CANNES, FRANCE — The recession-mauled travel-retail sector faces a series of major challenges, none greater than turning more airline passengers into actual consumers.
This story first appeared in the October 23, 2009 issue of WWD. Subscribe Today.
Even though travel retail overall is a $35 billion sector, beauty executives said the industry still isn’t doing enough to entice shoppers. Brands are facing many of the same issues in travel-retail as they are in general retailing, including the need to focus on value rather than just discounts and promotions; the development of exclusives; the growth in skin care, and improving the shopping experience.
The Tax Free World Association kicked off its 25th anniversary Sunday night with a celebratory cocktail party and a more elaborate than usual fireworks display over the sea, which was set to Michael Jackson’s “Man in the Mirror.” The song’s lyrics about the need to make changes were apropos, considering the soul-searching that ensued during conversations among the forest of booths in the Palais des Festivals convention center.
Sales are running significantly behind, in the high-single digits in 2009 versus 2008, for the nearly $6 billion in beauty business done in travel retail worldwide. That fact sparked questions over how the business should be conducted in the future and even what shape the travel-retail convention should take, though it still attracts 14,000 visitors, exhibitors and distributors.
For Kay Spanger, a board member of the influential Heinemann airport operator, the issue boils down to the need for fragrance manufacturers in particular to think more about how they can grow the entire category and spend less time obsessing over their individual market-share competitions. This also means doing a better job controlling the overdistribution and rampant discounting of their brands in local markets.
But Spanger’s larger vision is to grow the entire business by relying less on month-in-and-month-out spot promotions with individual brands, like a gift-with-purchase giveaway, in favor of bigger-picture promotions with more lasting effects. He pointed to a Chanel promotion in a shop-in-shop located in a 10,000-square-foot store in Frankfurt airport. For the first time in travel retail, the fashion house is selling for a limited time its exclusive fragrances, which are primarily sold in Chanel’s boutiques.
“Doing only single-brand promotions doesn’t bring the category up,” he said.
Spanger gets no argument from market leader L’Oréal. Eric Tarral, the company’s travel retail worldwide managing director, said, “Being the leader gives us the responsibility to see how we can look beyond and see how we can grow the market.”
He indicated the industry needs to become less reliant on increases in passenger traffic to drive sales gains in the shops and devise better ways of turning travelers into consumers. While figures vary, Tarral estimates only 40 percent of the world’s 1.8 billion annual passengers enter shops and of those, just 20 percent make purchases. However, an estimate by the Generation consultancy is even lower. It believes 30 percent of people enter stores and overall, 15 percent of passengers buy something, said Jérôme Goldberg, the tracking firm’s French partner and managing director of JMG-Research.
“There’s room to grow, and we can grow the market this way,” said Tarral, who added with a smile that he also would be happy with an increase in footfall: “If traffic is up 10 percent, I will take that as well.”
As part of the company’s “anticrisis” organization, L’Oréal at the fair keyed on innovative products and invested in its biggest fragrance launches while also looking into providing “additional services and gifts, which are value to the consumer.”
Philip Shearer, chief executive officer of Groupe Clarins, projects the travel retail market will continue growing at 5 percent a year.
“Overall, I think travel retail is a fundamental opportunity, but I think the nature of it is changing,” he said.
“What I have learned in this past year from the crisis is that what used to be a recipe for success may not be the same for the future,” said Renaud de Lesquen, president of YSL Beauté. “You have to reinvent yourself. There are no taboos anymore.”
One move he found successful at Paris’ Charles de Gaulle airport was to go out and recruit shoppers as they were entering with an array of teaser ads for YSL’s latest women’s fragrance, Parisienne.
Referring to a taxi-borne ad campaign being planned in New York, de Lesquen stated, “We need to recruit people where they are. The future lies in our ability to recreate more emotion in the market. This is a luxury business that is all about dreams and emotions.”
Heinemann’s Spanger elaborated on how manufacturers and retailers can capitalize on the changing nature of business in airports. One way is by giving “service-oriented promotions,” such as facials and skin care advice.
Spanger also takes a dim view of what he sees as less-than-genuine promotional offers. For instance, three regular lipsticks packaged in one box that’s merchandised as a travel-retail exclusive is just a price offer to him.
“You should only say it’s exclusive if it is really exclusive,” said Spanger.
With airline passenger traffic down 8 or 9 percent and Heinemann’s sales off by 9 percent on average so far in 2009 versus 2008, Spanger sees business slightly improving. He predicts a “real up trend” in November, the year anniversary of the economic crisis.
“Next year we expect to be flat,” said Spanger. However, he speculated when the recession does end, it will leave a mark on the psyche of the consumer, who will think twice before buying a luxury product, like fragrance.
“This will influence not only our trade, but the luxury world in general,” he said. Spanger asserted brands with a heritage, what he calls “reliable luxury” like Hermès, will fare well, while the more “fashionable” brands will have a tougher time.
The sentiments of many executives were summed up by L’Oréal’s Tarral, who saw an improvement this August and September, driven largely by a revival in Asia, which entered the crisis first, in August 2008.
“We have the signals of a slow recovery in Europe,” he said, noting the North American market is “more complicated and still fairly negative.”
Generation estimates the overall global travel-retail market has shrunk by $2 billion, representing 5 to 7 percent, this year from 2008’s $36.9 billion total. Goldberg suggested beauty revenues’ decrease in the channel is comparable.
