Travel Retail: Looking at a Post COVID-19 World. Peter Marshall interviews Vimal Kumar Rai, Founder and Managing Director of the TRACE management consultancy.

Does the airport and travel retail business actually have an appetite for change in the post COVID-19 world? Well, based on the industry’s reaction to last week’s post and blog, there certainly appears to be. There have been over 5000 ‘views’ to date. To put it bluntly, we are in a situation where only smart thinking, even radical thinking, is required to overhaul the current airport travel retail offering and business model – if we are to get back to the golden future that the industry appeared to be heading towards as little as four months ago.

You can easily locate last week’s blog here: trunblocked.com/travel-retail-time-to-change/ As ever, I look forward to hearing what industry colleagues think about what the future might hold and how we can enact positive change.

But now, Vimal’s interview.

Peter Marshall (PMM): Vimal, the airport, airline and travel retail industry has been inundated with data on the devastating effect of COVID-19 as well as extremely gloomy forecast for the next 12 – 18 months. Last week the WTO stated that there will be a global depression likely to be a match or worse than the Great Depression of the 1930’s. Arguably, the biggest single change that will come out of all of this is that customer’s behaviour will have been irrevocably changed. How do you see this impacting the aviation sector?

Vimal Kumar Rai (VKR): I agree that customers’ behaviours will have changed, perhaps in some ways irrevocably. But we should not paint with such a broad brush. Cultural proclivities towards travel, shopping, in-person meetings etc. will eventually overcome shorter- term memories and some of the fear – particularly if a vaccine is found and/or people deem themselves to have taken the best precautions possible during their travels. Just look at the resurgence of domestic travel in China in recent days. But to be fair, the longer the pandemic lasts, the less certain travel patterns are to revert to ‘normal’ globally.

The aviation sector will be affected in all sorts of ways. Purely from a customer behaviour perspective: first, airlines are going to have to visibly demonstrate what they are doing to ensure sanitised and hygienic conditions exist – particularly in high-touch environments, be it hardware (kiosks, screens, magazines etc.), where service personnel naturally have to interact with passengers.

Second, expect traditional ideas of customer experience to be redefined. You can’t see a smile behind a mask. I think flying is going to become less and less of an ”experience” and more of an activity. Like taking a bus or a train.

This extends to some service elements. F & B services, for example, will be pared down or discontinued on many routes. In other words, more like LCC-style travel and less ”full service”. This will initially be a response to hygiene concerns as a means of conserving cash, but I believe they will eventually become the norm when enough carriers do it around the globe. The exception will be premium travel, which I think will see a resurgence, mainly as (larger) businesses get back on track.

Thirdly, as a consequence of a changed consumer behaviour, we will see smaller aircraft and thinner route densities and spread. This will particularly apply to the Euro zone or similar regions, where rail and road networks are better developed and offer better alternatives to flight.

PMM: So what do you think airports and retailers should do to reassure travelling passengers that ”it is safe to go back into the water’, as it were?

VKR: Have you seen the ”Delta Clean” video? Lots of other carriers are doing similar marketing around hygiene, safety and wellness. Expect more of that in the coming months. Airports seem to be lagging in these public displays on social media, but one would expect them to deploy armies of cleaners to be visibly cleaning and sanitising. Here in Hong Kong, even pre-COVID19, almost every lift button panel in every building has had a notice about it being vaccinated or trained. Expect insurance plans to start covering for Coronavirus treatments. Lastly, expect to see more public displays of senior leadership travelling and interacting with customers.

PMM: With the predictions of much slower passenger growth predicted, should the MAG system finally be thrown to the wolves and what kind of business model would you recommend be considered for the airport/retailer ‘partnership’?

VKR: The MAG system is a pseudo-feudal system that is an almost deliberate misalignment of interests. The landlord has its downside protected with relative opacity, while retailers and brands are suckered into believing in the myth of the ”captive” audience.
We need to decide if this is a ”real estate” business or a passenger engagement one. For a few years now, the best malls are being redesigned around the needs of the consumer segments they intend to serve. The focus is on pull-marketing, not simply ”brand visibility” or product-push.

Yet in TR we still seem to believe airports are ”special” and in the real estate business. If airports are going to be successful, they need to better understand how to set up passenger engagement spaces, not be anchored around a major retailer. To do this, you simply cannot have a MAG-based model. You’d need one that allows hyper-curation by the airport, and this can only be done based on shared responsibilities and revenues.

PMM: Do you think that the mindset is there amongst airport management to execute the sort of retro-fit that matches your thinking?

