PARIS — Travel retail’s anticipated takeoff has not only been severely delayed, it could be wiped off the radar screen entirely if a war breaks out in Iraq.

Specters of further terrorist attacks, a double-dip recession in the U.S., faltering air carriers — not to mention increased gasoline prices and near-nil growth — are among the myriad factors contributing to the later-than-expected recovery.

Depressed economies last year and the fallout from Sept. 11 events caused many to stop traveling and spending in airport stores, where beauty volume, alongside that of other consumer goods, was impacted negatively. There has been little to date to boost sales.

"Business is not as usual — business is tough," said Harry Diehl, managing director of German airport operator Gebr. Heinemann.

Fragrance and cosmetics sales worldwide in travel-retail stores last year were down 1.7 percent to $4.48 billion over 2000, according to Swedish firm Generation. And industry executives say they anticipate the slide to deepen. For Europe’s travel-retail beauty business, they expect a 4 percent decline for 2002, for instance. All figures are converted from the euro at current exchange rates.

That’s without taking into account a war in Iraq, which could again stem passenger traffic, send gas prices sky high, prolong the global economic malaise and send regional fragrance sales deep into the doldrums.

"Another full-blown Middle East conflict, coming so soon on top of a fragile travel recovery, will be a devastating blow to travel-related commerce," said the Moody Report, the joint Generation and Moody International venture, in a recent study.

The last battle in that region, the 1991 Gulf War, took a heavy toll on total worldwide duty-free and travel-retail sales. The industry’s volume remained flat, at $15 billion, between 2000 and 2001, compared with the 20.1 percent average growth the business boasted annually from 1981 to 1990, said Generation. It didn’t take long for the market to begin rebounding, however. Already by 1992, it registered an uptick of 6.7 percent year-on-year.

Executives say the Gulf War’s impact on travel retail is nothing compared to what a war in Iraq’s would be. "The market wasn’t mature in the Nineties," explained Marie-Amelie Chereau, area sales manager for Southern Europe at Unilever Cosmetics International. "The impact [of a war] would be more dramatic now than 10 years ago."But manufacturers and travel-retail operators continue to plow away. In light of today’s shaky economic climate, Florian Chanet, managing director of L’Oréal’s European travel-retail division — echoing other industry executives’ sentiments — explained, "We’re going to be very cautious."

He added L’Oréal’s travel-retail business in Europe should end the year up 5 percent to 6 percent. "We’re optimistic for 2003, as we have new products, but I can’t see a great year ahead," said Chanet.

One hopeful sign is that passenger traffic is no longer declining. This year, levels are expected to be on a par with 2001’s, and 2003 should be up 7.1 percent over 2002, according to recent research from Montreal-based L’Organisation de l’Aviation Civile Internationale.

The International Air Transport Association’s outlook for 2003 is close to that figure on plus 6 percent, with an annual 4 percent increase slated for 2003 through 2006.

However, such forecasts only serve to highlight a difficult summer in many European markets.

In Germany, where the economy is soft and August’s floods washed away the possibility of tax cuts, executives say the charter industry suffered in the summer. Fewer tourists reportedly traveled from Germany’s airports to Spain — typically a hot destination — and America-bound traffic was down — as it has been from most countries post-Sept. 11, 2001.

"If you look at the local market situation, people don’t have enough money to spend," said Heinemann’s Diehl, who added that the "picture is not so bright" in some areas.

But that’s not true across the entire Continent or in countries elsewhere, which are showing rapid improvement. "There are some discrepancies if you talk about Europe," explained Eric Henry, chief operating officer at Beaute Prestige International. "The southern part is doing OK." In Greece, for instance, business is doing "extremely well" and in Italy "pretty well," he said.

"In southern parts of Europe, you can [still] gain market share," he continued. And executives point to Russia and parts of Asia — particularly South Korea and China — as swiftly recovering.In terms of distribution, Christian Courtin, Groupe Clarins’ chief executive officer, pointed to cruise ships as a potential growth vehicle.

Product category-wise in travel retail, executives say growth can be generated in skin care and makeup, which currently comprise an estimated mere quarter of the beauty business. Fragrance, however, the most mature category, is saturated.

So, what are some strategies to boost buzz around beauty in travel-retail stores, where tobacco and alcohol, once huge lures, are now less so due to heavy taxation?

Most cite special events as key.

