Expand high street travel shops or shut them?

Agents should match convenience found online, says Steve Endacott

Should traditional bricks and mortar travel agents expand their number of high street travel shops or shut them?

Like many strategic questions, the answer depends on what you are selling and how cheap high street shops become as non-travel retailers abandon high streets.

Thomas Cook simply does not need as many shops. If it sells its airline arm this is likely to result in a reduction in its tour operating capacity as the number of committed seats falls and it evolves into a more flexible capacity model.

Fewer holidays to sell, equals fewer shops and hence its shop closure program. However, should the independent sector be filling any gaps created?

There is no doubt that the internet and the “always on” experience offered by smartphones is dramatically impacting our shopping experience.

Why bother heading down the high street when virtually anything you want to buy is a click away via Amazon, eBay or the recently revitalised Google Shopping channel.

Music, electronics, white goods, mobile phones, estate agents and even clothes to a lesser extent, are rapidly moving online.

This is leaving great swaths of the high street empty because high rental costs and business rates make the high street an expensive channel, compared to online sales.

This equation however, is not as simple in the travel sector, where the shear range of products online and the emotive nature of holidays provides a natural counter balance.

The average online conversion of visitors to bookers, is less than 1%, as customers on average visit 23 sites and revisit the site they do book with, three or more times before booking.

Every year the cost of generating these leads from Google increases, with this year’s inflation rate running at above 20%.

Compare this to a high street shop, where conversion of people walking through the door ranges from 15% to 30%.

Now consider a world where landlords are losing tenants at the fastest rate ever seen.

This makes it inevitable that high street rental costs are going to collapse and local governments are also likely to be forced to cut business rates in order to prop up declining high streets.

So at a time the internet is becoming more expensive, the high street is set to become more attractive.

However, with low-cost carriers like Jet2 and EasyJet set to dominate the commodity beach holiday sector via direct online sales, the high street winners are likely to be independents specialising in more complex long-haul, cruise or high-value holidays.

But with a reduced number of people walking down the high street, it’s also important for travel agent shops to evolve their customer acquisition strategies.

In my view the advent of cloud-based phone systems mean that the next generation of high street retailers should evolve to service the following functions.

• Walk-in traffic. Still a key business driver.
• Brand building. A high street presence is a great local brand driver in itself and fulfilment centre for localised advertising within social, rugby, cricket and football clubs, as well free local papers if they still exist.
• Call centres. Why not have online bookable or phone to book web sites, supported by a call centre based in the high-street shop? Look at how successful Trailfinders are.
• Homeworkers office. Explore staffing the shop with homeworkers, whom work in the shop two days a week on a rotational basis and from home the rest of the week. They can then either travel to customers home’s, book over the phone or arrange appointments in the shop, for face-to-face consultations or to handing out brochures.

Moving forward, high street agents need to be as convenient to customers as the internet and this requires changing working practices to offer longer opening times and the ability to start a holiday purchase in a shop, but complete it by phone.

So, evolution may be required, but I’d advise renegotiating rents, not shutting shops.

Comment: Are OTAs eating each other’s profits?

Tough trading extends online, says Steve Endacott

I often flippantly describe online travel agents (OTAs) as “parasites living off the misery of others”.

Ironically, this is actually a positive description of their asset-light, non-risk model, where they buy flights and seats to package into holidays.

This lack of commitment allows them to exploit drops in flight and hotel prices in a market where customer demand is weak. These lower prices attract customers, so demand gradually matches supply price.

Unlike traditional tour operators’ committed models, OTAs do not take a hit to profits from unsold seats or being forced to sell seats below cost to fill aircraft.

The pain being taken by major tour operators Tui and Thomas Cook is clear in their recent financial reporting.

Cook has clearly decided to throw the kitchen sink at this year’s financials with a £1 billion write down, increasing winter losses to an eye-watering £1.5 billion. But a deficit of 12% on summer sales shows how tough summer 2019 trading is following a hot summer in 2018 and Brexit lingering in the background.

Historically, OTAs’ profits appear to have been relatively immune to downturns in demand and UK OTA On the Beach’s recent 12% rise in winter profits to £11.9 million strikes a positive note.

However, On the Beach’s strong growth in low-cost ‘brand’ traffic, driven by growth in repeat bookings and effective above-the-line advertising campaigns, hides a worrying underlying trend.

This trend is the 20%-plus price inflation seen on most Google pay-per-click (PPC) travel terms.

As search demand has declined by 10% in line with general UK market demand, OTAs which have been brought up on continued upward growth in turnover and passenger numbers are competing even harder to maintain growth, pushing up bid prices.

The impact on profits are further inflated by having to replace low-cost SEO traffic, which naturally declines in line with demand, with more-expensive paid traffic in order to just stand still.

This is why most OTAs are currently naval gazing at their process and customer care, as customer retention and positive brand building have never been more vital to continued profit growth.

After years of summer relaxation, confident that the pain of others will balance the books against lower demand, it may be that OTAs have now joined low-cost airlines and tour operators in fearing a hot summer and a continuing Brexit hangover in the UK.