Manufacturers uniformly complained of airport retailers’ inventory destocking as sell-through rates continued outpacing the frequency of sell-in orders. However, Goldberg noted the sell-in started to pick up after the summer and suggests 2010 will be the year of recovery, with “real growth by the end of 2010 and into 2011.” He said Generation projects the entire global travel-retail market will grow to $60 billion within the next 10 years.
“Beauty will benefit,” said Goldberg. “It should slightly improve at the expense of tobacco and spirits.”
He supported the contention of others that the fragrance market has been undermined by a shift into skin care and makeup. He said, “The skin care share is moving up all over the world.”
A decade ago, women’s fragrance ranked first, followed by men’s fragrance, skin care and makeup, said Goldberg. Now, skin care is second, ahead of men’s fragrance. The trend has been accelerated by the creation of freestanding shops from brands like Kiehl’s, MAC Cosmetics and La Prairie.
The Estée Lauder Cos. Inc. is leading the charge into skin care and makeup.
“Fragrance will become more commoditized, and skin care and makeup will become more valued because of the services,” said Olivier Bottrie, Estée Lauder’s president of travel retailing worldwide, who added that over the last five years, the fragrance share of the travel-retail market has slipped from 65 percent to 60 percent.
However, Cedric Prouvé, the company’s group president of international, pointed out, “As a major beauty player, we have to play in fragrance. Also, we have to win on the bottom line.”
The company is plowing ahead with Estée Lauder and Clinique while executing a plan of development for La Mer, which is in 40 to 45 airport stores worldwide.
In order to find the space to properly merchandise skin care and offer its necessary services, airports have begun converting unused space into beauty shops. The Lauder executives pointed out this is also part of a general tendency by airport operators to increase nonaviation revenues as air traffic continues faltering.
In some of its freestanding shops, the company is aggressively providing services, such as blow-drying by Bumble & bumble in the Singapore airport. Clinique is also offering a menu of services, including how long each takes to perform, since time is the greatest currency in a busy airport.
According to Bottrie, there are three bright spots in the universe of travel retail — Korea, Greater China and Heathrow Airport in the U.K.
Patrice Louvet, president, global prestige products at P&G Prestige, said the travel-retail channel remains an important focus, and he expects the company to play an even larger role in the future.
“Our priority has to be to grow the total category; we think it’s our responsibility as one of the leading players in that space,” he said.
Carolyn Tastad, vice president, global market operations, P&G Prestige, said the company has undertaken major research projects across several channels of trade, all aimed at improving the shopping experience.
“The consumer is looking for value. It’s definitely much broader, much more holistic than price discounting or a move to smaller size,” she said. “There’s a role for value — it must add to the category, not detract.”
Tastad said the concept is “much broader than price discounting.” P&G’s 10-year-old Hugo Boss fragrance was repackaged in a platinum edition, which is priced the same as the original. Dolce & Gabbana’s most recent fragrance collection has 100-ml. scents priced at 59 euros each, or $88.73 at current exchange, which is more typical for a 30-ml. bottle.
Looking through a larger lens, Tastad said the company is working with retailers in the U.S., Western Europe and travel retail on trying to increase the conversion rate of shoppers to buyers. The method mostly involves grouping brands to allow the consumer to navigate fragrance departments more easily. She noted many shoppers enter fragrance departments and walk out without buying.
Eric Henry, chief operating officer of Beauté Prestige International, said, “The destocking is believed to be behind us. We can be reasonably optimistic. The markets where we are are down between 5 and 10 percent.”
Henry added, citing NPD numbers, that the U.S. business declined by double digits for September.
“I think we are focused beyond our core lines and markets,” he said. “We continue to feed our brands. Our strategy for this year is to target market share again.”
Philippe Sode, Guerlain’s international managing director, seemed buoyed by the first two-week results of the launch of Idylle, which captured the number-one ranking in France. The brand hopes the scent will make it more of a global force. Like other fragrance companies, Guerlain has suffered in the crisis, but Sode remains undeterred.
“It is part of our duty to innovate,” he said. “Next year will be a difficult year again for the industry, but we have to play on our strengths. If we’re successful with Idylle, we’ll see the world differently. We have a lot of ambition for this brand, for this fragrance.”
In the U.S., Idylle is to be introduced exclusively at Saks Fifth Avenue for fall.
Jean Mortier, senior vice president, commercial, of Coty Prestige, is pushing hard behind what it considers two of its most innovative fragrance brands: Marc Jacobs and Chloé. The results so far have emboldened Mortier to predict Coty can chalk up a 10 percent sales increase for its fiscal year ending June 30.
“I think we will get it with innovation and our prestige brands,” he said.
Lauder’s Prouvé raised a point echoed by others in the Palais that TFWA’s 25th anniversary is a good opportunity to reexamine the meeting’s premise.
“This show has to evolve to find a new raison d’être,” he said, asserting a trade show is no longer needed for the day-to-day business of meeting retailers and placing orders. It now is a place where larger issues are discussed, such as the allocation of space in airports. So perhaps there should be more participation by those who are shaping the business around the world.
Attendance figures were not available at press time, but visitor preregistration was down 8 percent on-year from the 4,756 in 2008. According to TFWA organizers, numerous small and medium-size exhibitors dropped out this session, but theywere replaced by 88 new recruits. Overall, there were 463 exhibitors this year versus 451 in 2008. At 25 percent of that, beauty claimed the greatest share, with 115 companies versus 117 last year.