That’s the forecast most beauty executives are making for the travel-retail business following the turbulence and loss of momentum caused by the war in Iraq, SARS and depressed economies worldwide.
Of course given such recent negative phenomena, and unforeseen ones ever looming on the horizon, no one’s expecting completely smooth flying.
“It’s the worst year we’ve ever had,” said Eric Henry, chief operating officer at Beauté Prestige International, echoing the sentiment of many. “It was even worse than the end of 2001. Sell-out was affected, but sell-in [was even worse]. Operators were very careful about their inventory — it wasn’t only a travel-retail problem; it was worldwide with all distributors — [but] it was worst in travel retail.
“I’ve been in the industry for 25 years and I’ve never seen so many problems at the same time,” he continued.
Indeed, numerous executives maintain they’ve experienced a sea change. “This market, which was a stable before, where you could stick to your budgets and trends, has become very volatile,” explained Harry Diehl, managing director of German airport operator Gebr. Heinemann.
And that instability is compounded by macroeconomic unsteadiness. However, a gradual turnaround has been noted of late. Certain regions, such as North America, fared a little better in June and July, executives said. And then, over the following couple of months, the business kept gaining.
“The good news is that in August and September we were witnessing a dramatic rebound in Asia and Europe,” continued Sylvie Kilduff, vice president of marketing at Estée Lauder Travel Retail worldwide. “These markets went down in a steep way, but are going up very, very quickly.”
Christian Courtin, Clarins’ president and chief executive, agreed. “Now that we are seeing people traveling more — particularly in the Far East — we’re quite happy,” he said.
“Business is booming in all Northeast Asia, with the Chinese, Koreans and Taiwanese back in the airports,” continued a spokesman at Yves Saint Laurent Parfums travel retail.
Airport operators contend there’s been a noticeable uptick in passenger traffic. BAA, for instance, reported recently that its seven U.K. airports together had 12.5 million passengers in September, up 2.6 percent year-on-year. And August was BAA’s busiest month ever, with 13.7 million passengers, a 3.6 percent rise on the same month in 2002.Despite this, however, many beauty executives expect their travel-retail businesses to close 2003 on a par with 2002’s, or up single digits.
“At the end of this year, even with a normal comeback to travel-retail activity, the industry will not be allowed to offset the poor beginning of the year,” said Michel Mignot, export manager at Chanel. “In the travel business, December is not a peak month as it is in domestic markets, and [so] we have just two months ahead to maximize our sales.
“We do not expect big growth this year, but we will finish our calendar year with positive figures,” Mignot added.
So how are beauty companies dealing with the current climate?
“The challenge for the industry is how to increase the appeal of the store and the product to a customer who has more time than in the past and who is not only motivated by price,” Chanel’s Mignot continued. “In this respect, the current model of the industry is fast becoming obsolete.”
Most beauty executives say they’re turning to new product introductions to boost growth these days.
At Lancaster Group Worldwide, for instance, “strong” double-digit growth in fiscal ’03, ended June 30, was attributed primarily to new scents, including Glow by JLo, Still by Jennifer Lopez plus Davidoff’s Echo, said Joe Porcelli, vice president and managing director of travel retail and export at the firm.
For its part, Inter Parfums launched new fragrances from Celine, Burberry and Christian Lacroix in travel-retail shops during the first half, which led to its business spiking 15 percent in the period, said Philippe Benacin, Inter Parfums SA’s president and chief executive officer. He added he expects the company to end 2003 up 15 percent to 20 percent in the sector, thanks in part to the launch of Burberry Brit women’s fragrance this fall.
Parfums Givenchy is in the new product game, too. It’s gearing up to unveil a new travel-retail-specific fragrance at the Tax Free World Exhibition in Cannes, France, this month. The brand, which expects to end 2003 flat in travel retail year-on-year, recently revamped its product packaging for the sector, with an Exclusive Travel Collection logo, according to Alexandre Robin, travel retail director at Parfums Givenchy.Yves Saint Laurent Parfums, for its part, launched its first limited-edition travel-retail-sized scents in September. Called Travel Essentials, a 30-ml. eau de toilette Opium, Paris or Nu fragrance is paired with a 50-ml. bottle of similarly branded lotion, which together retail for $42 converted from the euro at current exchange rates, or 36 euros, to $53 (45 euros).
