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Travel Retail Finds Silver Lining in Asia

Despite a wobbling global economy, the news at the Tax Free World Association's annual meeting was upbeat.

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Outside the Palais des Festivals.

Outside the Palais des Festivals.

Bruno Vandeville

Inside the Palais.

Inside the Palais.

Bruno Vandeville

Olivier Bottrie

Olivier Bottrie

Bruno Vandeville

Jean Mortier

Jean Mortier

Bruno Vandeville

CANNES, France — Thank goodness for Asia.

This story first appeared in the September 30, 2011 issue of WWD.  Subscribe Today.

That was the collective sigh of relief heard throughout the packed aisles of the Palais des Festivals here last week during one of the busiest and most upbeat Tax Free World Association annual meetings in recent years. There may be storm clouds over the worldwide economy, but beauty’s $12 billion global travel retail business continues to grow in the high-single or low-double digits — and it’s Asian consumers who are fueling the industry’s optimism.

“I am driving a car. I know there are hurricane warnings, but it is still sunny and I am pushing ahead,” said Laurent Boillot, chief executive officer of LVMH Moët Hennessy Louis Vuitton-owned Guerlain. “There will be a time to hit the brakes, but not now.”

“We’re going to have a very sound double-digit growth worldwide. It’s driven by Asia,” continued Eric Tarral, L’Oréal’s travel retail worldwide managing director, who added there are more Chinese traveling outside of their home country, and that they’re willing to consume luxury brands.

In China, L’Oréal ranks first in the luxury beauty segment, according to the company.

“It is a close fight,” said Nicolas Hieronimus, managing director of the French beauty giant’s Luxury Products Division, acknowledging competition from the Estée Lauder Cos. He added, “Globally the luxury market is doing very well. The cosmetics luxury market is going to grow this year at around 7 percent, probably. So we’re pretty confident for this year. Since the summer, we haven’t seen any significant slowdown or change in the growth pace. We see that the market is growing everywhere, but clearly you have some parts of the world which are growth relays, some parts of the world which are in recovery and one part of the world that is a slow growth area, which is mainly Western Europe. Western Europe is growing at a sell-out of plus one or plus two.”

He said the North American market is in “good shape,” “a recovery area” and growing between 7 and 9 percent. The two main drivers worldwide for L’Oréal’s luxury division are the emerging markets — primarily Asia — and travel retail.

While in Western countries much of the beauty business’ recovery is being fueled by the truly rich luxury shopper, rather than the aspirational one, Carsten Fischer, chief officer of Shiseido’s international business division and professional business operations division, stressed that is “not true for Asia. Everybody in Asia is aspirational. There’s so much energy put into social climbing. The whole region is aspirational.”

Fischer said the Chinese have honed their shopping lists with pinpoint accuracy about what they want to buy. “But the Russians are strollers,” he added.

“The SK-II business in Asia is up 40 percent,” said Carolyn Tastad, vice president of Prestige Global Market Operations at Procter & Gamble Co.

For its part, Shiseido has responded to the boom in Asia by refining its product assortment under the strategy of “bigger, better, longer.” One example is its specially conceived kits — like one containing a serum and an eye and lip cream priced at more than $500 — selling like hotcakes on China’s Hainan island.

“Today, the Chinese and Korean customers are looking for these types of sets with high values,” said Ariel Gentzbourger, senior vice president of Shiseido Europe.

Sets generate more than 40 percent of the company’s business with Chinese customers.

Although today Asia has been just a sliver of the global fragrance market, Enrico Ceccato, president and ceo of Perfume Holding, predicted that in a decade there will be an explosion of fragrance consumption in China.

Every year, Erik Juul-Mortensen, TFWA president, sets the stage for much of the talk that ensues during the trade show. This year, with the theme, “A Brand New World,” he turned attention to the use of social media and digital technology to attract customers to the airport stores and make purchases there. The need to increase penetration has been a hot topic for years.

“This industry has to catch up,” he said, citing YouTube and flash mobs as useful ways to reach consumers, even before they arrive at the airport. “There’s nothing stopping us from doing this in travel retail.”

Juul-Mortensen added, “A failure to collaborate on passenger information [with the airlines] is still holding us back as an industry.”

He said the technology allows the industry to get closer to consumers than anyone had dreamed of, even five years ago.

The new digital tools will certainly be needed if the global travel-retail business is to reach the lofty goals outlined in his speech. This year, it’s expected to ring up $44 billion, versus $39 billion last year. A 10.4 percent annual growth rate is projected through 2015, said Juul-Mortensen.

