Having begun life as an inflight retail specialist in 1987 – then as Duty Free Air & Ship Supply – 3Sixty Duty Free has diversified and strengthened its status as a travel retailer across multiple channels and geographies.
Today, the company is seeking to consolidate and build on its presence at airports in the US and Latin America against the backdrop of recent busy airport tender activity.
3Sixty Duty Free Chief Operations Officer Alex Anson says: “There are a lot of business opportunities attached to airport development in this region right now, and we are looking closely at and pursuing those.
“We are being selective. We won’t commit to bids that don’t make sense and in this climate you have to look closely at cost of capital on your investments.”
He adds: “3Sixty looks at all opportunities that make sense, large and small, from the major hubs that are in leasing programmes now to smaller partner airports where we see the potential for profitable business.”
In the US, one of those is Ontario International Airport Terminal 2, where 3Sixty opened its first US west coast operation recently. In 2022 the Ontario International Airport Authority (OIAA) struck a ten-year concession agreement with 3Sixty Duty Free to operate the duty-free business. [Note: Ontario International will host the 2024 Airport Food & Beverage + Hospitality Conference and Awards on 25-26 June, organised by The Moodie Davitt Report.]
“That is an interesting airport that has reset their commercial programme and took a very progressive view of the business,” says Anson. “We credit the team in Ontario for a great partnership and it shows what can be done when there is a willingness to think afresh about how we can work together in travel retail.”
Addressing that key topic, Anson says that post-COVID the retailer has found a “spectrum” of approaches from the airport community to partnership.
“Some airports have been exceptional in how they have partnered with operators, and I’ll call out Dallas Fort Worth as one of those.
“Then there are a range of airports that have tried to be pragmatic, and come up with term extensions or changes in rent structure or more flexibility.
“And then there are airports that still focus solely on the agreed Minimum Annual Guarantee (MAG) model and have not moved at all.”
The picture is broadly positive though, he says. “When we look at this in the context of RFPs, what we see post-COVID is that many more airports are talking about a MAG per pax as opposed to a fixed MAG.
“That is an important development and it makes sense. If the passengers are there, then we want to do everything possible to generate the highest revenue and share that in the optimum way with the airport. If the passenger is not there, you cannot hold the operator accountable. That has been a positive evolution coming out of COVID.”
In other US developments, 3Sixty has just completed the refurbishment of its Dallas Fort Worth Airport central store, the largest duty-free store in its US network. It is also discussing upgrades at Newark and Orlando airports.
The US is just one region in which the company is seeking growth.
“We see more potential in Latin America alongside North America,” says Anson. Among the key openings to come is a new operation at Pereira International Airport in Colombia, announced last year and planned for this year.
That agreement with OPAM, the concessionaire that runs Aeropuerto Internacional Matecaña de Pereira, is for five years, with plans to upgrade the departures duty-free store and enhance the arrivals duty-free store, both using 3Sixty’s omnichannel retail solution.
Reflecting on the wider picture for business development, Anson adds: “Our strategic priorities are profitable expansion, negotiating new-to-market opportunities on our own or through partnerships. We are also looking at Europe, the Middle East and Africa, both in the air and on the ground.”
“We are seeing spend coming under pressure, which isn’t really a surprise given the level of inflation in the market”
Last year the company secured the inflight business with Thai Airways, and soon after announced a partnership with Thai VietJet Air. The low-cost airline connects regional cities in Southeast Asia including Bangkok, Phuket, Chiang Mai, Hanoi, Ho Chi Minh City and others.
Anson says: “We are now working with VietJet to open ground stores in Vietnam, which also represent an exciting opportunity.”
Other channels of operation include cruise terminals – notably in the Mexican Caribbean – and border stores. 3Sixty Duty Free manages a 30-store US-Mexico border business under the Alamo name on behalf of company founder Benny Klepach and his family trust.
Anson says: “There is a lot of activity and it is an exciting time for 3Sixty in terms of expanding our perimeter and horizons.”
The company takes a broadly positive view of the trading climate but it also comes with headwinds, especially with consumer sentiment sharply influenced by inflation.
Offering a balanced view of the market outlook in early 2024, Anson says: “Many of our partner airports are reaching 2019 passenger traffic levels, which is very positive and gives us optimism. Most of our operations are also hitting 2019 turnover numbers.
“But we are also seeing spend coming under pressure, which isn’t really a surprise given the level of inflation in the market. Like everyone else we have been considering the impact of this on consumer behaviour.
“We definitely see consumers gravitating more towards value so we have to be very focused on understanding consumer sentiment and spend in the context of the pressure that travellers face.
“We must make sure we fulfil against their needs with a strong value proposition, while doing all the good things that travel retail is known for, from exclusives to gifting to great service.”
That’s not the only pressure point – the strong US Dollar adds to the cost of purchases for many overseas tourists, notably those from the UK or the Eurozone, on which 3Sixty and other travel retailers rely heavily.
