By and  on November 4, 2005

CANNES, France — Poised on a new era of growth, the travel-retail industry is struggling to redefine itself. The theme of this year's Tax Free World Association trade show here, which opened Monday and ran through today, was "Brand the World." It quickly became apparent that the phrase was more than a slogan as cosmetics executives and airport retail operators debated strategies for transforming their business from one driven by discounts to another featuring the allure of brands.The fragrance and cosmetics business in travel retail has grown substantially, according to tracking firm Generation. The beauty business amounted to $6.75 billion, or 27 percent of the global travel-retail business in 2004. In 1979, beauty generated only 10 percent of the worldwide total.Preliminary attendance figures for the TFWA show showed a 5 percent increase to 5,400 people, said Andrew Ford, chief executive officer of TFWA. Attendees from Africa and Asia had a particularly strong turnout compared with previous years. The American attendance was flat and Europe's was up. Among the exhibitors, Ford said that the number was unchanged from last year, and that cosmetics has become the largest block at 29 percent.Erik Juul-Mortensen, president of TFWA and of Maxium Global Travel Retail, said the industry is emerging from five years of "virtual stagnation" — caused by the fallout from terrorism, SARS and the war in Iraq — to approach what he described as a "tipping point" into a new period of prosperity. This would soon be ignited by the emergence of rising and powerful markets, namely China, India, Russia and Brazil, he said.Juul-Mortensen outlined how the industry has put itself through an ordeal of self-examination to prepare for what he hopes will be growth. But he and other executives said the industry must make basic changes, such as modifying the fundamental premise from one of offering discounts on products to creatively merchandising brands.Juul-Mortensen warned that even though airports enjoy a level of footfall that malls "would die for," the ability of travel-retail stores to steer traffic into shops remains "poor."In terms of penetration, only 30 percent of passengers walk into an airport shop, a cosmetics industry executive said. And of those, only one in 10 actually buys something.A veteran airport retailer, however, cautioned that the travel-retail industry must never completely turn its back on its discount heritage. Yet Harry Diehl, chairman of the executive committee of Gebr. Heinemann, one of the leading travel-retail operators, conceded that price inducements alone are not enough, considering that "all the big guys are worried about penetration." So, a mix of pricing, merchandising and branding is necessary, while duty-free should "be in the package."It's not right to take away from our industry, our brand, which is duty-free and tax-free," he said. "We should address the world, not brand the world."Perhaps the most articulate advocate of new thinking in the channel is Vincent Boinay, worldwide managing director of travel retail for L'Oréal's luxury products division. In June, he returned for his second tour in duty-free after a six-year absence, during which Boinay held top posts at L'Oréal-owned brands such as Lancôme, Biotherm, Cacharel and Guy Laroche.Boinay sees the industry's weakness as its very "traditional" nature. In the past, travel-retail discussions centered more on "concession fees and margins," he said. "Now it is more and more about the customer." The next cycle to take place, Boinay added, will be how to sell to potential customers better and pamper them more. "We have to evolve from saving to caring," he said.A shift in practice is needed to take advantage of a projected 6 to 7 percent increase in passenger traffic next year. "Today, the future seems a bit brighter," Boinay said.He stressed the need for greater service. This includes true exclusives, which have "real meaning," not just a rebundling of existing products. Boinay also indicated L'Oréal is reorganizing its travel-retail effort to do just that. The company has named Jean-Michel Bostroem vice president of brand and product development, a new position. Boinay hinted a second executive will soon be appointed vice president of brand development and services.Boinay noted that not only is Lancôme enjoying a strong launch of its Hypnôse fragrance in Paris' Charles de Gaulle Airport, it is also preparing to introduce next March its first travel-retail exclusive fragrance, called Tropiques, which is priced at $42 for 50 ml. The fruity floral women's scent has the same name as Lancôme's original fragrance of 1935, the year of the company's founding."We have to offer consumers a good reason why they should buy in travel retail," said Françoise Biosseaud, international marketing manager for Lancôme travel retail worldwide, who added the brand has created a 10-minute skin-care diagnostic tool plus a virtual makeover for travel-retail use. "Discounting can't remain as the main leverage."Olivier Bottrie, senior vice president, general manager of travel retailing worldwide at the Estée Lauder Cos., stressed, "The key issue for everyone is to capture that traffic. We don't do enough as an industry to