LONDON—Think retailers and restaurants are having a hard time during the pandemic? Try selling just about anything these days at London’s Heathrow Airport.
Traffic at its once-teeming terminals is down to a trickle because of the coronavirus pandemic, leaving the airport’s retail establishments largely closed. The few pubs, boutiques and restaurants that are open are essentially operating in a ghost town.
The loss of those sales has a major impact on Heathrow’s business. Retail revenues at the airport have more than doubled in the decade since 2009 and now bring in about 25% of its overall revenue each year.
Airports share that dependence globally. Retail sales brought in $78 billion for the world’s airports in 2018, the latest year of data from consulting firm Generation. That is more than double their haul 10 years ago, driven by soaring passenger numbers. Average passenger spending at airports hasn’t risen much over that same period—to just over $18 a traveler, from about $17 in 2009, according to Generation and publicly available global passenger numbers.
Heathrow doesn’t charge retailers rent and instead takes a cut of sales, though it doesn’t disclose how much. In normal times, as many as 80 million passengers pass through Heathrow, owned by privately held Heathrow Airport Holdings Ltd., each year. During the height of the pandemic’s lockdowns and travel bans, those numbers approached zero and have risen only modestly since, to about 15% of normal traffic.
While London itself is open for business, a large majority of stores inside the airport remain closed, many behind metal curtains. Heathrow officials say they are working hard to coax companies into returning at its two open terminals, but some businesses are unwilling to open their doors if the potential sales aren’t worth the expense.
Meanwhile, Heathrow has made pandemic-fueled changes to the shopping experience, funneling passengers through new, one-way routes at shops, offering app-based food ordering at restaurants and cafes and joining other bricks-and-mortar retailers that offer online shopping. Heathrow passengers can now make airport purchases ahead of time and pick up their goods en route to their gates.
All this is being done to preserve the airport’s relatively affluent customer base. Heathrow—before the pandemic, the world’s second-largest airport by international travelers, after Dubai—has over the last decade shifted from selling midmarket travel essentials to higher-end goods like luxury handbags, scarfs and jewelry. Luxury goods can be more profitable and more resistant to the industry’s typical booms and busts.
Heathrow officials are seeking to coax retailers back to its two open terminals, but some operators worry the potential sales aren’t worth the expense.
Punctuating that new emphasis, the airport last month reported its highest-ever rise in average retail spending per passenger, thanks to a single purchase: a £65,000 ($85,300) engagement ring bought at Heathrow’s recently reopened Tiffany & Co. boutique.
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“We are probably one of the strongest entry points in terms of wealthy consumers into the U.K.,” said Chief Financial Officer Javier Echave. The pandemic shut that down, but “we are getting ready to get back there as soon as possible,” he said.
It won’t be easy. The airport’s second runway is only partially open, and all flights have been rerouted through two of its four terminals.
Only about 60 of the 340 shops, restaurants, cafes and currency exchanges across its four terminals have opened their doors again as of the end of July, the latest period for which the airport said it has information.
Some are unable to reopen because the terminal where they were located remains closed, while others have balked at the operating costs while traffic is slow. Just 867,000 passengers passed through the airport in July, compared with 7.8 million a year earlier. At Terminals 2 and 5, the airport’s two operating terminals, Heathrow says 62% of stores are open.
The airport says it understands the retailers’ plight.
“We want the retailer to open as soon as possible,” Heathrow’s Retail Director Fraser Brown said. “But we’re equally respectful of the fact that the retailer is a business as well and needs to make some money.”
Airport retailers must follow U.K. government rules for the use of hand-sanitizer and protective equipment.
Leon, a British fast-food chain that serves fare like hot chicken sandwiches and Moroccan meatballs, was one of the first eateries to reopen in Heathrow’s Terminal 2. It kept stores outside the airport open throughout the U.K.’s pandemic lockdown, providing meals for essential workers. Based on the chain’s experience operating with social distancing at those other restaurants, there “was a keenness at Heathrow that Leon reopen,” said Nick Scovell, Leon’s head of franchise.
It reduced kitchen staff by 50% and instituted social-distancing rules for customers. The decision to open early paid off in the beginning: As one of the few fast-food restaurants serving passengers, it monopolized business. As other eateries reopened, though, sales fell back again, Mr. Scovell said.
Retailers and Heathrow, meanwhile, are scrambling to rethink the shopping experience, starting with a “large, large, large amount of Perspex screens,” Mr. Brown said, referring to clear plastic dividers.
Retailers must follow U.K. government rules limiting the number of shoppers in a store, along with requirements for hand-sanitizer and protective equipment—relatively simple for fashion boutiques like Bottega Veneta and Paul Smith, which all reopened in Heathrow Terminal 2 in early July.
More challenging is the World Duty Free section, usually a winding gauntlet that shuttles passengers through aisles of perfume, makeup, alcohol, cigarettes and other luxury goods. Pre-pandemic, passengers walking through were offered tastes of Baileys Irish Cream, sprays of Chanel perfume and makeup try-ons.
Germany’s Dufry AG , which owns and operates the World Duty Free stores, is working with Heathrow on methods for reworking its floor space. Right now, it offers a one-way route that lets passengers detour through designated entry and exit points off the main passageway.
World Duty Free at Heathrow now offers a one-way route that lets passengers detour through designated entry and exit points off the main passageway.
Dufry, which has reopened half of its 2,400 World Duty Free stores globally, has been slowly reintroducing some fragrance testing at a handful of locations, including Heathrow. Staff now keep testers behind counters and follow a strict sanitizing routine after each use, the company says.
L’Oreal SA, one of the main product suppliers to World Duty Free, says it is accelerating development of augmented-reality tools for testing cosmetics without actually trying them on. The company has recently started introducing bar codes on products at Heathrow that customers can scan with their phones. They can then test out colors and shades on their own faces, using their phone cameras and L’Oreal’s website.
The company says it is too early to determine whether customers are embracing the option. “We are currently still in the implementation phase,” a spokeswoman said.
Write to Benjamin Katz at ben.katz@wsj.com
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