[UPDATE] London Heathrow Airport has further retail store openings in sight in the coming months as it seeks to capitalise on increasing passenger traffic volumes during the busy summer season.

This summer welcomes LVMH Moët Hennessy brand Loewe and Kering’s Saint Laurent into Terminal 3, with the former representing a ‘first’ for the terminal after both brands secured space following a competitive tender.

Meanwhile, a flagship Louis Vuitton store in Terminal 2 and Rabanne unit in Terminal 5 are destined for August and September, respectively, TRBusiness has learned.

Added to the mix are launches for Penhaligon’s (T5), Bottega Veneta (T2) and a Hugo Boss pop-up (T3).

Since the beginning of the year, Heathrow has unveiled a number of refreshed or new retail units including a Burberry pop-up (T3), Harrods x Max Mara (T5), WDF x Haute Parfumerie (T3), Bottega Veneta pop-up (T2), Hugo Boss (T5) and Harrods x Ralph Lauren (T5).

“We are seeing in our core duty free business upgrades to the duty free stores across pretty much the whole estate on alcohol, beauty, confectionery, and equally we are seeing specialist shop changes as well,” Fraser Brown, Retail Director, Heathrow told TRBusiness.

Fraser Brown, Retail Director, Heathrow Airport: “We’ve had a record number of new openings in Q1 both on the retail and F&B side and that is testament to the hard work the retail team have put in at Heathrow to ensure that despite the tax position, we are still making the clear case that Heathrow is a great place to be.”

Getting nimble with ranging

With approximately 350 retail and F&B units in place across four terminals, Heathrow remains a fiercely competitive trading environment for brands and operators.

And the passenger picture remains healthy. Numbers recovered to 79.2m in 2023 – up 29% year-on-year – and the latest June results revealed yesterday  point to back-to-back days of more than 260,000 travellers passing through the terminals in the busy summer month for the first time in its history.

The result plays into the airport’s revised passenger traffic outlook of 82.4m in full-year 2024, updated within its three-month figures ending 31 March.

Notwithstanding the positive optics, the loss of tax free sales continues to negatively burden spending levels, particularly across luxury and certain sections of high-end beauty.

The removal of the extra-statutory concession on airside retail sales (excluding L&T) and VAT Retail Export Scheme in Great Britain in January 2021 in the slipstream of the UK’s departure from the European Union means Heathrow is having to work harder than ever to ensure consumer appeal for its tax paid assortments.

Without giving specific details, Brown confirms the decision has had a “material impact” on the luxury business and a “not insignificant” hit on beauty, at a time when, conversely, airports in Milan, Rome and Paris continue to “rub their hands with glee”, as Brown puts.

With the Labour Party securing a landslide election victory last week, the question remains whether the sustained volley of pressure from businesses, MPs, retail associations and other stakeholders will trigger a u-turn on the (erstwhile) government’s policy [noises around a possible reversal contained within former Chancellor Kwasi Kwarteng’s infamous September 2022 ‘mini-budget’ were ultimately short-lived under the premiership of Liz Truss – Ed].

The government’s spending watchdog the Office for Budget Responsibility (OBR) committed in December 2023 to review the original examination of the costs and benefits that led to the eventual decision to end tax free shopping in 2020.

Former Chancellor Jeremy Hunt has commissioned HM Treasury officials to provide an assessment of the state of the government’s spending inheritance, to be presented to Parliament before the summer recess.

The Spring Budget brought no such celebrations, with little ground given on the issue of restoring tax free shopping at airports despite the clamour of opposition voices, as the OBR published its conclusion alongside the budget announcement that the 2020 methodology ‘still appears reasonable’.

Heathrow has presided over a record number of new retail and F&B openings in Q1. Pictured is Dior at Terminal 2.

While industry leaders viewed the budget as a missed opportunity to reinstate tax free sales, the former government said it would consider the OBR findings alongside industry representations and broader data.

Stakeholders will be hoping that a full independent assessment of the impact of tax free shopping decision remains on the cards.

