TUCSON, Ariz. — Stale trail mix and tacky magnet purchases while killing time at the airport? Retailers ought to think bigger. Some are, thanks to the help of AOE.
The technology firm, with headquarters in San Francisco and Frankfurt, works with companies on their omnichannel strategies and in the last three or so years has stumbled upon an interesting niche: the travel retail market.
At $67 billion in sales, the duty-free retail experience has big potential and AOE has already seen interesting results.
“Digital won’t replace physical retail, but we believe that’s where most of the growth potential lies,” said AOE founder and chief executive officer Kian Gould during the University of Arizona’s Terry J. Lundgren Center for Retailing’s annual conference.
The company is best known for its work in implementing a digital marketplace at Frankfurt Airport, which sees some 160,000 passengers pass through its terminals daily. The airport, with AOE’s technology, allows for passengers to use an app to order items that are then delivered to the appropriate terminal in roughly 13 minutes. There’s also the option of purchasing things such as groceries that are ready for delivery upon arrival to a destination, so weary travelers come home with food to stock a likely empty fridge. The model works, explained Gould, because the airport’s model is such that retailers pay a revenue-based rent. In other words, when they make money, so does the airport.
The results so far look good: Through the marketplace passengers are spending on average more than 90 euros more per transaction with a 30 percent repurchase rate, according to Gould. The average basket is up 230 percent via the digital transactions in contrast with traditional buys through the typical bricks-and-mortar route on-site at the airport, with the average cross- and up-sell hovering around 35 percent.
The attention from what the company was able to pull off in Frankfurt led to the launch roughly a month ago at Heathrow Airport with similarly positive results so far. Baskets have about quadrupled via the app. Unique to Heathrow, said Gould, and what’s driven the cart increase, is the focus on luxury goods, where high-priced watches and Louis Vuitton handbags can be purchased through the digital marketplace.
Auckland Airport teamed with 300 downtown retailers, allowing for travelers to make purchases with any of those businesses tax-free. The airport collects the product from the retailers, gets it through customs, security and then the passenger picks it up. The program has helped drive more than $100 million in sales in its first year.
Gould said the company is now working with some 22 airports on similar digital marketplace experiences.
What’s allowing for the rise in this new way of selling at the airport is a shift in consumer behavior, Gould said, explaining that passengers have gone from impulse buying to well thought-out purchases as a result of the time people now spend on smartphones, allowing for research.
“The amount of shopping that actually happens on mobile devices is significant,” Gould said. “If this is today’s new shoppers, how are airlines going to survive?”
About 67 percent of airports in Europe are operating at a loss, Gould said. Of those who are turning a profit, their earnings before interest, taxes, depreciation and amortization are being generated from parking and retail, he went on to say.
If Uber and Lyft are wreaking havoc on revenue from parking and fewer people are going the impulse buying route in store at airports, the digital platform would seem a good response to recoup losses and learn more about consumers.
“The airlines, together with the airports, are actually in the position where they can learn about their customers,” Gould said of the data that can be gleaned from employing omnichannel e-commerce for travelers. “They’re just not capitalizing on it yet because they don’t know how to properly.
“The changes in shopping behavior that we’re seeing are quite interesting,” Gould said.
Where Chanel No. 5 is typically the best-selling item at bricks-and-mortar travel retail, the digital space is different, the executive said.
“What we’re seeing is that we are actually going way up the ladder of what the best sold products are,” he said.
In Frankfurt in February that was an 8,000-euro Leica camera, of which five were purchased. When AOE teamed with Singapore Airlines on a digital marketplace for shoppers while in flight, the best-selling item was found to be wine fridges. For Heathrow Airport, the top seller is a 35,000-pound Jaeger-LeCoultre watch, primarily bought by Russian, Vietnamese and Chinese visitors.
AOE’s work is not just limited to airports. The company, according to Gould, is talking to mall operators such as Westfield Corp., although he said the greatest hurdle for shopping centers is their business model.
“It’s not actually so difficult to integrate with all of the retailers and basically offer the same service,” he said. “The biggest problem that we are currently still experiencing is that when talking to these mall operators, they look at their business model in a completely different way than airports….A mall is typically structured as a real estate company where they simply rent out space. They don’t have the kind of relationship to be a service provider to the retailers so it’s much harder.”
Shopping center owners would have to pay for the technology and then figure out a transaction fee for tenants.
“That’s something that we see them still struggling with, but we think [the shift] is inevitable,” Gould said.