Seizing the opportunity

John Rimmer

Print Article E-Mail Article E-Mail Author

Arrivals duty-free in the Middle East has long been overshadowed by the region's thriving departures business, but recent initiatives have led to rapid growth in the channel. John Rimmer discovers how retailers are seizing a previously neglected opportunity

Despite its challenges, arrivals remains a valuable source of incremental revenue for many retailers, not least in the Middle East. Arrivals duty-free is permitted in almost all of the region's main markets—with the exception of Kuwait—and retailers have embarked on ambitious renovation programmes. Dubai Duty Free (DDF), Bahrain Duty Free, Abu Dhabi Duty Free and Aldeasa are among the operators to expand and improve their arrivals operations in recent years, all reporting promising results. Bahrain doubled its arrivals space in 2004 and immediately reported an increase in turnover to match. Dubai's new 650sq m (6,995sq ft) arrivals store has prompted a sales increase of 26% so far this year, while Aldeasa has tripled its arrivals sales in Jordan since the revamp of its two arrivals stores at Amman Queen Alia International airport at the end of 2003.

The September 2005 completion of DDF's new arrivals outlet, which is more than double the size of the previous store, was among the highlights of the retailer's year. Discussing the impact the renovation has had on the business at Dubai, DDF operations manager Sean Staunton tells DFNI: "Our average spend per passenger in arrivals is now $7.26, compared with $6 before we opened the new shop. Arrivals represents 8.6% of our total business now, where two years ago it represented only 5%. The new store is not only much bigger but much more exposed—visibility is good from the outside and the inside. Arriving passengers like to be close to the baggage belts, and the store design allows them to see the reclaim area, which is reassuring for them.

"When we designed the store we were conscious of aisle width, because we wanted to make sure people could browse, even with trolleys and luggage. Staff numbers are also crucial, especially given that people have less time to shop in arrivals than in departures. We used to have eight cash registers in arrivals; now we have 13, and seven are fitted with conveyor belts."

The place to be

Location can decide the success or failure of any retail outlet, but in arrivals duty-free store placement is critical. Arriving passengers do not tend to loiter, as a result of a natural keenness to get through passport control and be reunited with their baggage. They are likely to ignore the opportunity to shop if the store is situated too close to the disembarkation gates or to the airport exit.

Aldeasa Jordan CEO Pedro Castro worked for the Spanish retailer in Chile before joining its Middle Eastern operation. As a result he is familiar with operating in very different environments for arrivals shopping. "My experience is that arrivals stores should be located after passport control, close to and visible from baggage reclaim, so that passengers have time to buy and are not worried about their luggage," he argues. "We worked hard with Jordan's civil aviation authorities to find the right location for our store."

Aldeasa undertook a total refurbishment of its arrivals store in Amman more than three years ago, opening two stores covering 300sq m (3,230sq ft) in late 2003. In addition to a three-fold increase in turnover, the renovation has caused arrivals' share of Aldeasa's total business in Jordan to increase from 15% in 2003 to 29% today. "Not only has arrivals kept pace with growth in departures, but it has driven the overall growth of the business," notes Castro. "This has been achieved despite the small surface area of our operation. At 2,000sq m [21,520sq ft], the main departures store [in Amman] is much bigger than the arrivals stores, but arrivals still accounts for nearly 30% of sales. In terms of the ratio of space to sales, we've seen a big improvement in the arrivals business."

Given the growth in its Jordanian arrivals operation, Aldeasa now needs more space to fully capitalise on its success. "Space is available and we have the full cooperation of the airport authority, so I'm confident an expansion will happen soon," says Castro.

Other retailers have also reaped the benefits of investment in arrivals. Muscat Duty Free, the joint venture between Aer Rianta International–Middle East and Oman Aviation Services that runs retail at Seeb International airport in the Omani capital, runs a 200sq m (2,150sq ft) arrivals store that now accounts for about 10% of total business, compared with 5% when the retailer took on the concession in February 2003. "Our store and what went before it are like chalk and cheese," says Muscat Duty Free general manager Steve O'Connor. "We've made the shop much more visually attractive to passengers, with greater colour and improved product visibility. Last year the arrivals business grew by 33%, on top of 50% growth the previous year."

But where retailers in Dubai and Jordan have been able to optimise the location of their arrivals outlets, Muscat Duty Free has inherited a shop position that O'Connor considers less than ideal. "Unfortunately the passageway leading past the store towards Customs is a bit too straight," he explains. "People can look directly down it and see the security control, so many of them carry on without stopping at the shop. We'd like to break up that passageway." O'Connor reports that Seeb airport authority has agreed in principle but there remain matters to resolve with the airport's security department.

