DFS Group CEO Philippe Schaus weighed in on the debate about the inflexible nature of the traditional airport concession model when TRBusiness interviewed him in Venice last month.

 

“Part of the problem which we have today is that all the risk is on one side and all the opportunities on the other,” said Schaus last month. “It’s going to reach an end, and the airports will not be able to compete against the Internet this way.

 

“When you have rents of 40%-plus in an airport and you are competing against pure players on the Internet who have occupancy costs of 10%…Just from a consumers point of view it’s not going to work.”

 

Schaus said he believes that the traditional concession/MAG model is limiting and that one solution is joint venture partnership. “The end consumer in the end has to pay more for the product because of the incredibly high occupancy costs; I think that’s where the limit will be reached,” he added.

 

He admitted that this conversation has been going in circles for some time without any real progression. He also agreed that as overbidding continues to occur, DFS has decided to pull out of some high-profile airport tenders.

 

ADDRESSING LOW PENETRATION LEVELS

“We have situations like that where we didn’t even bid; Sydney Airport for example; we didn’t bid for it and there were a couple more like that because for us it just didn’t make sense.”

 

But even more of an issue than overbidding is low penetration in duty free shops, he said. “That is the biggest thing you know; that’s the game changer. Historically, every year DF&TR sales grew, so that was the justification for ever-increasing rents.

 

“If you believe that in the next five years travellers will shop more and more every year, multiplied by the high number of travellers then of course you can imagine rents going sky high. However, as we know, last year for the first time on a global base, travellers shopped less than before, and that’s a game changer.”

 

 

It’s not just competition from the Internet, but also from factory and downtown outlets and other airports that retailers must also be concerned with, says Schaus.

 

AIRPORT RETAILING ‘NOT EXCITING’

“There is of course competition from airports because people can compare prices and also because it’s not exciting enough. Airport retailing is not exciting. It’s long corridors with boutiques left and right and then you have a beauty store and then you have a liquor store and it’s not exciting.”

 

 

Schaus maintains that introducing this much-needed retail theatre and unique merchandising concepts requires significant investment. “The excitement costs money,” he said. “If you want to create excitement, it costs money and you have to invest. But if you have to pay crazy rents you’re not going to invest. So that’s where it’s going to reach a limit.”

 

Importantly, he said the industry needs to find a new equilibrium. “Right now we are in a state of unstable equilibrium and you don’t know which way the ball will roll. It has to fall back into a stable equilibrium and we do not know where that will be, but there will be disruption between now and then.”