Auckland Airport retailers feel squeeze from 'huge rents', 'increased competition'

The footprint of duty free retailers Aelia and The Loop have increased in size since Auckland Airport's international departures terminal was upgraded. Photo / Grant Bradley

Rents at Auckland Airport have increased by up to 40 per cent in the past three years, and increased competition has made running a profitable business in the international terminal tough for some retailers.

But Auckland Airport is defending claims of "huge rent increases" for its tenants. It says the number of international travellers to New Zealand has increased by more than 37 per cent in the last five years, "creating opportunities for retailers".

It says its rents, set during a tender process, are comparable with similar Australian airports.

"Rental costs also reflect the opportunity retailers have for longer trading hours and the high volume of travellers that pass through the airport - more than 10 million a year at the international terminal," Auckland Airport general manager of retail and commercial, Richard Barker, said.

The Herald understands some businesses in the international departures terminal are also struggling with increased competition, with the placement and variety of products available in the two major duty-free retailers Aelia and The Loop the reason why many are struggling to make a profit.

A source close to Auckland Airport, who spoke to the Herald under the condition of anonymity, said rents for retailers were negotiated three years ago during a period when "all of the businesses were doing really well" and before work on the expansion and upgrade of the now 36,000 square metre terminal began.

In 2017, the source said, the airport negotiated new terms and conditions and higher rents with retailers - increases of between 25 and 40 per cent of their annual turnover, and at the same time opened up terms with Aelia and The Loop that allowed them to sell a wider range of product, that previously they were not permitted to sell, such as honey products and milk powder.

Auckland Airport denies this. It says those stores had always sold health and wellbeing products, but in 2017 the duty free retailers "chose to increase the space allocated to honey, souvenirs and health and wellbeing products as part of their store expansions".

Liquidators for health store chain TravelPharm - which until August operated three stores at Auckland Airport; airside, landside in the international and domestic terminals, which was placed into liquidation on October 30, said increased competition in the terminal was one of the reasons the retailer had experienced a decrease in sales and was losing money, and was subsequently liquidated.

Tony Maginness of Baker Tilly Staples Rodway also noted increased rents, and said TravelPharm had to relocate stores in the airport on "several occasions" which "caused a significant cost to the company", which had been trading at the airport for 10 years.

"There was also increased competition with other duty free stores selling the core products sold by TravelPharm such as Manuka honey, skincare and health supplements which reduced the company's sales by 50 per cent. The company was also affected by reduced Chinese spending and passenger numbers in the last six months," Maginness said.

Yoon Song, director of TravelPharm, told the Herald last week that Auckland Airport's high rent and retail tenant fees were a "major contributor" to the failure of TravelPharm's Auckland Airport stores.

TravelPharm closed its Auckland Airport stores in August. Photo / TravelPharm

A source the Herald spoke to claims some retailers in the international terminal are making less than $100 per day, largely due to the layout of the terminal - as many passengers were spending most of their money in Aelia and The Loop located after security screening, and had "nothing left to spend" by the time they got further into the terminal.

"It's not just one or two companies affected ... everyone is struggling very badly.

"It's appalling. This is an international airport," the source said.

"The only companies that are doing well there are the two duty free [retailers]."

Retail analyst Chris Wilkinson said travel retail required significant investment and "the very best in environment, compelling promotions and convenience", with stores needing to "constantly refresh" their offer to encourage spending.

"Only bigger organisations can fund these continual improvements, manage the costs of relocations and deal with the challenges of staffing operations over such extended trading periods and inhospitable hours," Wilkinson said.

"Like malls and city centres, individual retailers are finding it increasingly difficult to remain in these competitive and costly environments - such as airports, where margin is tight and investments significant."

Auckland Airport made $255.8 million from retail income in the 2019 financial year, up $35m or 18.5 per cent on the previous year. Five years ago, it had a retail income of $132m.

Its income per international passenger in the last financial year was $20.50 - up 15.4 per cent on the 2018 year.

Richard Barker, general manager of retail and commercial at Auckland Airport. Photo / Supplied

Auckland Airport's international terminal went through significant refurbishment and expansion over a three-year period, starting in 2016. Part of the revamp included a new food and beverage offering, and a total of 32 new eateries and retailers opened in the precinct. Aelia and The Loop, like other retailers, increased their store sizes.

Barker said retailers were aware of the designs and planned layout of the revamped terminal before pitching for the space they wished to lease. He said the rents charged for each store were different.

He said airport retailers were able to trade up to 20 hours a day, and changes in rents negotiated were relative to sales turnover.

"There have been some significant changes in the way consumers shop, and this has meant increased competition both online, in the terminal and outside the airport for health and wellbeing products such as honey, with businesses actively targeting Chinese customers. Unfortunately, this has impacted some of our retailers," Barker said.

"Auckland Airport works in partnership with retailers to support them and help them evolve in the changing market place, and that is why we worked closely with TravelPharm over an extended period.

"We want all of the retailers that are based here to be successful because their success is also our success."