convert travelers into consumers."However, he believes his company has minted a new retail model. It opened a freestanding Jo Malone shop in London Heathrow's terminal three. "It's much more playful," he said. Referring to his chain of in-airport MAC stores, Bottrie remarked, "If you cater to consumers, they'll spend more money with you."However, he sees a major hurdle when it comes to finding the space and money to provide extra service and merchandising. The pressure has been intensified by airports that have reaped large concession fees from retail operators. In those cases, this means less money to develop the business at point of sale. Bottrie sees these circumstances as disturbing, since focus can "become more of a real estate game than a retail game."In addition to discussing the need for better merchandising and service at point of sale, there were announcements of major alignments within companies.Coty Inc. unveiled a bold and sweeping merger with its recently acquired Unilever Cosmetics International division (see story, page 4). Meanwhile, Procter & Gamble continued to knit together its fragrance operations.In addition, new retail concepts for airports were highlighted.Airport operator World Duty Free recently put up a nonretail Web site featuring 1,700 fragrance lines in hopes of whetting the consumers' appetite before they get to the airport.Mark Riches, managing director of World Duty Free, explained that by the time passengers get through check-in procedures, they feel liberated and primed to buy."Many airports around the world repeat what's happening downtown," he said. "You have to be different and understand that mind-set. We're in the entertainment business, not the shopping business."He explained that the strategy is to make routine functions like buying a newspaper or using a rest room easier, and therefore less time-consuming. Riches said he would rather see a passenger spending 30 minutes buying a jar of La Mer than looking for a newspaper. "You have to take care of the basic stuff," he said. "Then you can entertain them. People talk about dwell time. They don't know what they're talking about. Make the commodity stuff as easy as possible."Jill Hill, managing director of Aspects Beauty Co., injected her own entertainment factor into the fragrance retail scene. She opened a perfume concession shop, La Foret de Parfum, in Harvey Nichols and it's chockablock with exotic niche brands. Hill outfitted the space with "shabby chic" furniture from Paris' Marais section.Hill said she is considering taking the concept into airport locations.Already, there are "meeting points" where passengers can examine the new Jean Paul Gaultier fragrance, Gaultier to the Power of Two, created by the brand's license-holder Beauté Prestige International. The installations include two soft benches backed by magnetic boards used to post messages, a takeoff on the magnetized packaging of Gaultier's new fragrance duo."It is like a living room, like a bedroom, to break regular perfume codes," said Allison Cheng, operational marketing brand manager for BPI's export department.The spirit seems to have been translated into action, at least from the perspective of two leading brand chiefs.Christian Courtin, president and ceo of Groupe Clarins, said, "Travel-retail activity has been booming even more than in the local market." He attributed the momentum to a desire on the part of both the airport operators and manufacturers to work together in a "fantastic collaboration."They have a lot of respect for what they call ‘core brands,'" he said. "Frequently, we have had good ideas that were born in duty-free then brought to the local market."The suppliers and retailers are not looking at extra margins, but how to do business," he continued. Chantal Roos, president and ceo of YSL Beauté, sounded even more bullish on the channel, noting that her travel-retail business is up 10 percent year-to-date. She maintains that there is a dramatic new attitude being exhibited by airport retailers."They found a way to be dynamic," she said. "They are constantly looking at how customers are going through the retail space. They are paying attention to how [the customers] are making purchases, how to attract them and how to provoke their desires."Noting that retailers in local markets, such as department stores, should be asking the same questions, Roos said that the time when airport retailers really seemed like opportunists looking for discounts is clearly over. Now, they are interested in creating retail spaces that are more interesting and service-oriented, such as an environment where five-minute manicures can be offered."It's more like an enjoyable experience now," she said, adding that the objective is "to incite all the senses, not just provide a sales price."As in years past, Parfums Givenchy will introduce a travel-retail exclusive women's fragrance, called Lovely Prism, in early 2006. The brand also is gearing up for a global launch of two fragrances for women: a new brand for Givenchy and one derived from the company's 1996 mainstay Amarige.Alain Lorenzo, president and ceo of Parfums Givenchy, has adopted a two-phase launch philosophy. Lorenzo contends that the danger in global rollouts is that a great deal of