“Travel-retail exclusives and coffrets are key in defining a different offer,” said the YSL Parfums spokesman, who added the strategy is to introduce items targeting specific demographics — summer scents for holiday travelers, makeup packs for frequent travelers or multipacks for Asians, for instance.
L’Oréal is currently focusing on two main segments in travel retail — the body and spa categories, explained Olivier Benamou, the firm’s travel retail managing director.
“There is a market for [these],” he said, explaining travel retailers can tarry with clients. “People are spending more time in the airports because of security measures. Before, they spent 45 minutes to an hour in advance [of their flights], now it’s on average two hours.”
Looking ahead, L’Oréal will target men, who comprise 40 percent to 45 percent of buyers of its products in travel-retail locations. “[They are] a captive audience we don’t have anywhere else,” said Benamou. “We are going to launch a huge push [on that front] in 2004.”
Retail-wise, the pressure is on as never before to lasso consumer interest.
Today, competition is no longer another fragrance or beauty product, but high- tech equipped lounges, the YSL Parfums spokesman continued.
So travel-retail operators say they’re updating shops to help increase penetration. Aeroports de Paris, for instance, is focusing on creating retailers with lifestyle positioning. It inaugurated its Purple Lounge in France’s Charles de Gaulle airport, which concentrates on niche and high-end beauty, for example.
“Today, what works are very targeted concepts,” explained Pascale Cartier, retail general manager for the operator, who said creativity is also key. “When these stores are well conceived and well placed, they give excellent results.”Cartier added such shops also have the ability to win over consumers on a long-term basis.
Elsewhere, as in Germany, operators say they’re focusing on pricing, since consumers have less disposable income and pressure from price-slashing high street retailers has competition at a boiling point.
Diehl said Heinemann shops have stepped up their promotional activities as a result of this and consumer research. This summer, for example, they priced a selection of beauty products at $22, or 19 euros, on a short-term basis, to attract more people into stores after a difficult March and April.
“In August, in the same places where sales had been down they are now up — 0.5 percent, 3 percent or 2 percent — so we turned [business] around,” he said.
Heinemann also hired hostesses to inform travelers of special events as they walk through the airport terminals.
But such promotions are not necessarily ubiquitous. “We have a very mixed situation,” continued Diehl. “We have some airports already up quite satisfactorily at 7 percent and 9 percent.” In some smaller regional airports, business is up between 20 percent and 30 percent, he added.
Lancaster Group Worldwide has also been focusing on its promotional activities. This summer it staged its Xpression Session Promotions for its Davidoff Cool Water fragrances in six airport locations, including Zurich, Amsterdam and Palma. For it, Lancaster asked people to fill out forms, which were then used in a raffle with winners getting a surfing holiday.
“When we did promotions, the stores became quite crowded,” said Lancaster’s Porcelli. “Consumers are responding very well to our promotion programs.”
Some executives say promotions aside, general service is essential in travel-retail locations. “If [distributors] sell high-end products, they need to provide service,” said Philippe d’Ornano, executive vice president at Sisley.
Overall, despite challenges ahead on the retail and product front, executives say they are bullish about the future of beauty in travel retail, particularly because it has been gaining market share over the years. In 2002, it rang up a reported 24 percent of the total worldwide travel-retail business, versus 20 percent in 1996.“When we look at the forecasts for passenger traffic everything is positive,” said BPI’s Henry. “Companies are still buying planes. On the long term, things are extremely positive.”
“I think the industry itself is quite resilient,” agreed Lancaster’s Porcelli, who added: “I think we’re at a stage right now that we have to expect the unexpected.”
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