"We had a good summer because of a lot of Cool Water promotions," said Patrick de Lambilly, senior vice president of commercial at Lancaster Group Worldwide. At Amsterdam’s Schiphol airport, for instance, it held a promotion in August that helped Cool Water product sales to spike 35 percent. It included people getting their photographs taken in a hot-air balloon basket in front of a backdrop of the Swiss Alps.

"When traffic is down 12 percent [as it was earlier last year], it’s necessary to maintain store penetration, and the only solution is to go to outside the shop…and drive the remaining passengers into stores," explained L’Oréal’s Chanet. "It’s in tough periods that we need to be creative."

Starting last year, L’Oréal organized massages in airport lounges to try to get businessmen — among today’s hottest target groups, alongside younger women — to buy products. And, seemingly, the strategy worked. Sales growth for the firm’s Biotherm men’s skin care line has increased 30 percent this year over 2001 in airport stores.

For the launches of Sensi and Glamourous, the company hosted events outside travel-retail shops. "They were big launches that should help our fragrance business grow by 5 percent to 6 percent in a market that should finish flat," said Chanet.

Promotional products, such as travel-retail exclusives, can also prove to be a boon in difficult times.

For BPI, summer fragrances such as Issey Miyake’s seasonal scent, for instance, helped to buoy sales in the warmer months. And Diehl reported that summer fragrances performed well in Heinemann shops this season.In fact, executives say new products, period, create excitement and drive sales in difficult economies, where turnover of basic items tends to suffer most.

"Between 12 percent and 17 percent of the [travel-retail] market is driven by new products," said Chanet.

And how they are marketed impacts sales, too. "The key was and is and will be to have attractive assortments and attractive prices," continued Diehl. "The price is very important, otherwise why would people carry a product around the world if they could find it cheaper in a corner [high-street] store?"

"The consumer is looking for value," agreed Lambilly.

Other factors are at play, too.

When consumers are in travel-retail stores, they’re "not in the same mood as when they are in a mall or a high-street store; they need something different," said Henry.

Some executives say each travel-retail store needs to better establish its point of difference.

"Customers think all duty frees look the same, that they offer the same assortment," said one source.

Heightened service is also a must, according to Alain Falque, director of strategy and commercial policy at Aeroports de Paris (ADP), who stressed the importance of manning travel-retail counters with sales assistants able to advise clients in different languages.

ADP is gearing up to unveil its new mega-beauty concept in Paris’ Charles de Gaulle airport, terminal two. While he’s staying mum about most of the plans, Falque said the beauty retailer will cover a "very large surface area" and will be both airside and before the airport’s check-in.

But that’s a plan for next June. In the short term, though, executives are looking at how the remaining months of this year pan out.

"The end of the year is key," said Chanet. "If business is back compared to last year, 2002 could be reasonable. If it’s not back it will be negative. It’s tough to rely on the 3 1/2 coming months."

Numerous beauty products will be unveiled at the Tax Free World Exhibition in Cannes, France, from Oct. 21 to 25. Among them are:Cofinluxe’s women’s and men’s scents for French ready-to-wear brand Morgan. The duo will bow in spring 2003 worldwide.

Montana Eau Transparente, a women’s scent from designer Claude Montana. It will be introduced by Diana de Silva starting in spring 2003.

Escada Beauté’s 11th limited-edition seasonal fragrance, Fashion Escada 2003. It will hit counters in spring 2003.

Caress, a women’s fragrance from Genny, plus Krizia Uomo Time, a men’s scent from Krizia, both produced by Henkel. Caress will be launched in the first quarter of 2003 in the Middle and Far East. Krizia Uomo Time will hit counters in Europe and the Middle East at yearend.

Ventilo’s signature women’s scent, and Rodier Pour Homme and Rodier Pour Femme. Each will be launched by International Selective Parfums in Eastern Europe and the Middle East at yearend. The European and the U.S. introductions are set for September 2003.

Lancôme’s LCM six-unit skin care line targeting the 18-to-24-year-old set. It will be launched this month in Asia, in April 2003 in Europe and July 2003 in the U.S.

La Prairie’s Sea Energy cellular Treatment Body Fragrance and Cellular Anti-Wrinkle Firming Serum. Sea Energy will bow in Europe, the Middle East and Asia in spring 2003. Cellular Anti-Wrinkle Firming Serum will also be available in Europe next spring.

Pupa’s Lights makeup collection, with 13 units. It is slated to be debuted in 80 countries beginning in December.

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