Retailers are sold on sites as BAA prepares Terminal 5 for business
Sarah Butler
11 April 2005
The Times
Sarah Butler on the plans for the highly prized shopping units at Heathrow's new Pounds 39bn extension
A GEM of a fact underlines the soaring success of airport retailing: that a fifth of fragrances and 13 per cent of sunglasses bought in Britain are sold either side of the departure gates.
The revelation explains the scramble under way for the mostly highly prized shopping sites at Heathrow's Terminal 5 after BAA, the airports operator, has confirmed plans for up to 150 retail sites.
Britain's airports have already traded nicotine-stained coffee shops for the likes of Chez Gerard and Starbucks, while boutiques such as Hermes and Burberry sit side-by-side with high street staples such as Boots and Dixons.
Colin Hargrave, managing director of BAA Retail, told The Times: "People are arriving earlier at the airport since 9/11. Partly, they are planning for the new security measures, but they are also planning to spend a bit of time shopping once they have gone through security."
BAA, which operates seven UK airports including Gatwick, Heathrow and Stansted, derives more than half its income from retail. It needs the cash to fund the building of new terminals and runways.
So the past few years have seen the company add 750,000 sq ft of retail space by extending existing terminals.
For example a 20,000 sq ft extension to Terminal 1 at Heathrow will open in June, with the first airport store for LK Bennett, the footwear retailer, and BAA's first experiment with signing up a gastropub -the Tin Goose, run by Geronimo Inns. Terminal 5 will add 200,000 sq ft more retail space, bringing the total to about 1.4 million sq ft.
Because space is at a premium in airports, each retailer operates within stores much smaller than their high street equivalent, but sales per sq ft can be many times higher.
One property agent said that retailers could pull in about Pounds 2,000 per sq ft compared with much less than half that for most high street retailers.
Hargrave says: "It's a real learning curve for retailers in their first year. They don't always appreciate the pace and the volume."
But, of course, this volume comes at a price. While basic rents are typically Pounds 100,000 compared with Pounds 350,000 on the high street, retailers must hand over up to 22 per cent of their turnover to airport operators, according to property sources, compared with 10 per cent on high streets.
In addition, the tight space and security conditions imposed by airports mean that operating costs are considerably higher.
There is no space for a stock room, so merchandise must be delivered to the store from an off-site location several times a day, much of it checked through customs.
Some terminals have a web of secret underground passages where staff and merchandise can be checked through completely separately. The whole operation, from security passes to 24-hour staff, is expensive. But retailers say that the payoff is more than worth it.
Several retailers have their highest-turnover stores in airport locations -for example, Fat Face's new site at Gatwick.
The airport is a unique kind of retail environment, which can give would-be international brands a chance to find out which nationalities might appreciate their wares, and the high footfall means that retailers can get an instant reaction to new ideas.
Heathrow, the world's busiest international airport, handles 65 million passengers a year.
BAA collects a huge amount of information on the type of customers passing through and and hands this on to stores so that they can tailor their ranges to suit.
Stores will often change the displays more than once a day to reflect the tastes of the different kinds of passengers arriving. And, of course, each airport terminal also has its distinctive clientele.
At Stansted, for example where 93 per cent of the business is low-cost airlines flying to Europe, BAA has worked with food outlets such as Starbucks and even Caviar House,the upmarket seafood bar, to develop "grab and go" meals that can be eaten on the aircraft, because many budget airlines offer little or no food.
Terminal 3 at Heathrow, which handles mainly long-haul flights, has designer retailers, such as Chanel, as well as high street shops and sit-down restaurants catering to foreign nationals waiting to transfer to different flights.
At Gatwick South, high street brands such as Ted Baker and French Connection cater to families going on holiday.
Terminal 5 will no doubt combine the upmarket and high street brands, but Hargrave says that he wants to try out new ideas as well.
He says that BAA plans to introduce health and beauty services, perhaps including a walk-in clinic or a hairdresser, to see how this appeals to customers.
The Pounds 39 billion, five-storey terminal, with more shopping outlets than Brent Cross, the North London shopping centre (albeit within a smaller space), is expected to open in 2008.
It will serve British Airways flights that currently operate out of Heathrow's terminals 1 and 2.