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Call it Snob appeal. MAC’s Snob, an opaque Malibu Barbie–pink lipstick, became an immediate cult sensation in Brazil back in 2008, after a soap opera actress sported it at an awards ceremony.
Today, it’s the brand’s best-selling lipstick in Brazil and, although it ranks 27th overall in North America, Snob is the fifth best-selling stockkeeping unit in MAC’s New York City Times Square flagship.
No wonder, considering that 70 percent of the store’s consumer base is comprised of tourists, and of that, 50 percent are Portugese speakers.
“When you look at our top-10 doors in North America, six are completely influenced by the Brazilian consumer,” says Karen Buglisi, global brand president of MAC, “and when you look at our top 25, half are influenced by the Brazilians.” Buglisi reports that Snob is also MAC’s top-selling sku at its freestanding stores in the Mall at Millenia and the Florida Mall, both in Orlando, and the Aventura Mall in South Florida. Of Brazilian consumers, Buglisi says, “She is shopping with us, and she is shopping in a lot of places.”
The Brazilians aren’t alone, and MAC isn’t the only brand feeling the effects. An exodus of newly affluent Chinese consumers into Asia, Europe and America are boosting sales in both travel retail and local markets. Add to that the high number of Russians, Arabs, Australians and even Swiss on the move, and the results are changing the dynamics of the international beauty business.
“International travel is on the rise, and the traveling consumer is consuming,” says Ricardo Quintero, senior vice president and global general manager, market development, of Clinique. “The number of airports being built in the emerging world is enormous. The airline industry is creating bigger, more fuel-efficient planes that carry more people to more places. Miles and miles of high-speed train lines are being built in China alone,” he continues. “This is not a trend. This is a new way of life that is going to get bigger and broader. Today, the consumer is a global consumer. Nothing will stop them.”
“There is a whole slew of new people who are coming in much larger numbers, particularly the Chinese and the Brazilians,” agrees Michael Gould, chairman and chief executive of Bloomingdale’s. “The Europeans, Canadians and Mexicans have continued to come. The Swiss are here in dramatically more numbers and the Australians are here.” Sources estimate that tourists account for about one third of Bloomingdale’s business at its 59th Street flagship, a number Gould declines to comment on, though he says, “We’re going to see more and more foreign travelers, and retailers are going to have to work hand-in-hand with manufacturers to appeal to them.”
Consider the numbers: According to the United Nations’ World Tourism Organization, tourist arrivals to Europe reached 503 million in 2011; Asia and the Pacific recorded 216 million arrivals, up 6 percent; the Americas recorded 156 million, with North America accounting for 100 million of that, and Africa hit the 50 million mark. The UNWTO reports that among the top-10 tourist destinations, receipts were up significantly in Hong Kong (up 25 percent), the U.S. (up 12 percent), Spain (up 9 percent) and the U.K. (up 12 percent). The top spenders were led by emerging markets: China (up 38 percent), Brazil (up 32 percent), India (up 32 percent) and Russia (up 21 percent).
The sheer volume of people traveling bodes well both for travel retail and for domestic retail businesses, and is changing the approach that brands and retailers are taking in each channel. Philippe Schaison, president of Clarins International, reels off the figures: In 2011, there were 1.6 billion international air passengers, a figure that is increasing 5 percent annually and expected to reach 11 billion by 2025. London has approximately 60 million international air travelers annually; Paris, 53 million; Hong Kong, 49 million; Dubai and Frankfurt, 46 million each, and Amsterdam, 45 million.
“There is no mall anywhere in the world that has so many potential customers,” says Schaison, “and they have two hours to kill with nothing else to do except shop and drink and eat.” Globally, sales of perfumes and cosmetics in the travel retail channel totaled $13.8 billion in 2011, a figure projected to reach $23 billion by 2015 and $40 billion by 2020, says Schaison, citing figures from Generation. Clarins’ travel retail business is growing at 20 percent per annum, Schaison says, double its worldwide business. “Travel retail is crucial,” he says. “Even though it’s roughly 15 percent of our sales, it is 40 percent of our profits.”
Whereas historically, duty free has been a business of convenience, today, that is changing rapidly. “There is now a huge amount of premiumization,” says Carolyn Tastad, vice president of prestige global market operations at Procter & Gamble. “There are many outlets selling $5,000 bottles of cognac,” she cites as an example, “and that is now moving into fragrance. We are working hard to drive the high end of the market.” Tastad notes that Dolce & Gabbana’s Velvet collection, a line of six fragrances priced at about $200 each, launched successfully in travel retail along with specialty stores such as Saks Fifth Avenue and Harrods.