When the question was to put to HM Treasury, a spokesperson told TRBusiness: “Our national mission to kickstart growth will be built on sound money and economic stability. That means giving businesses the long-term certainty they have missed while being responsible with and rebuilding the public finances.

 “The tax system has a vital role in supporting sustainable growth, which is why we will reform business rates, publish a business tax roadmap in due course, and have committed to not increase corporation tax.”

For now, brands at Heathrow are learning how to adapt their merchandise ranging within a tax paid environment.

“The brands that are perhaps doing better have moved a little faster,” commented Brown. “We are working with all the brands to make sure that they make the very best of the tax paid environment.”

While high-profile names such as Mulberry, Thomas Pink and Dixons Travel have been forced to exit the airport in recent years linked to the demise of tax free shopping, Heathrow has worked hard to find suitable replacement tenants.

Saint Laurent has arrived in T2, while Tiffany & Co. recently opened a new store, plus Burberry and Bottega Veneta have or are undergoing refits.

Brown believes that getting the basics of retailing right across assortments, matched with a strong approach to training and clienteling can deliver “good” returns.

Heathrow is evolving its Reserve & Collect service.

“The brands like Chanel, Louis Vuitton, Hermes are continuing to trade okay. When you penetrate into the harder luxury elements – watches & jewellery – these are still more negatively impacted than the more fashion-led, ready-to-wear, small leathergoods (belts and accessories). There is still quite an element of impulse purchase for those.”

Elsewhere, trading performances in categories such as F&B continue to be strong and alcohol sales are steady, though High Street fashion – not a significant portion of the Heathrow business – is being watched carefully given the market’s fiscal volatility [at press time, it is being widely reported that household label Superdry is set to delist from the London Stock Exchange next week – Ed].

While Heathrow reported a 23.8% year-on-year rise in its total retail revenue (which includes income from retail concessions, catering, other retail, car parking and other services) to £698m in 2023, the airport acknowledged that the commercial performance was hampered by the removal of VAT-free shopping.

“On the positive, we are seeing consumers continue to engage with the offer,” Brown updated TRBusiness. “We’ve had a record number of new openings in Q1 both on the retail and F&B side and that is testament to the hard work the retail team have put in at Heathrow to ensure that despite the tax position, we are still making the clear case that Heathrow is a great place to be.”

Digital future

The premise that landlords today require a consistent and accessible e-commerce retail menu to compliment bricks and mortar propositions in the terminals is in itself, nothing new. However, Heathrow has been working hard to augment its retail proposition through digital with physical, particularly in the case of High Street fashion.

Heathrow’s ‘Digital, Experience, Space and Offer,’ will be familiar to anyone in the business that has heard Brown referencing the strategic retailing pillars at industry events in recent years.

While all carry weight in their own right, it is the digital piece that appears to have taken on a differentiated impetus of late.

Growth of +24.8% in retail concessions revenue in 2023 to £257m, outpaced that of total retail revenue. Pictured is a Bottega Veneta pop-up at Terminal 2.

Heathrow’s Reserve and Collect platform, at once the preserve of a limited number of brands accessible online, has been systematically expanded and upgraded in recent years.

This has seen the online function being complemented by trials of physical stores at Terminal’s 2 and 5. TRBusiness learns that the shops will be supplemented with new openings by the end of the summer at Terminal 4 and Terminal 3 – though the exact timeframe is to be confirmed.

“We’ve had a smallish retail Reserve & Collect offer on Heathrow.com – where as a consumer you can reserve and collect a number of things from a number of partners so you know you can get a specific item, collect it and pay in store,” said Brown. “That continues and the team are gradually increasing the number of brands that are engaged in that programme and the number of skus that are available.

“However, we believe that to take that to the next level, we needed Reserve & Collect stores,” continued Brown, in doing so explaining the intricacies of having robust infrastructure to support fulfilment – from the communication flows between retailer and distribution centres, complicated payment processing, to front-of-house colleagues picking the items, and ultimately ensuring that product reaches the hands of the the consumer.