Beauty claimed a 30.6 percent share of the total travel retail market in the first half of 2011, down slightly from 30.8 percent in the same period last year, with sales of $6.51 billion this year, up 14.1 percent against the same prior-year period, according to industry tracking firm Generation.

Whether that growth can be maintained given the uncertain economy was a question weighing on the mind of every executive at the fair. Olivier Bottrie, president of travel retailing worldwide at Estée Lauder International, was one of many to dismiss the financial storm hovering overhead. He emphasized the resilience of the travel-retail market in times of great stress and said, “So far we have seen nothing. If something happens, we will possibly adapt a little bit. Business is very strong everywhere. We are hoping for a very strong year.”

Bottrie was referring to Lauder’s current fiscal year, which began on July 1.

“Our overall vision is to try to increase brand awareness, in-store penetration and conversion, to make a visitor a shopper,” he explained.

One example offered involved “geofencing.” As part of a two-week promotion for the Idealist Illuminator product in the U.K., communication with the customer began way before the airport. Lauder plastered huge billboards in English and in Chinese along Cromwell Road leading to Heathrow. Then travelers were met by light-box displays and the communication loop was completed on arrival at Terminal 5 with a text message popping up on their phones about Idealist sent by Lauder’s travel-retail shop.

Social media also played a role in the launch of P&G Prestige’s Gucci Guilty, which took place in fall 2010. The 3-D commercial ran on TV and YouTube, plus holograms in travel-retail stores gave the introduction an extra edge and helped double the Gucci brand’s Facebook fan base to 1.4 million.

It’s all part of what the company calls focusing “on beauty beyond imagination, so that we can hopefully really delight the people we are trying to serve,” as termed by Joanne Crewes, president, P&G Prestige.

Procter & Gamble has also taken strides in the embryonic area of “retail-tainment” in airport stores. A prime example came in March, when the influential travel-retail operator Gebr. Heinemann unveiled a freestanding boutique in the Frankfurt airport devoted to all aspects of Hugo Boss, including fashion and fragrance, which caused the brand’s business to spike 70 percent in the location.

Kay Spanger, a member of Heinemann’s board, said the retailer could create a similar boutique with Lacoste. The Boss Choice promotion with P&G was a welcome improvement on an area where he feels the beauty industry is lagging behind the liquor and confectionery categories, although beauty was the pioneer of the entertainment concept 10 years ago.

“We cannot increase our business only out of new products,” he said, adding that some upcoming strategies include working with Beauté Prestige International by showcasing the company’s four designers, who hail from four different countries. Spanger is also open to combining brands and has also conceived a “Specially Made by Heinemann” campaign that involves the operator’s name appearing on special-edition products from any of the categories sold in travel retail.

Heinemann, whose business is up 14 percent this year, is expanding its investment with the addition of 111,111 square feet of extra space throughout its network.

Other travel-retail operators are tapping into digital ways to reach their consumers. At DFS, for instance, they are using “e-pr” campaigns, plus Twitter, Facebook, Weibo and other types of microblogging to drive people into stores. There is also a blog where people can write about their in-store experience once they get home.

“We have had great results with digital marketing and will definitely continue with this approach,” said Linda Allario, vice president, general merchandise manager, beauty, at DFS.

Among its recent strategies, the operator has focused on developing high-end skin care brands such as La Mer, La Prairie and Guerlain.

“Another category that is trending well is the well-being category, which we have aggressively pursued the past few years by rolling out such brands as L’Occitane, Kiehl’s, Origins and Jurlique,” continued Allario.

Swiss airport operator The Nuance Group has also been ramping up its selection of well-being positioned beauty products, stocking names such as Nuxe and Dr. Brandt, while giving big skin care brands more space. Nuance is earmarking more space for masstige treatment brands, explained Alexander Anson-Esparza, its buying, merchandising and marketing director Europe.

“Nivea, for instance, is developing special travel-retail sets,” continued Henrik Ottosson, category manager perfume and cosmetics for Nuance.

Coty, which grew its travel-retail business by 19 percent last year and still registers a double-digit sales gain in the channel, is moving ahead with product launches for brands like Philosophy and Calvin Klein color. The company is warily optimistic about the future.

“The visibility is very short,” said Jean Mortier, senior vice president, commercial, of Coty Prestige.

“Travel retail still has potential for growth,” he said. “Some brands are well represented, and some brands have a lot of space to grow.”

 

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