Sydney Airport duty free and luxury revamp set for completion in mid-2021

By Andrew Pentol |

Gebr. Heinemann’s new duty free contract at Sydney Airport runs from 2022 until 2029.

Sydney Airport has vowed to cement its duty free offer as the best in Australia after renewing Gebr. Heinemann’s duty free concession for eight more years in late February.

The new contract runs from 2022 to 2029 and the retailer will explore new data and technology initiatives to create an omnichannel approach.

Digital and marketing strategies will be implemented to upgrade the passenger experience and the retailer is continuing to convert its Heinemann Tax & Duty Free stores accordingly, despite the impact of the coronavirus (Covid-19).

Vanessa Orth, Chief Commercial Officer, Sydney Airport, told TRBusiness: “Our vision includes ensuring maximum productivity where previously allocated lease space will be returned to Sydney Airport. This will allow for the operation of an additional five new standalone luxury tenancies.”

The revamp of the Gebr. Heinemann stores is part of an ongoing overall redevelopment of the entire duty free precinct in Terminal One (international terminal). “The targeted opening for the new boutiques, along with an enhanced and optimised layout of the central duty free stores is mid-2021.

“This will include the construction of a revised configuration, realignment of common walkways and the raising of the ceiling.”

REDEVELOPMENT IN FULL FLOW

Orth added: “We’re excited about the developments and how they will improve the customer experience and position duty free for growth.”

Vanessa Orth, Chief Commercial Officer, Sydney Airport.

Offering an update on the progress of the redevelopment, Orth says the duty free remix is well underway. She also reveals that the airport has secured a global luxury brand for a flagship site as part of the project.

“We’re continuing to see luxury retailers invest in Terminal 1, which is great. We have also finalised deals with Moncler and Saint Laurent. The latter has completed its fit-out.”

Pressing ahead with the redevelopment plan is an important objective, along with supporting its commercial partners during the pandemic. “We’ve adopted the National Cabinet’s mandatory Code of Conduct and are working within the overarching principals set down in the code.

“These form the basis of all relief conversations, focusing on proportional and appropriate relief.

“We’re in regular contact with Heinemann to ensure we’re supporting them as much as possible during this challenging time.”

The airport has been guided by two key principles when offering assistance for its commercial partners. The first is that support arrangements must be fair and equitable. The second is that flexibility is built in by only agreeing to short-term relief.

Orth explained: “This includes A$52.9 million/$38.8 million of rental abatements provided to retail and property partners across April to June 2020 — equivalent to 62% of contracted rents by value.

“In order to ensure fairness, we’ve taken a different approach, depending on the scale and nature of the tenant’s business. The way we engaged with our smaller mum and dad retailers through this period, for example, was different to how we engaged with our large, multinational commercial partners.”

Ensuring support arrangements are equitable is also vital. This is because Sydney Airport itself has been significantly impacted by the Covid-19 crisis. “Whatever we agree needs to deliver a balanced outcome for both us and our commercial partners.

“We are also entering into short-term agreements on a quarter-by-quarter basis and not making longer term structural changes to contracts while the market remains volatile.”

TOUGH CONVERSATIONS

While some conversations with partners have been tough, Orth emphasises that they have all been conducted in good faith. “We’ve not only preserved relationships through this period but enhanced them as well. Collectively, this signals that these businesses anticipate a long-term future at the airport, which is very positive.”

The same element of positivity cannot be associated with the airport’s retail revenue prospects in the second half of 2020. Retail revenue amounted to A$147.2 million in the first half of 2020, a decrease of around 20% compared to the same period last year.

The revamp of the Gebr. Heinemann stores is part of the redevelopment of the entire duty free precinct in Terminal One.

Orth said: “While passenger numbers continue to decline and travel restrictions and border closures remain in place, it’s reasonable to expect our second half retail results to follow a similar trend to that of the first half.

“While progressing development opportunities mentioned in our half year reporting within the Jet Base and Ross St Hotel and enhancing our duty free and luxury offering, these projects won’t yet be final at the end of 2020.”

Looking ahead, the airport’s primary focus is assisting its retail partners through the recovery process and collectively ensuring it is ready to go once domestic and international travel restrictions are lifted.

Orth concluded: “We’re fortunate that we already had strong, long-standing relationships with our commercial partners.

“While Covid-19 continues to be an incredible challenge for everyone, we’re proud that these relationships have been strengthened and will stand us in good stead in the future.”

The redevelopment project includes a revised configuration, realignment of common walkways and the raising of the ceiling in Terminal 1.

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