Flying High?: Reality Hits Duty Free

The message from the Tax Free World Association show in Cannes was clear: beauty may be recession resistant, but it certainly isn't reality proof.

Flying High?
Appeared In
Special Issue
Beauty Inc issue 12/07/2007

The message from the Tax Free World Association show in Cannes was clear: beauty may be recession resistant, but it certainly isn’t reality proof.

This story first appeared in the December 7, 2007 issue of WWD.  Subscribe Today.

The global beauty industry’s ATM machine, known as the worldwide duty free business, is wobbling badly as it flies into severe economic downdrafts. There was a growing chill in the air as the confidence level dropped faster than attendance figures during the TFWA (Tax Free World Association) World Exhibition held in October in Cannes. The duty free channel possesses two attributes not seen in American department stores since the Reagan administration: foot traffic and impulse buying. What results is quite a golden egg: According to Generation, which tracks global figures, total duty free and travel retail sales generated $34 billion in 2007, including beauty, liquor, tobacco, accessories and ready-to-wear. Fragrances and cosmetics alone accounted for 30 percent, or $10.2 billion.

But what makes Cannes singularly important is that it has evolved beyond the duty free market and mushroomed into the global cosmetics meeting. Everyone is there—hordes of distributors from Europe, Asia and the Middle East and brand marketers large and small. There is plenty of pageantry in the drab corporate landscape. Every night, glittering dinner parties are held along the storied Croisette as fragrance manufacturers hype their latest offerings for airport retailers. Novelty is added by indie brands and seat-of-the-pants start-ups, which often haunt the bar of the iconic Majestic Barrière hotel. This year, it was Yes for Lov, a line that promises the “return of elegant eroticism” with a bagful of boudoir innovations. There are also specialists in parallel marketing, i.e. diverters, who usually can be seen hovering around the Palais. But according to a number of observers, there weren’t as many free agents on the scene this year. While asserting that total attendance was up 1 percent to 5,756, TFWA said core attendance—retailers, store operators and landlords—was down 3 percent.

The duty free business is driven by air travel. September and October reportedly experienced a 3 to 5 percent drop in traffic, particularly in the important North Atlantic routes. On a more optimistic note, manufacturers note that only 25 to 30 percent of passengers purchase in duty free shops, so one solution is targeting the reluctant 70 percent. Heinemann, a key German duty free operator that runs 250 stores, hopes to do that this month with the opening of a highly innovative pilot store in Hamburg Airport that will be driven by service and laden with personality.

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