Heathrow Retail Director Fraser Brown brought TRBusiness up to speed on the latest commercial developments in an interview for the Top 10 Airports report.

“We are in the process of completing a project that will allow you in the summer time to not only reserve and collect but effectively click and collect – that offer domestically and in most markets that consumers are used to, of logging on to either a marketplace or an individual brand, being able to order, put a series of things in a basket, pay at that point and then either have it delivered or collect.

“I’m very excited about that development as part of the airport’s digital future and I think it will be groundbreaking. The reason it is groundbreaking is you get payment, have multiple brands in a single basket and also it will allow us to continue what we were trialling which was adding brands to the airport for the benefit of our consumers that we don’t have physical space for.”

Better service, less space

As referenced, this will be a welcome development given the increasing space constraints across Heathrow’s terminals. The old adage of making every square metre work commercially becomes more acute at a time when the phasing in of new security lanes to accommodate next-generation screening technology – the deadline of which was recently extended by government to allow more time for airports to implement the tech – also means a marginal loss in space to generate revenue from tenants.

As Brown acknowledges, the challenge facing Heathrow today is squaring the circle of delivering excellent customer service with increasing passenger demand across four terminals that aren’t getting bigger.

Terminal 2 is welcoming several new retail units this summer.

“We speak to all of our brands, not just about what they’re doing in their stores but how they are doing things digitally,” he maintained. “One of the beacons in the updated corporate strategy is about digital future.”

Indeed, Brown says the digital approach goes beyond simply retailing: ensuring that the Heathrow ecosystem is working hard to digitalise all its operational facets, from baggage handling to communications among its airline partners and aviation regulatory authorities.

Away from the in-terminal shopping aisles, it’s been a period of broader change for Heathrow’s management in the past 12 months.

The announcement in February 2023 that CEO John-Holland Kaye would stand down as leader of the London hub after almost a decade in the position fired the starting gun on a selection process that concluded with the appointment of former Copenhagen Airports CEO and experienced aviation chief Thomas Woldbye.

His first day on 18 October ushered in a new era for Heathrow, marked out by its ambitious multi-billion pound plans to upgrade its existing infrastructure over the next three years.

In the circa nine months that Woldbye has been in post, Heathrow has updated its strategy by honing its executive team to focus on different revenue-generating segments of the organisation, from customers such as retail concessionaires, property tenants and airlines, to passengers served by ancillary businesses such as parking and fast-track.

In April, those wheels were further turned with Chief Financial Officer Javier Echave taking over as Chief Operating Officer from Emma Gilthorpe, who departed Heathrow following a 15-year career at the airport to run Royal Mail.

Sally Ding, previously Director of Treasury & Corporate Finance, has taken on the role of acting CFO until a permanent replacement is found.

Elsewhere, Chief Strategy Officer and former Retail Director Chris Annetts left Heathrow at the end of April, and effective 1 May, Ross Baker and Nigel Milton assumed new positions as Chief Customer Officer and Chief Communications and Sustainability Officer, respectively.

Effective clienteling can support retail gains despite the loss of tax free sales, maintains Heathrow.

Asked whether Baker’s previous role as Chief Commercial Officer was up for grabs and Brown was in the running as the replacement, Heathrow’s Retail Director responded unequivocally: “There will not be a replacement for the Chief Commercial Officer position that Ross held.

“We’re bringing together the areas that Ross looked after and adding in areas around customer research, regulation, customer proposition and forecasting work, so all of that sits along with our colleagues – including myself in the commercial team – in a new, wider directorate that we are calling our customer team.

“The initials are the same but the title has changed; the importance thing is we have the stability with Ross working with us and on the executive and we’re augmenting some of the work we’re doing with airlines, digital, retail, property and surface access, along with four other areas of regulation, customer strategy, research and forecasting.”

This is an extended version of an article that originally appeared in the Top 10 Airports report carried as part of the TRBusiness June/July e-zine. To view this, click here.