CANNES, France — As the worldwide beauty business gears down, converting the burgeoning number of travelers into consumers has never been as important — or complex.
This story first appeared in the November 7, 2014 issue of WWD. Subscribe Today.
That was a key talking point at the Tax Free World Association annual meeting at the Palais des Festivals here, which ran from Oct. 26 to 31 and was the busiest session in its 30-year history. The number of visitors and companies represented each rose 6 percent versus the 2013 session, to 6,303 and 2,917, respectively.
Despite the unstable geopolitical and economic environment around the globe, which recently caused a noted drop in travelers coming from Russia and China, beauty’s travel-retail business, worth $17.26 billion last year, is poised to grow again in 2014.
The channel has gained such clout that L’Oréal now refers to it as the “sixth continent.”
This year beauty’s travel-retail business is expected to close up 5 percent and with a 7 percent increase in 2015, estimated Jérome Goldberg, managing director of JMG-Research consulting and research company. Such turnouts represent a slowdown from last year, when the category’s revenues increased 9.3 percent, according to industry tracking firm Generation.
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Still, the projected percentage upticks strongly outpace the global beauty market, which is expected to advance just 3.5 to 4 percent in 2014 and 3 to 5 percent in 2015, said Goldberg.
Erik Juul-Mortensen, TFWA president, described travel retail as fragile yet resilient and outlined three key challenges.
“The first challenge is penetration and conversion.…After 30 years we have yet to convert enough passengers to be customers,” he said.
According to industry estimates, only 20 percent of passengers enter airport shops today and of those, approximately 50 percent actually purchase beauty products.
“We just have to convert 10 percent more people from travelers to consumers and it will make a huge difference,” said Patrick Bouchard, global travel retail managing director at Puig.
“I think this is the opportunity, but it is also a challenge,” said Laurent Marteau, head travel retail worldwide at La Prairie Group.
Javier Bach, Puig’s chief operating officer, added that the “trinity” — comprised of the airports, retail operators and brands — is working together “to optimize the formula. It’s working, even if there’s more to be done in terms of penetration.”
Moving down his list, Juul-Mortensen said the mobile world is the second challenge facing the travel-retail industry.
“Have we moved on as fast as our customers? No, I think not,” he said, also naming as a challenge the travel-retail business model.
“At what point do the expectations of landlords…become so great that they lead to an unsustainable tipping point, where retailers can no longer invest in high-quality [stores plus new and exclusive products] and as a result fall behind the high street?” he demanded. “The consequences of an unsustainable model would have an impact far beyond our own business.”
Still, travel retail maintained its growth trajectory in the first half of 2014, when fragrance and cosmetics sales advanced 6 percent to $9.24 billion, making up 28.8 percent of the channel’s business — the largest share of any product category, according to Generation.
Helping spur the business were recent strategic developments, many in step with Juul-Mortensen’s pivotal points.
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Henrik Ottosson, category manager for perfume and cosmetics at Nuance, noted growth from the entry and premium ends of the beauty spectrum.
“With low-cost carriers…there are new customer groups that we need to cater to,” he said. “We see a continued growth in masstige, where we are working with L’Oréal mass [products].”
These include Maybelline and Essie.
“We have also seen wellness as a very strong and growing segment,” he explained, pointing to brands such as The Body Shop, Origins, L’Occitane, Rituals and Nuxe.
Nuance runs an entry price-point promotion, as well, involving fragrances from brands such as Jean Paul Gaultier, Paco Rabanne, Burberry, Jil Sander and Azzaro, which sell for 19 euros, or $23.70 at current exchange.
“It is doing extremely well,” said Ottosson. “This drives big volumes for the brands. We can’t see any cannibalization [with the brand’s other products].”
On the other end of the spectrum, Nuance has been developing its “premium” and “superpremium” fragrance offers, the latter of which range from 120 euros to 500 euros, or $149.80 to $624.30. The niche scents are in a dedicated zone.
“[Travel retail tries] to be everything for everyone in a way,” said Ottosson. “On local markets, you are either a premium retailer with premium brands, premium execution, premium service, or you are at the other end. But we need to be Boots and Selfridges at the same time, and that is a big challenge. We need to do it in a way that doesn’t alienate any of the customer types.”
