INTERVIEW / TRAVEL RETAIL: High Flyers

Colin Hargrave (BAA) and Mark Riches (WDF) have turned around the fortunes of drinks retailing at British airports. To say they are excited by the opportunities at Heathrow’s T5 would be rather an understatement.

Overlooking the runway at Heathrow, Mark Riches and Colin Hargrave watch another plane silently cruise in to land. On the other side of the terminal building, another 300 passengers take to the sky every minute. Riches and Hargrave are the men responsible for ensuring that, before take-off, they’ve splashed out in the world’s richest travel-retail location.

Trading in an airport presents a number of unique challenges, as demonstrated by the latest security drama in August. But with the right offer the sky is, quite literally, the limit. And nobody manages to generate more substantial sales than Hargrave, retail director for British Airports Authority (BAA) and Riches, managing director of World Duty Free (WDF). Across seven UK airports – Heathrow, Gatwick, Stansted, Glasgow, Edinburgh, Aberdeen and Southampton – WDF generates in excess of £400 million. That’s over £100m worth of liquor alone.

Much media speculation has surrounded the acquisition of BAA by a consortium led by Spanish company Ferrovial in June. Some have questioned whether the new owners will choose to retain control of WDF (which is currently a wholly-owned subsidiary of BAA). As the drinks business went to press, Riches and Hargrave were, unsurprisingly, unable to comment on the implications. But both are firmly focused on the future of a business that, while currently posting impressive figures, is poised for enormous growth in two years’ time.

Heathrow is, of course, the jewel in BAA’s crown, carrying over 67 million passengers and generating retail sales over £430m each year. It is groaning under the weight of passenger traffic however, and is desperately awaiting the completion of the long-awaited Terminal 5 in 2008. Riches, a natural born retailer, can scarcely wait that long. “T5 is the greatest opportunity most of us will have in our lifetime in retail; it’s as simple as that,” he enthuses.

As opposed to the previous terminals (T4 opened in 1986), where shopping was a secondary consideration, “This is a brand new building, so we’re not having to cut and carve space and make do,” says Riches. “It’s the perfect backdrop for us to demonstrate we’re good retailers and surpass the customers’ expectations.” However, facing up to the enormity of the task ahead he says, “I look at how the plan is developing, the care and attention being invested in every square inch, the design, execution and materials.” If it doesn’t hit BAA’s sky-high targets, he says, “We’ll have spent an awful lot of time and money getting it wrong. But this is an opportunity we’re not going to waste”.

Bigger vision
Hargrave is convinced that the overall environment is critical in driving sales. Squeezed into every available nook and cranny, the current offer at Heathrow may have kept the cash tills ringing, but there is much room for improvement. “We’re developing a space that creates a fantastic experience for travellers,” says Hargrave. “It will have the basics of retail and food and beverage, but there will also be lots of twists, innovation and newness. We’re challenging all our business partners to work to a bigger vision.”

Listening to these two talk excitedly about T5 it is obvious that the terminal will break new ground. “We recognised that airports and shopping centres around the world are increasingly looking the same,” Hargrave explains. Stepping away from this increasingly homogenous approach is at the heart of the T5 philosophy. Every aspect of the project has sought to redefine the conventions. The ultimate objective, as set out by Riches, is so ambitious that, in any other context, it would sound like folly. “We’ve tried to work out what’s going to make customers get to the airport early because T5 is such a fantastic piece of retail space in such an inspiring building,” he says.

In many instances, travel-retail operations are hamstrung by crippling rental rates. The commercial potential of the airport environment is massive, but this convinces some airport operators to be a little too greedy in their demands. They thus charge exorbitant rents that leave the retailer with insufficient resources to dedicate to developing a top-quality offer. “Because we work for the same group we take a very joined-up approach,” says Hargrave. “We have a singular approach to the customer, the space and the product strategy.” This structure allows both partners to be more efficient, ensuring that “customers get innovation, clarity, promotions and prices that aren’t always there when you’ve got [landlord/retailer] contracts that come between the two parties”.

Hargrave joined BAA in 1997, and was appointed as retail director for all UK airports the following year. In February 1999 Riches joined his team as retail director for Heathrow. Given the timing, it was a bold move; the travel-retail industry was staring into the abyss as it prepared to face up to the abolition of intra-EU duty-free sales. Riches talks of an extended period when “we had to fight just to survive” as confused passengers struggled to comprehend the new regulations.

The following years saw a major shift in focus for the travel-retail trade. With the huge savings on highly-taxed products gone, the industry had to reinvent itself. Luxury goods came to the forefront and operators realised they needed to create a truly compelling reason why passengers should shop as they travelled. The writing was well and truly on the wall for the liquor category, and drastic action was needed.

“Gone are the days when liquor bottles were lined up like soldiers,” Riches reflects. “They had no shelf-appeal, no attraction to the opportunistic customer. They simply met a need and did nothing to drive incremental business.” The BAA/WDF team set about reinventing liquor’s in-store presence, and the new strategy took many cues from travel retail’s top-selling category.

“I’ve always thought that the product in the [liquor] bottle is better than the bottle itself,” Riches explains. “Whereas with fragrance I’ve always thought that the bottle is better than the product. We have applied some of the sex of the fragrance industry – the marketing, visual merchandising and presentation – to the liquor business.” WDF totally reassessed the way it presented drinks and worked closely with the top suppliers to develop a seductive and appealing environment.

This resulted in initiatives such as the World of Whisky specialist stores (see our retail profile on page 44) and The Ultimate Liquor store, a bar-themed initiative that has breathed energy and excitement into the stores. There has also been a shift with more focus given to the premium, aspirational sub-categories such as Champagne. These were risky but inspired moves. Following an inevitable short-term post-1999 dip the liquor business has registered growth every year.

“We know the audience, we know they’re in gift mode, either for themselves or somebody else, we know they’re aspirational and we know they want something different from downtown stores,” says Riches. Understanding this reality, WDF has developed an offer that engages and inspires. Many were willing to read the category its last rites seven years ago, but “these initiatives have given liquor a new lease of life”. There will be no complacency, however. “Part of the DNA of WDF is that we are never satisfied with what we have done, we’re constantly looking for improvement,” says Riches.

The drinks business spoke to Riches and Hargrave during a particularly dramatic time, shortly after the security warning had been raised to “critical” for the first time. But in spite of this, and the many other challenges that beset the trade, both men are utterly convinced that the sector has a bright future. “A growing customer base must mean a growing business, only lousy management can get in the way of that,” says Riches. “But we will have to work even harder. The future will not be about basic shop-keeping skills, it’ll be about entertainment, theatre, interaction, relevance, surprise, exceptional service.”
 To secure a sale in this shop of the future, it seems that the experience will be more crucial than the product itself.  Ben Grant

© db October 2006