peaks and traffic behaviour.

How is AOE preparing for the recovery with duty free and travel retail in mind?

One of our core strategies is offering airports a much lower-entry CAPEX investment. We had already started doing this before the Covid-19 crisis. Initially, when we started working with airports, they had to invest in the range of €4m ($4.4m) to €5m to get the first releases live. We have now reduced that entry-level requirement quite significantly. This is because we have invested millions and millions into standardising the product portfolio. If an airport tells us now it is CAPEX strapped and cannot invest more than €1m or €2m over the next two years, we can still get them up and running so they can begin their first experience and start generating their first digital sales.

For an airport, moving from a pre-order solution for all its retailers to a home-delivery ecosystem is a much bigger step. This is because they need to have packing facilities, ship out the products and have an online payment system for all retailers. The investment and complexity, therefore, of doing home-delivery at an airport is definitely greater than simply implementing pre-order collection points, allowing products to be collected in stores and delivering to gates.

From our perspective, the crucial message is that airports must start doing something and not just wait until things collapse even further."

What are your thoughts on the suggestion that is has taken a crisis such as Covid-19 for DF&TR to really highlight their digital propositions?

People take this constant influx of passengers for granted and neglect the need for a value proposition that is unique, exciting and relevant. They fail to realise that digital enables them to experiment a lot more with innovative brands and concepts. Singapore Airlines, for example, has grown its sku base to around 20 times what any other airline used to have inflight. This is because they are no longer relying on inflight purchases. When you have a lot more skus which people are interested in, you have a lot more possibility to sell the right product to the right passenger.

It is nice to hear from companies, which have been digitally focused for some time, reveal that sales are returning. These are the companies which will return to normal the quickest. The message is clear. When the next crisis comes along, it is better to be less dependent on footfall.

How much of an opportunity is there for home-delivery in duty free and travel retail during the Covid-19 crisis and beyond?

You have to be ready for home-delivery. There are companies which have warehouses and could have been ready, but unfortunately aren’t. Now, all they can communicate is the fact they are cutting down on costs and hoping they will recover quickly. This is not a very crisis-resilient strategy.

KrisShop is a great example, because like everybody else they need to reduce investment right now because of the liquidity situation. At the same time though, they are expressing a belief that e-commerce is one of the few crisis-resistant channels right now, along with cargo.

What is your message to the duty free and travel retail industry at this traumatic time?

Travel retail like any retail has to be omnichannel in the future. I think this is clear based on what is happening with downtown retail right now. It is completely dead.

This interview first appeared in the magazine TRBusiness. We appreciate your feedback and sharing the article.

Original interview on trbusiness.com