The losses so far are difficult to quantify sales-wise, say experts, who are vigilantly watching changes in travel patterns and agree this crisis differs from others that have impacted the highly resilient channel in the recent past, including SARS, MERS, the volcano eruption in Iceland and terrorist attacks.
“Where we are today really changes from where we were yesterday,” said Pablo Saez Gil, director of business intelligence at M1nd-set, a market research company specialized in travel retail. “It’s very difficult to assess.”
Such uncharted territory could stretch on for a while, causing beauty sellers to adjust their strategies.
Travel retail is a mammoth business. In 2018, it was worth $79 billion, including $31 billion made by its largest category, cosmetics and fragrance products, according to Generation Research’s latest yearly statistics.
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In January, overall travel-retail sales increased approximately 18 percent on-year, Generation said. But industry sources estimate revenues in the channel were significantly impacted in February — down anywhere from 20 to 80 percent.
Prior to the health crisis that began last December in China, passenger traffic was said to be growing by about 6 percent annually, fueled by the rise of the Chinese middle class.
They were the most avid shoppers. Of Chinese traveling, 54 percent visited airport duty-free shops and 50 percent purchased in that channel, signifying a 93 percent conversion rate, according to M1nd-set, which polled travelers between March 2016 and December 2019.
The Chinese buyers M1nd-set spoke with spent on average $331 in duty-free, with 17 percent going toward skin care, the largest share of wallet of any product category; 14 percent on makeup, and 14 percent on fragrances.
But today, the travel-retail business is highly affected in each area where the Chinese customer used to go, as they face travel restrictions and their trips abroad came to a screeching halt.
Whereas bookings made by Chinese to travel abroad between Oct. 28, 2019, and Jan. 19, 2020, were down 2.9 percent versus the same prior-year period, bookings between Jan. 20 and March 1 dropped by 157 percent, according to Jérôme Goldberg, global retail and travel-retail division director at ForwardKeys, who explained the latter percentage includes cancellations of existing bookings.
“It’s a larger scale compared to SARS,” he said. “At that time [in 2002 and 2003] Chinese travelers weren’t as [numerous] as they are today. Changi Airport said Chinese accounted for 11 percent of the traffic and basically one-third of the sales, and that one-third totally disappeared in a couple of days.”
As the virus spreads around the world, passenger traffic is decreasing everywhere, including in Europe, with airlines like Lufthansa, Virgin Atlantic and Cathay Pacific paring their number of flights and employers halting work trips. L’Oréal, for instance, has suspended business-related travel as a precautionary measure until March 31.
“The key will be to understand if we are in a V-like pattern, with things going down and bouncing back quickly, or more in U situation, where we will have this flat plateau more or less for a long time before the market goes up again,” said Goldberg.
“Now it’s not just China, but the world’s second-largest and second-highest spending outbound travel market, the U.S.A., which is stalling,” said Olivier Ponti, vice president insights at ForwardKeys. “For destinations, businesses in the travel industry and in luxury goods retail, which rely heavily on American and Chinese tourists, it is crucial to look carefully at travel data on an almost daily basis.
“With the high volatility in the market, the success of these businesses will depend on their ability to take action the moment things start to recover,” said Ponti.
There are various ways airport operators and beauty brands can try to recoup lost sales in the meantime, experts say. One is training sales staff to focus on what were traditionally less-spending travelers than the Chinese, such as South Americans, Africans or Scandinavians.
Operators and brands might also put more emphasis on the digital part of their omnichannel strategies to lasso consumer interest and spend while they remain on their home turf, and focus increasingly on regions where travel retail can play a larger role, such as the Americas or Africa.
“Our industry is very resilient,” said Stéphanie Metz-Thevenod, executive vice president marketing and digital at Lagardère Travel Retail, which has more than 250 duty-free stores. “The way our strategies are built is to have a kind of toolbox ready to activate when [a crisis] happens.”
Lagardère has a multifaceted commercial plan to help ease COVID-19’s impact.
“First is to develop, keep and nourish the commercial attractiveness of our stores,” said Metz-Thevenod. “The KPI we use is the stock ratio, which is the conversion between passengers and buyers in our store. We use every opportunity when a passenger is in our store to convert him.
“We look at what the barriers are to purchase and we address them,” she said, explaining the first one is the price-competitiveness of the beauty offer.
For beauty, Lagardère has launched a “keeping the lead on the leaders” drive, which focuses on making its stores “the place to buy the leaders in beauty — the top seller, the best products,” said Metz-Thevenod.
In terms of promotions, on a global scale Lagardère provides its stores with structured campaigns, including specifically chosen products, which can be swiftly launched.
The operator just ended its first sales campaign for duty-free, which has allowed for the group’s stores to maintain growth even in countries where the COVID-19 outbreak started.
Precision retailing — such as promoting more or highlighting bestsellers specifically for different nationalities — is also important .
Its international team is in touch with the local teams so they can nourish the campaigns developed globally. “We have empowered teams locally,” said Metz-Thevenod, adding the operator is also running some new programs spotlighting travel exclusives.
Another successful program has been “Flash Sale,” which lasts for two hours.
“It’s like a happy hour of activation,” said Metz-Thevenod. “This has the strongest growth in conversion that we have ever seen — more than a one-point conversion, which is a lot in our world.”
In the toolbox Lagardère gives its local operations products and signage.
“It’s really the trinity that allowed us to create that,” said Metz-Thevenod, referring to the triumvirate of the operator, airport and beauty brands. “Those three working together — this is the key success factor to mitigate the impact of the coronavirus.”