Chinese travelers and their insatiable hunger for Western luxury goods are the key target for such wares. “The Chinese are eager to travel. They want to do it, and when they travel, their main objective is to shop,” says Olivier Bottrie, president of travel retail worldwide for the Estée Lauder Cos. Inc. “Rather than stay in fancy hotels or visit fancy restaurants, they prefer to spend on shopping and buying luxury brands.”
The first port of call outside of China for Chinese travelers is generally Hong Kong, where they represent 25 percent of all passengers. Next, they head to Korea, Japan and Southeast Asia, then Europe and finally the U.S. The Brazilians generally head to North America, most often Florida and New York City. The Russians head to Turkey, a visa-free zone where they account for roughly 50 percent of all visitors, and the U.K. is a magnet for well-heeled Middle Eastern travelers.
Infrastructural development in emerging countries is key for beauty brands as well. Clarins estimates that air traffic will triple in Asia by 2030, with 79 new airports opening in China between now and 2020, 58 new airports in India by 2030 and 13 new facilities in the Middle East by 2022.
When it comes to beauty, each nationality has specific products it tends to shop for. Bottrie notes that the Chinese are big skin care consumers, the Brazilians buy enormous amounts of makeup, the Russians look for scent and makeup and Middle Eastern consumers are avid fragrance buyers.
Wherever they are, each group expects to be able to shop in its own language. To that end, both retailers and brands employ multilingual sales associates and in-store collateral material. The 64 makeup artists who work at MAC’s Times Square store speak nine languages, and they’re not an anomaly. “In Dubai, our beauty advisers speak Chinese and Russian, in Miami, it’s English and Portugese, at Heathrow, it’s English and Mandarin,” says Schaison. “In airports and malls where there are a lot of Chinese shopping, we have special gondolas where everything is written in Mandarin, and the products featured are bestsellers in China, not necessarily Europe. Our Shaping Facial Lift is a huge seller in China, not so much in Europe,” he continues, “so you can find gondolas with that written in Chinese. The Brazilians love Azzaro for Men, so if you go to Buenos Aires, you have a huge gondola of Azzaro with everything written in Portugese, in addition to our regular lineup.”
Clinique, too, has multilingual merchandising units in stores like Harrods and Galeries Lafayette, which derives 50 percent of its traffic from the tourist trade. “You have to be able to communicate and remove barriers,” says Quintero. “Everybody likes to feel smart. When I lived in Korea, one of the big shock moments was not being able to read,” he recounts. “You don’t want to put a consumer in that situation — she’s at a disadvantage and it’s a barrier. Empowerment is about the removal of barriers.”
Finessing the proper assortment of products has prov- en to be more problematic than communicating with visitors. The Chinese travel primarily during Golden Week, the twice-a-year, seven-day long national holiday that occurs in January and October, while Middle Easterners travel most in the period leading up to Ramadan. While many brands are becoming adept at finessing travel retail in-store assortments to international travelers, nailing the calendar is still a challenge.
The dates of Ramadan, for example, are on a 13-year cycle, explains Jayne Demuro, head of beauty at Selfridges, and fall 10 days earlier each year. In 2012, Ramadan starts on July 21; in 2013, it will start on July 9. This comes into play with Middle Eastern tourists, who are avid buyers of fragrance and want only what is new. “During pre-Ramadan, our fragrance business is almost equal to the Christmas business,” says Demuro. “But the next few years will be interesting, as Ramadan hits in the middle of July, whereas three years ago, it was in the middle of August. So the conflict of whether we’re on sale or the brands can get newness at the right time arises,” she continues. “Brands don’t always have the right product at the right time for the customer. If a fragrance is launching at the end of August, they will have missed the Middle East opportunity for a whole year, and that customer only wants to see what’s new and what they can’t get at home.”
Consequently, retailers have started pegging the in-store experience to heavy travel times. “We’ve started to adapt the way in which we launch and merchandise products, and in turn, we’ve seen how brands have clearly started to follow suit, launching specific products for a specific audience at a specific time,” says Annalise Quest, general merchandise manager of beauty and fine jewelry at Harrods. During Golden Week this past January, for example, Harrods had a surge of Asian-inspired skin care launches from brands such as Guerlain, Sisley and Clinique.