“The exchange rate is a long way from what many traditionally had in their mind as visitors in the past, and this influences behaviour,” says Anson. “Some of the effect overall is mitigated by the Latin American currencies that have recovered versus the US Dollar compared to where they were several years ago. But that impact is limited – the average European spends significantly more than the average Latin American traveller in our stores.”
Plus there is the uncertainty about when Chinese travellers will return at scale to the US market, with Dallas Fort Worth and Newark among those affected.
“We are optimistic about the prospects for business but there are challenges too,” says Anson.
Reacting to the needs of a more value-driven consumer is complex but Anson says that brand partners have been responsive.
“It has not been easy. In some categories we have had double-digit cost increases from vendors over the last two years. These have resulted in our pricing being higher than domestic, which puts us under pressure. Our suppliers have largely been good partners and addressed this, mainly through promotions, which means that our offer in certain key categories can be competitive in an overall sense.
“You cannot undo headline pricing. But you can certainly try and address value by offering more promotions. And that is where a lot of work has happened over the last nine months to try and deliver more value to the consumer.”
The rising costs of staff hire and retention are other factors that hit profitability. Addressing how the travel retailer is reacting to the cost pressures, Anson says: “We aim to offer a high level of service so we need to be operationally effective and efficient.
“We carefully manage our P&L in each location to make sure that it’s still working for us. And while the top-line growth is good we can manage this.
“Capex too is challenging but you have to put that into the context of what you put in your RFP and here nobody is in the same place as they were before. We are bidding in a way that makes sense to us and we are being very pragmatic in how we achieve our ambitions.”
Looking at the wider industry picture, we ask how 3Sixty views the recent consolidation in the channel. The company itself has been part of this wave with Hotel Shilla taking a 44% stake in 2020.
Anson says: “3Sixty is clearly a duty-free specialist; we have some speciality stores but the heart of our business is duty free. Shilla invested in 3Sixty because it saw the opportunity to grow in geographical terms and across channels in travel retail.
“And we believe that in duty free and travel retail we have a lot of headroom to grow still, without having to enter areas where we don’t have the expertise and when there are other more developed competitors out there. We don’t for example have plans to expand into food & beverage.
“We recognise the impact that consolidation has but importantly we wonder whether airports want one operator that controls all commercial from duty free to food & beverage? We think there is an opportunity for airports to diversify the number of operators that they work with, with benefits for all partners.”
One way in which 3Sixty says it can set itself apart is via its positioning as an omnichannel travel retailer. That means accelerated digitalisation of services, ranging from in-store tools to the broadening of the company’s ecommerce reach.
As reported, 3Sixty entered a wide-ranging agreement two years ago with digital travel retail specialist Inflyter. The aim was to enable domestic travellers to shop online and have their order delivered to any US address.
It blends 3Sixty’s operational footprint and omnichannel travel retail reach with Inflyter’s travel retail platform, with a potential audience of around 900 million US domestic travellers.
Assessing the next steps in that journey, Anson says: “We have been pioneers in omnichannel, whether it’s through our partnerships with key airlines such as Singapore Airlines or the investments that we have made with Virgin Atlantic, working with the Omnevo platform and delivering what we believe is a state-of-the-art experience, from inflight sale to pre-order.
“With Inflyter we have been working for some time and we are testing the latest app release to further improve the customer experience.
“We have continued to see the evolution of that digital experience. And we will be rolling out pre-order to airports and airport lounges with Priority Pass and others this year. It’s exciting to see how that develops.
“And we have got even bigger ambitions to make sure that is an even bigger part of our business in the future. The vast domestic passenger market in the US is largely untapped and we really want to leverage this with the Inflyter partnership.”
What are the keys to really developing the digital penetration of retail in our channel, we ask?
“With the airlines it’s about having good integration within their systems, making it a seamless experience for the passenger from the moment they book their flight to pre-ordering their goods or before they are checking in to give them a reminder to order.
“The numbers tell us passengers are understanding this and the exponential growth that we are seeing says that there is a greater acceptance.
“When we talk about Inflyter really it’s about relevant customer acquisition. We are only talking to travellers. That means working with partners within the Collinson Group such as Priority Pass to make sure we are tapping into those sources of bona fide traffic, and gaining stronger conversion.
“Ultimately, the platform needs to do the talking. Because if you are doing everything else but you don’t have a good platform, if the quality of the content or the call to action is not there, then it doesn’t matter, you are not going to have return business.”
Finally, Anson looks at the prospects for 3Sixty in the year ahead – and he is upbeat about growth despite some evidence of softer consumer spending patterns, as noted above.
“We are forecasting double-digit top-line growth on a like-for-like basis, which shows that we are ambitious about where the business is going,” he says.
“We are excited about some of the investments we have made that are now coming to fruition in our existing perimeter. Then there are the business development opportunities in the US, Mexico and in Latin America. Yes there are some challenges but it is an exciting time for the business.” ✈
*This article first appeared in The Moodie Davitt Magazine. Click here for access and turn to page 28.
