Dubai Duty Free expects flat revenue growth this year, as it renovates its retail space at Dubai International Airport in an attempt to turn more passengers into shoppers.
Its 180 shops expect a sales turnover of Dh6.65 billion this year, compared with Dh6.67bn last year.
This year, it expects to add 2,000 square metres of retail space in the Passenger Terminal Building at Al Maktoum International Airport, doubling its retail space.
At Dubai International, Dubai Duty Free is renovating its retail space in Concourse C between now and the summer of 2018 without expanding its total footprint.
Dubai Duty Free’ sales were up 5.2 per cent in 2014 over the previous year, were flat in 2015 over 2014, and down 5.4 per cent last year over 2015 sales. But passenger numbers have kept increasing at a steady clip during this time.
The past three years have been challenging for the travel retail industry in general and Dubai Duty Free in particular, according to Ramesh Cidambi, the chief operating officer at Dubai Duty Free.
“While it is true that total passenger numbers have been growing at Dubai International Airport, there have been several factors that have depressed spending by these passengers,” he said. “The first is the weak oil price since the summer of 2014 [and] that led to reduced spending by passengers from the region.”
The trend of slower growth rates in duty free sales is a global one, according to Hugo Van Der Schaegh, the general manager at the travel retail branding and design agency ODG in Dubai. The company has designed food and beverage outlets at Dubai International.
“The journey of a passenger through an airport has changed due to security measures, reducing time that can be spent at the retail shops,” he said. “Besides a lot of people are accessing the [premium] lounges through various programmes such as from credit cards, and high Wi-Fi usage [means] people are spending more time on their gadgets rather than visiting shops.”
Competition among airports to attract customers to their duty free shops is also increasing.
“Over the past couple of years Indian airports, for instance, have upgraded their shops and we see the Indian passengers spending there instead of here in Dubai,” Mr Van Der Schaegh said.
The drop in oil prices has led to an overall slowdown in economic growth in the Middle East. It is the top region for Dubai Duty Free, accounting for 21 per cent of its sales to departing passengers, the operator said.
“Dubai Duty Free continued to see this effect [of the slowdown] and sales in March to passengers from the region were lower by 3 per cent even as total sales were higher for the quarter ending March 31,” Mr Cidambi said.
The strength of the dollar and the weakness in some currencies such as euro and sterling added to the slower growth in sales. Europe, including the United Kingdom, accounts for 18 per cent of the business at Dubai Duty Free.
To encourage shoppers, it is working with suppliers to offer better value for money when compared to regions such as Europe, the UK or India.
Changes in the purchasing behaviour of Chinese passengers due to the anti-corruption drive in China has also depressed purchases of luxury items by its nationals, according to Mr Cidambi and Mr Van Der Schaegh.
“The last factor is the increasing pressure from pure online players who continue to pressure all retailers and not just travel retailers such as Dubai Duty Free,” Mr Cidambi said. Among the steps it has taken to check the drop in sales has been price cuts since 2015 on a range of items.
“Adding experiences to the retail shops, such as telling the stories behind a product or a store, that is not found online, [and] exposure to the offers [could also help to attract passengers],” Mr Van Der Schaegh said.
Dubai Duty Free, for instance, is renovating shops such as those in the perfumes and cosmetics segments in Concourse B, and it set up a new section selling watches in Concourse D, and added Apple shops in Concourses A and B.
It is also developing its online presence.
In February last year, it opened 7,000 sq metres of new retail space in Concourse D and added 1,300 sq metres in the link corridor between Concourse B and Concourse C, which is dedicated to Emirates airline. Concourse D has generated a total of more than Dh371.5 million in sales since it opened in February last year. Year to date, Concourse D accounts for 21.6 per cent of the sales at Dubai Duty Free.
The total retail space operated by Dubai Duty Free at both of Dubai’s airports is about 36,000 sq metres.
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