Other specificities to the travel-retail channel include swiftly needing to adapt to passengers of diverse nationalities, with their various languages spoken and product preferences. And there’s the rising expense, too.
“We sometime see that the cost of doing business can increase faster than the increase of retail [sales],” said one brand executive.
Some industry insiders said their primary focus has turned back toward their core local consumer, rather than on travelers from emerging markets such as Brazil, Russia, India and China, which remain important nonetheless.
Speaking of the industry overall, Ottosson said: “I think we kind of forgot the core of our business.”
Meanwhile, there are numerous ways World Duty Free is servicing its local consumers, including price positioning and particular types of offers, according to Antonin Carreau, the operator’s global head of beauty.
Overall, World Duty Free is evolving its stores on an ongoing basis, plus focusing on the digital side of the travel-retail business “to better connect with our airport partners, brand partners and consumers before they travel, while they travel and after they travel, for them to know what is happening in our stores,” said Carreau.
Its Shop and Collect service allows travelers to buy before they fly and pick up their purchases on their return, for instance.
“We are going to see a lot more online disruptions,” said Cedric Prouvé, group president for international at the Estée Lauder Cos. Inc. “Travel retail is becoming more and more integrated with what’s going on.”
Olivier Bottrie, president of travel retailing worldwide at the Estée Lauder Cos., suggested that airlines and airport authorities should get together “and think about how we can optimize the potential that comes from people sitting in a chair for 15 hours and flying from New York to Hong Kong. How do we do that?”
“The dream would be to be able to connect consumer data from the airports to the local market, to track the consumers wherever they buy in the world,” said Patrick Rasquinet, president and chief executive officer of the La Prairie Group.
Nonstop connections can be a double-edged sword.
“When you have a smartphone linking you to the whole world, even when you are on the inside of the plane, you are no longer [a captive audience],” said Philippe Guitelmann, travel retail worldwide director of the LVMH Moët Hennessy Louis Vuitton-owned Guerlain, referring to a 180-degree shift from years past. “What will happen with Wi-Fi on board is that people will be able to compare the price with anybody else.”
“That’s a very big deal,” said Carreau.
Also key to travel retail is service, not least in terms of staffing.
Ferragamo Parfums ceo Luciano Bertinelli said the company has been working to improve the quality of its transactions by adding sales assistants in airport shops. Worldwide, the number has grown to 25, and that’s helped result in double-digit sales gains, he said. And plans are afoot to add more next year.
Coty took to the Internet for its training Web site, introduced in June, called Coty Engage that functions like a chat room, allowing people to fill each other in on tips and tricks of the trade. And the conversations can be translated into Korean and Chinese.
Free-of-charge treatments also bear fruit. At World Duty Free, Carreau noted that they can result in an average transaction almost doubling.
“We are doing hundreds of services in U.K. airports with our brand partners,” he said.
“When we service a customer, as soon as we do a consultation, we have a 92 percent conversion rate,” continued La Prairie’s Marteau.
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Also on the service front, DFS Group is among the first operators that will be implementing L’Oréal’s new Kérastase Hair Studio concept, in its downtown Hong Kong location.
The French beauty giant during the TFWA show announced it would introduce dermocosmetics and professional hair care in travel retail for the first time, starting later this year.
The move was made to respond to some unmet beauty needs of travelers, who are ever more diverse, said Olivier Benamou, consumer products general manager at L’Oréal Travel Retail.
“Today we need to have a vast range of portfolio of brands [in travel retail] to make sure we can answer all the desires, all the needs, all the aspirations of [customers],” said Vincent Boinay, the newly minted managing director of L’Oréal Travel Retail.
L’Oréal will launch its Vichy, La Roche-Posay and Kérastase brands beginning in Asia at the end of this year and in the Americas at the start of 2015. The dermocosmetics brands are to be retailed through Dermacenter shop-in-shops.
“That’s something we’re definitely looking at,” said Ariel Gentzbourger, senior vice president, general merchandise manager of beauty at DFS. She added it could answer Chinese people’s concerns about pollution.
DFS is also offering skin diagnostics with its Visia Complexion Analysis machine, which gives product suggestions.
From the brand end of the business, Procter & Gamble said it’s been focusing heavily on its core brands and classic products, according to Bill Brace, vice president of global marketing development and operations at P&G Prestige.