VKR: I think they will have to do this in a post COVID-19 scenario. Remember the first couple of shocks have already transpired – DFS in Changi and the failure of the bidding in Incheon. If the existing mindset isn’t there, new blood (from outside traditional travel retail) will have to be brought in to make it happen.

PMM: The missing link in the ‘Trinity’ has always been airlines. There has always largely been a great degree of mutual exclusion. Do you think that, post COVID-19, there will be a change of culture and mindset and that a genuine and greater collaboration for a developed business model could be realised between the parties? If so, how?

VKR: I am hopeful and I think it’s possible IF there is a genuine desire to collaborate. Thus far, airlines have lost the plot mainly because they haven’t figured out two things. First, how to target customers effectively and how to digitally transform (modernise, if you prefer) their inflight retail offering. Both problems are a lot more complex than they seem, requiring far more effort in building partnerships and changing mindsets than simply plugging in new tech and fancy applications.

I personally believed that airlines needed to wait for airports and retailers to agree to work with them. I now believe airlines have the power to become first-movers and based on the advantage that confers – to instead offer airports and retailers a chance to collaborate. This is a subtle but important power shift.

How? The key is always the customer (passenger). Look at what AirAsia is doing with OurShop, and to some extent what KrisShop is doing as well. Neither has it 100% right yet though, based on what is publicly available. In summary, externally airlines need to build their partnerships and, internally, they need to realign their business units that otherwise work in silos. The tech platforms are not exclusively the key.

Vimal Kumar Rai

Vimal Kumar Rai, Founder and MD of TRACE. ”The MAG system is a pseudo-feudal system that is an almost deliberate misalignment of interests”.

PMM: Some recent research from Unibail-Rodamco-Westfield stated that, in the domestic market at least, by 2025 some 50% of retail space will be devoted to customer experience. This is one of your key areas of interest. What do you think should go into the mix at airports?

VKR: Great question! I used this term earlier: ”passenger engagement spaces”. This is what airports need to become. It’s another question whether this will come to pass in the aftermath of COVID-19, particularly if there is no immediate vaccine or cure. But assuming there is, and assuming we are thinking out to 5 -10 years, then we need to be planning for pop-ups, performances, parties, wellness spaces, AR and VR zones, e-sports…. the list is endless. The key is to have them localised to convey a sense of place and relevance to the customer mix. For an airport like a Changi or Dubai, this will naturally be varied. The ultimate objective should not be to focus on ensuring a transaction (although that’s always welcome), but to allow for the values and the ethos of the brand to be absorbed, experienced and remembered long after a passenger has left the airport. Product displays just won’t cut it anymore.

PMM: But what you’ve outlined is serious and largely uncharted territory for airports. There is an embedded, entrenched conservatism there for a whole host of reasons we are all familiar with. So it’s really a leap in the dark for them, and arguably it’s nothing short of a revolution in real terms rather than the comfort zone of an evolution. Do you actually think this is doable?

VKR: Nothing is doable if we want to stick to old hopes, beliefs and practices. There’s an old saying, right: ”Insanity is doing the same thing over and over again and expecting different results” – which very much applies in this context. How is it do-able? If malls can do it, airports should be able to. The problem we have to overcome is our persistent need to attribute a sale to a location or channel because of existing distribution and licensing agreements. It’s not necessary to rip up all such historical commercial agreements, but it does become important to find a way to realign interests and share risks. I don’t pretend to have the perfect answer, but I’m convinced
that if we want to change and improve the ecosystem, you have to start with the goal in mind and work backwards. Not start with the question: ”How do we sell more?”. Passengers are not asking themselves: ”How can we buy more?”. They are interested in entertainment, education, discovery etc. So when TR starts to collaborate to solve this conundrum is when the real revolution begins.

PMM: We recognise all the pressure on airports, retailers and suppliers currently. But, rather than offer platitudes (however worthy) about how resilient the travel retail sector is and how it will recover, as ever, the grim reality is that there will be a decline in passenger count and spend per head in the foreseeable future. Customers have learned to work from home and to use online a great deal more – and successfully. Few airport retailers and even fewer airports have adopted any kind of robust e-commerce platform. They cannot seem to fuse online and offline retail in a meaningful way. This is surely the only way forward for them to stay in the game. What are your thoughts? Will they revert to type post COVID-19 and preserve the status quo or move into a zone which actually gives connected customers what they want?

