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Airport Retail Sales Were Supposed to Hit $49 Billion by 2021 — How Coronavirus Could Crush That

As retailers struggle to adjust to an increasingly omnichannel-driven shopping environment, airport retail has been one of few brick-and-mortar sectors experiencing growth. But the novel coronavirus — and its accompanying travel restrictions — could put a damper on that.

“Short-term, since travel is taking a hit, that will certainly bleed over to airport retail,” explained CCIM Institute chief economist KC Conway. “Airports with international flights and cancelled flights will see an impact on traffic and retail spend — airports like Atlanta, LA, NYC and Chicago O’Hare.”

Airport retail has experienced rapid growth within recent years. According to an estimate from GlobalData, airport spending is expected to reach $49 billion globally by 2021, a 27% increase from 2016. Luxury brands have in particular embraced the space: From 2016 to 2018, 33 of the world’s top fashion labels opened new outposts in airports, according to Wall Street Journal data. Luxury sales in airports climbed 11% for 2019, compared with 4% growth overall, says a Bain & Co. report.

As global airport retail expands, Asia-Pacific has become the sector’s largest region in terms of spending. Ahead of the coronavirus outbreak, APAC airport sales for 2020 were forecast to rise by 8.4% to $21.7 billion, representing about 45% of all airport sales internationally.

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But the coronavirus, which originated in the central Chinese city of Wuhan, has led many major airlines, including American Airlines, British Airways, Delta and Qantas, to either temporarily decrease or outright suspend flights to and from China. According to data from Flightradar24, daily departures and arrivals in China have dropped from 15,072 to just 2,004. The effects of canceled flights have carried over to popular destinations for Chinese tourists, including South Korea, Thailand and Japan, Flightradar24 data shows.

Several APAC travel hubs have taken measures to help retailers amid a slide in traffic. At Hong Kong International Airport, which had already faced decreased traffic due to ongoing anti-government protests but has seen sharper declines due to coronavirus, the Airport Authority Hong Kong this week introduced a relief package including rental concessions, waivers and fee reductions for its business partners. Airports of Thailand, which operates six airports in Thailand, announced on Feb. 19 its own relief package for commercial operators. And Singapore’s Jewel Changi Airport has granted 50% rent reductions for retailers beginning this month. The travel hub is home to Nike’s largest Southeast Asia outpost, a two-story, 10,700 square-foot store; Foot Locker also has a sprawling shop in Changi.

But in the U.S., the effect of coronavirus on sales may be mostly limited to the West, explained Nick Egelanian, founder and president of SiteWorks Retail.

“San Francisco and Los Angeles and Orange Country, where you have large Asian tourist populations … If you’re going to see a drop in sales [in the U.S.], that’s where you’re going to see it,” Egelanian explained. “And particularly in luxury goods, because in some cases there are large tax differentiations between here and Asia. A lot of tourists will come over and buy significant numbers of goods.”

The coronavirus has killed more than 2,600 people globally, with about 79,500 cases reported. While the majority of coronavirus cases have occurred on mainland China, reports of additional cases outside the country sent stock futures reeling this morning, with Dow futures plummeting by nearly 800 points. New batches of cases have been reported in the past few days in Italy, South Korea and Iran, leading authorities to raise the infectious-disease alert to red, the highest level since the 2009 outbreak of the H1N1 swine flu.

Over the next few weeks, Egelanian expects to see an “inflection point” where it will become apparent whether the coronavirus outbreak is under control or whether there will be a full-blown international crisis.

“If we get up to a million cases with a 2.5% mortality rate, we are going to start to see some real effects on traffic,” said Egelanian. “I think we’re right now at that point there. What happens in the next three or four weeks is really going to be the determinant.”

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