Liquor and wines dominate

The traditional, core product sectors are the dominant categories in the Middle East's arrivals stores. In Muscat, liquor accounts for about 65% of total arrivals sales, followed by tobacco at 20% and fragrances at 15%. DDF's figures match this breakdown almost exactly. Staunton reports that liquor represents 64% of arrivals sales in Dubai, tobacco 15%, fragrances 10% and confectionery 3%. Within DDF's liquor sales in arrivals, whisky accounts for 35% of the total, followed by wine at 20%, beer at 12% and champagne at 8%. Popular items in DDF's departures outlets, such as music and toys, play only a small role in arrivals.

"When we enlarged the store we didn't make dramatic changes to the product mix, but we tried to develop the key categories," explains Staunton. "For example, we introduced a humidor, which we didn't have before. We also added a Wine Reserve, staffed at all times by two sales assistants who have received external training to make informed recommendations to customers. About 65% of our total wine sales are made in arrivals."

Aldeasa's Castro argues against merely duplicating the departures offer in arrivals stores. "This is a common mistake," he says. "I learned in Chile that arrivals shoppers are mostly local. Putting destination products, for example, in arrivals stores makes no sense.

"In Jordan we have an advantage because the local market is not very strong," he continues. "Our local customers know they will find quality goods when they arrive at the airport and that is a strong motivation to purchase."

Mirroring the wider regional trend Castro confirms the importance of wine to Aldeasa's arrivals business in Jordan, but explains that restrictive Customs allowances have encouraged the retailer to broaden its offer. "Here the limits on allowances are one bottle of liquor and one carton of cigarettes," he says. "We decided to give a lot more space to our perfumery, building two new areas that have proved a big success. It made sense to do this given that there are no limits on fragrance purchases. Beauty suppliers were not expecting the increase in sales that we've achieved and they are showing a lot more interest in our arrivals business. Liquor and tobacco may have grown in volume but they have lost market share now that we present categories such as beauty and confectionery much better."

In Dubai, Staunton reports that customers are permitted to buy four liquor items and two cartons of cigarettes on arrival at the airport. Two years ago Muslims were allowed to buy for the first time, prompting an immediate uplift in sales for DDF. "Suddenly, arriving Saudi and Kuwaiti travellers could buy, and arrivals sales went up by 30% as a result," recalls Staunton. "Along with expatriates based in Dubai, these and other GCC [Gulf Cooperation Council] nationalities are our main arrivals customers."

In Muscat, the ban on Muslims purchasing liquor in arrivals duty-free is strictly enforced, and Muscat Duty Free makes the rules clear to its customers using prominent signage in its store. "In the early days [of the concession] we would have problems occasionally," says O'Connor. "If Muslim customers who had bought liquor in arrivals were stopped by Customs, they would say: 'Duty-free never told me', or 'They said it was OK.' Customs would then come to us and take our staff's passes from them. The situation has stabilised now; most people are aware of the rule and our staff monitor it."

The allowance regime in Oman permits arriving passengers to purchase two bottles of liquor—or 12 cans of beer—and two cartons of cigarettes. "We keep our prices the same in arrivals as in departures, where we set prices based on regional comparisons," says O'Connor. "In arrivals we offer savings on most products as the domestic market is subject to 100% duty." As at DDF, Muscat Duty Free has worked to expand its wine selection in arrivals, which now accounts for more than half of the retailer's total wine sales.

Aldeasa, meanwhile, is taking advantage of its status as Kuwait airport's new duty-free retailer by creating cross-promotions aimed at shoppers travelling between Kuwait and Jordan. "We're offering customers in Kuwait a discount if they spend above a certain amount, and adding an extra discount if they shop on arrival in Amman," explains Castro. The fact that Aldeasa's Jordanian arrivals stores can offer liquor, which is unavailable in Kuwait, is a further motivation to purchase for many travellers.

It is the downtown market, rather than other airports, that provides arrivals duty-free stores with their keenest competition. But in Dubai, DDF enjoys a closer relationship with the high street than do most travel retailers, sourcing more than half of its stock from domestic market distributors. "We don't aim to take business from domestic off-licences," says Staunton. "Most of our customers will travel only once or twice a year. We're a government organisation and as such we want to support local companies."

With retailers elsewhere in the world seeking government support for the spread of arrivals duty-free, the Middle East is once again offering an example of what can be achieved given the right investment. The rate of growth posted by retailers such as DDF, Aldeasa and Muscat Duty Free suggests that the arrivals market is ready to step out of the shadows.