“There is always going to be a role for innovation,” he said. “But 60 percent of the shoppers in this channel are looking for what we call the tried-and-true classics.”
That’s because many people are looking for gifts, and classics are a safe bet. A good example was Boss Bottled Unlimited, a line extension to its classic Boss scent that was recently launched exclusively at Gebr. Heinemann in Frankfurt during the World Cup, a key consumption period.
“The new sku was consistently in the top 10 of rankings,” said Brace.
Also in travel retail, P&G has been broadening the footprint of its SK-II brand.
“We want to win with the Asians in Asia as well as outside Asia,” said Murat Akyildiz, managing director of global travel retail and distributor operations at P&G Prestige. “With the boom of [Asians traveling], we’ve been following their footprint to make sure that we bring SK-II to them wherever they go.”
That included Dubai, London, San Francisco, Los Angeles, and more recently, New York and Toronto.
SK-II partnered with Nuance in Singapore to launch exclusively its Stem Power Essence product.
“It shows how travel retail is becoming the window to the world,” said Akyildiz.
For its part Guerlain is introducing into travel retail in January, prior to the Chinese New Year, a 200-ml. limited edition of its Orchidée Impériale cream. One-thousand units will be available, according to Guerlain’s Guitelmann.
Groupe Clarins decided to aim its innovation fire power at specific nationalities of consumers from various emerging markets, where “we need to adapt more products,” said Nicolas Piquereau, marketing director for the Clarins Fragrance Group and commercial director for Groupe Clarins in the Europe, Middle East, Russia and Asia region. “We realize that our portfolio was mainly European.”
At TFWA, the company previewed a quartet of products, including an oud version of Thierry Mugler’s Alien fragrance, conceived with the Middle Eastern consumer in mind; a reformulated iteration of Shaping Facial Lift, originally targeting Asian consumers that will roll out in Europe next year; Mission Perfect, a serum designed for ethnic skin, and the Mademoiselle Azzaro fragrance, destined to be an exclusive at Russia’s L’Etoile perfumery chain.
Coty Inc. continues to produce sophisticated kits for travel retail. Its OPI nail-polish brand that launched in the channel less than two years ago was highlighting, for instance, a box of six mini-sized enamels created through a venture with Coca-Cola. The colors and clever names are parodies of different varieties of the soda. A kit of six 3.75-ml. bottles retails for 20 euros, or $25.
Increasingly, Coty has been creating kits that cut across product categories. One example is called Summer Party, which includes a seasonal fragrance, OPI nail color and Lancaster sun protection.
“The more you bring entertainment into the store, the more attractive it is to the consumer,” said Markus Stauss, marketing director of travel retail and export worldwide for Coty.
OPI has already sold its fair share, now ranking number-one for nail care in travel retail, according to Generation.
Beauté Prestige International, Shiseido’s fragrance arm, has been investing in visibility for its big brands such as Elie Saab and Narciso Rodriguez in travel retail, said Eric Henry, the company’s chief operating officer.
BPI’s recent animations in the Barcelona airport — taking place both outside and inside stores — involved four brands from different parts of the world that were showcased in a universe, including fashion accessories. They helped increase conversion and sales productivity, continued Henry.
As part of its travel-retail strategy, Bulgari is angling to offer a differentiated product mix from one country to the next, according to Valeria Manini, its perfume business unit managing director.
Shiseido is stretching the reach of its masstige Aupres brand, which is currently sold in the Chinese domestic market through 1,000 doors. It will open three travel-retail locations at the end of this year, including one in Mainland China and two in downtown Hong Kong.
“We really believe it has great potential,” said Elisabeth Jouguelet-Aparicio, worldwide travel retail marketing manager at Shiseido.
The company recently deployed Nars in South Korea, to great success, she said.
As executives look to broaden their travel-retail business, not everyone is convinced that the conversion rate is just 10 percent in the channel.
“I don’t believe it is as bad as we think,” said Estée Lauder’s Bottrie. “Nobody has a real number on a global basis on conversion.”
Prouvé chimed in: “Are you looking at total traffic or people who are seeing your brand? The point is to make the brand visible and accessible. Once people experience the brand they buy. So the conversion is high.”
He continued: “The truth is that the fundamentals are fantastic.”