“We initiated some exciting activity on the shop floor, including fortune cookies with bounce-back offers to counter, and we merchandised the Cosmetics Hall with dragons and a red carpet,” continues Quest. “I expect to see this evolve even more over the next few years to create a targeted and sleek approach to our overseas customer base.”
The Chinese, in particular, have shopping habits that are very specific. “They come in having done their homework and are very efficient in terms of their shopping experience,” says Demuro. “They don’t want to spend hours shopping — they want to see as much of London as they can. Typically, they come in groups and are very prescriptive about what they’re looking for.”
“They pretty much know exactly what they want, because they have done their research and talked to beauty advisers in China,” agrees Schaison. “It’s hard to convince them to buy something that is not on their list. And they buy in large quantities — three, five, 10 of the same product, because they’re buying for themselves,their family, their friends. The Brazilians are the same.”
To that end, brands are focusing on marketing to the tourist trade in their home country, in addition to the country visited. Take advertising, for example. “Usually, you advertise in that country based on the sales of a country, but for China and Brazil it’s different,” says Schaison. “When you advertise in China or Brazil, you know you are going to have a lot of sales outside of the country. So at the corporate level, you accept a local overinvestment, because you know you’re going to recoup some of that investment when people are traveling abroad.”
Lauder, too, targets travelers before they venture abroad, particularly the Chinese. “We know how the Chinese behave in terms of planning travel,” says Bottrie. “Leaving China for the first time is a big occasion, and they take a lot of time planning it. They do a lot of research, about what to see, what to do, where to shop. We want to be in the where-to-shop bucket — they need to know they can find our brands in this or that airport. We tend to communicate for a very specific purpose.”
Selfridges is looking to its experiences with Middle Eastern travelers to inform the development of its China strategy. Over the past three years, the retailer developed first a newspaper, then a magazine that was distributed in select countries, as well as online, in hotels and on airlines. Executives have now set their sights on developing a similar format for China.
Given how lucrative the overseas customer base is, it only stands to reason that their influence will continue to increase exponentially. Take MAC, which has seized the opportunity it has with Brazilians and capitalized on it globally. Snob is now available in select markets as a lip gloss and nail lacquer, and the brand launched an entire mineral makeup color collection inspired by the semiprecious stones of the country.
MAC’s Latin American headquarters have moved from Mexico to Sao Paulo, and most importantly, it is expanding its flagship store strategy based on the success of Times Square, where the average unit sale is 30 percent higher than the average in its North American freestanding stores. A Champs-Elysées location will open in Paris in November, with Rome and Vienna slated for the next couple of years. “The flagship was so successful that it gave us permission to pursue that strategy,” says Buglisi. “We are looking for cities that have a high travel consumer shopping there. It’s very meaningful to the brand,” continues Buglisi. “One way we raise awareness is by putting the brand where there are a lot of people and give them an experience and service through our products and our artistry that keeps them coming back. That is our strategy — it’s highly complicated, but so simple in a way.”
TOP INTERNATIONAL AIRPORTS FOR BRAZILIAN TRAVELERS
• MIAMI INTERNATIONAL
• BUENOS AIRES: EZEIZA INTERNATIONAL AIRPORT
• NEW YORK: JOHN F. KENNEDY INTERNATIONAL AIRPORT
• PORTUGAL: LISBON AIRPORT
• ORLANDO: ORLANDO INTERNATIONAL AIRPORT
• LONDON: HEATHROW AIRPORT
• ALTANTA: HARTSFIELD-JACKSON ATLANTA INTERNATIONAL AIRPORT
• SANTIAGO: C.A.M.B. INTERNATIONAL AIRPORT
• HOUSTON: INTERCONTINENTAL AIRPORT
• MONTEVIDEO, URUGUAY: CARRASCO INTERNATIONAL AIRPORT
Targeting the Jet Set: Five Key Points
The Numbers Game: In 2011, there were 1.6 billion international air passengers, a number that is increasing 5 percent annually and will reach 11 billion by 2025.
Take Two: The Chinese and the Brazilians are fueling the growth. The former travel first to Hong Kong, then the rest of Asia, Europe and America. The latter head most often to Florida and NewYork.
Talk the Talk: Communicating with travelers in their native language is crucial to making a sale, be it via sales associate or collateral materials.
It’s a Date: Forward-looking retailers and brands are attuned to the nuances of the calendar, timing key initiatives to prime travel periods.
Plant the Seeds: Marketing to travelers in their home country pays off when they hit the road.