VKR: It’s sad but true that many (most?) airports have not figured out how to embrace and adopt digital marketing and retailing in a robust or meaningful manner. They have simply translated physical inventories into an online shop, forgetting that the first time they ”built it” not many came. Why would they suddenly come now just because you’re also online? Passenger have even more options online!

The biggest reason for this is the fact that the ecosystem doesn’t have an alignment of interests. And they haven’t included airlines, without whom there’d be no aviation-related travel retail (or airports, for that matter).

I’ll say this again – the e-commerce platform is not the sole answer to the problems in travel retail. We need to look at this from an end-to-end perspective – customer acquisition to last-mile delivery (and subsequently loyalty). Simple analogy: if you want to start a new business to sell something, do you first set up a shop, or do you first develop a product, test it out, establish a market, create a brand story, promote it, and only then set up the shop? So why is the e-commerce tail wagging the TR dog? Yes, you will need an e-commerce platform, but long before that you’d need to establish a robust, customer-orientated, go-to-market strategy that is relevant for your needs.

PMM: Some may not entirely agree with you on the need for advancing e-commerce platforms. But, importantly, and on a more general level, do you actually think the will is there amongst senior management to effect change?

VKR: Arguably it wasn’t there while TR (and the travel industry in general) was enjoying the gold rush out of China. I’m convinced there is a will and a desire to change. But when that comes up against the established norms, commercial agreements and resources needed for the change….. uncertainty and risk of failure are far stronger behavioural imperatives for organisations than the vague promise of benefits. So nothing really changes. Or incremental changes (such as setting up an e-commerce site) happen without any joined-up strategic thinking in place.

But, I said I am convinced. This is because I’ve been part of the odd conversation and pilot projects (together with some of the startups I mentor in the travel tech space) that are keen to ”change the game” beyond simply setting up a website to sell. In truth, these discussions are easiest with those airports and retailers who have the least to lose (fewer passenger numbers and lower spend per head). And this is precisely why I believe, post Covid-19, the commercial scenario will accelerate such thinking.

PMM: Drilling down to the front line of airports and retailers, do you think they need to move into a service based more on emotional intelligence than a purely transactional process.

VKR: Yes, of course. This regardless of pre or post-Covid-19. Transactional processes are driven by low- consideration products (best suited for e-commerce, actually), while emotion-based servicing is also unfortunately over-hyped. They are not mutually exclusive; it doesn’t have to be mass market (transaction) vs luxury (emotion).

In simple terms, it is driven by the needs of the customer, not type, brand or price. I wonder how many retailers train their frontline about this, instead of just the ”features and benefits”? Last month, I was a actually supposed to spend a week providing wholly differentiated training and motivation sessions to the sales ambassadors and crew of an airline in Europe. Needless to say, that didn’t take place because of the circumstances.

A few years ago I was transiting in Heathrow and my wife had given me instructions to get a Chanel handbag. Unfortunately I was in T1. What happened next was remarkable. The concierge service picked me up, escorted me to T3, guided me through the process of getting the bag I wanted – even convincing me when I was confused about which of the designs was likely to be the one my wife wanted – and then escorted me back to T1, as well as keeping me company till my flight. Was it a transaction? Yes, I knew what I wanted and I knew I was getting it. Was it emotionally positive? Absolutely – I’m still recounting this story, right?

Yet contrast this to a US$200 pair of headphones I was looking to buy in LAX last year. I tried asking the sales staff about some of the features and they couldn’t be less bothered to speak to me.

PMM: Finally, Kumal, if there is one thing you would want to say to the industry – a call to arms or wake up call – what would it be?

VKR: I wonder if everyone remembers this brilliant book: ”Who Moved My Cheese?” It’s sequel came out last year: ”Out of the Maze”. The book is simply about how our beliefs can hold us back. Changing what you think doesn’t change who you are. There’s a vital lesson in this for Travel Retail. Our cheese moved on a long time ago. Perhaps it’s now our time to come out of the maze?

About Vimal Kumar Rai. Vimal is Founder and MD of TRACE, a management consultancy driven by Customer Excellence – empowering travel businesses with better strategy, marketing and operations to partner, scale operations and grow revenues. You can connect with him on Linkedin and Twitter or follow his hashtag #flyvrai

About Peter Marshall. Peter is Founder of a world leading marketing communications, publishing and video production company, specialising in airport infrastructure and commercial airport retail for over 25 years. He has worked directly with governments, airport authorities, major international retailers and brands producing strategic B2B films, scripts and conferences. Peter can be contacted at: marshallartsinternational@gmail.com or trunblocked@gmail.com