money is committed before a firm can judge exactly how viable the fragrance will be. Therefore, he is staggering the launches of the two women's fragrances. One will be introduced in a particular zone, with the other going to the rest of the geographic lineup. After one year, the order of the rollouts will be flipped."Compared to five years ago, we are doing a lot more product combinations," Lorenzo said, referring to travel retail.He pointed out, "I find the biggest challenge has been the changing paradigm. What brands are big and should be highlighted? If they get it right, it will be huge progress for some of them. The thing is customer traffic can vary so much depending on the time of year. Sometimes they have to be very specific."Like a lot of executives at the TFWA, Philippe Benacin, president and ceo of Inter Parfums SA, is gung ho about the developing world. He estimates that China is his company's third- or fourth- largest customer, after the U.S and the U.K., and preceding France, Italy, Germany and Spain, which are all about tied."China could be the size of France, in maybe 10 years," he said, referring to the volume of its fragrance sales.Inter Parfums was among the first prestige fragrance manufacturers to enter India six years ago, when there were only 10 malls in the entire country.Nadia Miller, vice president of brand development for La Prairie's international business, reminisced about how her luxury-priced treatment brand entered travel retail in 1990 — when "nobody believed in skin care in airports." She contends the breakthrough in Europe came with the abolition of intra-Continental duty free. With the resultant thinning out of tobacco goods and liquor vendors, travel-retail operators had plenty of space to devote to cosmetics.In historical terms, the brand's travel-retail business has grown faster than in domestic markets.Product launches for La Prairie next year are to include Skin Caviar Luxe Body Emulsion, which will retail for $178 per 200-ml. bottle, and a hair-repair kit containing two products, which will sell for $375.In travel-retail, La Prairie plans to open some more freestanding stores, one in London in 2007, plus another in Moscow the following year. Further plans call for the inclusion of another freestanding store in the rebuilt terminal four of Paris' Charles de Gaulle Airport.La Prairie's shop-in-shop ranks number one in skin care in Zurich's airport. "Duty free is doing very well for us in Europe," Miller said. The brand's new shop in Dubai, United Arab Emirates, hit the $1 million mark in nine months flat, she added.Bulgari will add the third installment to its well-established fragrance series in the form of Eau Parfumee au Thé Rouge, which will be launched in travel retail and most of Asia in the middle of this month. The woody, luminous fragrance is priced at $45 for 50 ml. and at $65 for 100 ml.Maurer + Wirtz will introduce an s.Oliver Silver fragrance masterbrand and an Otto Kern masterbrand in the coming months.The Otto Kern license was obtained early this year, and Maurer + Wirtz is looking to sign more deals."We would like to go more selective," said Tanja Zimmermann, marketing manager of international sales at the company. Maurer + Wirtz's focus historically has been in the seam between mass and selective.Lolita Lempicka unveiled its first new women's fragrance in almost a decade. Called L — which in French sounds like "elle," the word for "her" — the scent will be introduced starting in March 2006. The fragrance made its debut at a lavish party for distributors in a stunning villa perched in the hills above Cannes.Paolo Vevegni, the recently named export director for Ferragamo Parfums, said his company will also launch a fragrance in March 2006, the second installment in the Incanto series. It will be called Incanto Charms, which follows last year's Incanto Dream that sold more than 300,000 units in Japan alone. Altogether, more than 500,000 pieces were consumed worldwide. "Our main goal for next year is to consolidate Incanto," Vevegni said.There will be two additions to the brand's Apparition fragrance line: one summer scent, followed by a Christmas edition. A new signature Ferragamo fragrance will be unveiled next April, for a launch in September.P&G merged its prestige beauty divisions together in July, and the company is still refining the operation.Markus Strobel, general manager of prestige products and fine fragrances at P&G, discussed the company's philosophy in building a winning business. He said P&G is building an organization from the ground up."We need to customize the approach almost country by country," he said. Pointing out that the decision to make a purchase is done more than 70 percent of the time right in-store, Strobel stressed the importance of the retail teams."The in-store look is just as important or more important than the advertising," he said, adding that two vital ingredients are "in-store pampering and advocacy."Some of the initial results indicate that the formula may be working. The recently launched Valentino V fragrance business has grown sixfold, he said. And, the division's sales generated a 10 percent increase in the quarter since the integration.

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