Travel retail is being shaken up by the rise of emerging Chinese consumers and Millennials.
“Seventy percent of our business is coming from mainland Chinese,” said Ariel Gentzbourger, executive vice president, global merchandising at DFS Group Ltd. “That was not how DFS was originally built. We were initially, back in the Sixties, focusing on the Japanese and South Korean customers.”
The global travel-retail business is $70 billion strong, accounting for more than 25 percent of the luxury market. During the past decade, it’s registered 6 percent aggregated on-year growth, she said.
Airports account for 57 percent of travel-retail sales. In Asia, however, “downtown stores” register robust revenues in markets such as South Korea, Thailand and Hong Kong.
“As Asia is growing significantly, it accounts today for 45 percent of the travel-retail business worldwide,” said Gentzbourger. “This channel is bound to evolve and carry on increasing.”
Beauty products make up 34 percent of travel retail’s overall revenues. K-beauty has been, and continues to be, hot, but today J-beauty is flexing its muscles.
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“We have our giants that are still very strong and having a phenomenal year with the big brands, whether they are the Lauders or Lancômes of this world,” she continued.
Specifically in Asian travel retail, 65 percent of sales come from skin care, with the prestige segment percolating.
Following beauty as bestsellers in the channel are spirits, wine and tobacco, then fashion, and watches and jewelry.
Travel retail is perpetually being challenged by macro-economic factors. “This business is really cyclical,” said Gentzbourger, adding it’s a one that generally bounces back.
Further, travel retail is highly linked to pricing and value, and its concession model can be complicated.
Gentzbourger said the competitive landscape is fierce. “Sixty-two percent of the market is held in the hands of five players,” she explained. Dufry is the leader, and two South Korean groups — Lotte Duty Free and The Shilla Duty Free — figure among the top companies.
“In the future, we’ll see more and more [of] the business concentrated in Asia,” she said.
Competition also comes from other retailers, such as Galeries Lafayette.
Today DFS is on four continents, in 13 countries and has 20 Gallerias. “Each time we partner with a brand, whether it’s in the fashion world or the beauty world, it’s linked to an exclusive collection,” said Gentzbourger.
Meanwhile, the rise of mainland Chinese customers is having a significant impact on travel retail. Last year, 120 million of them traveled abroad, with half going to Hong Kong, which — with Macau — remains visa-free. Other favorite destinations are Thailand and Japan.
In 2030, it’s expected about 300 million Chinese from the Mainland will be traveling abroad. And increasingly, they won’t be going in groups. “So it’s very important that we capture them before their journey,” said Gentzbourger.
First-time travelers are looking for aspirational and classical brands. “They’re not going to necessarily be taking a risk there,” she said. “[They] also have less purchasing power. And today in Hong Kong, they are coming from third- and fourth-tier cities.
“Our core segment today is the top-tier VIP. What do they want? One-off experience, a personalized product. We know this customer well. Where we are less at ease, and I think we all are in the room,” she said, addressing the audience “is who’s our future customers. It’s the Millennial.
“They’re very pragmatic, they want authenticity. It’s about lifestyle. They browse like crazy before they even travel, and they’re sharing actively on all the social networks. So it’s really a different way of operating,” she said.
During the Golden Week national holiday, Millennials were the largest population traveling out of China. Their preferred payment method is digital — with 50 times more mobile payments being carried out there than in the U.S.
When embarking on a journey, a person might tap into a search engine with Baidu, post on social media with Weibo and then use a traveling app. “[She] basically is seeking constantly for word of mouth and peer advice,” said Gentzbourger. “It is not necessarily what the brand content is giving you. It’s really about going through the social platform.
“In 2020, we expect that China will be the biggest beauty market,” said Gentzbourger. “And all that is going to be coming through generated platforms.”
DFS engages on the customer journey by creating a seamless experience, with strong partnerships with tour operators and brands, and the melding of on- and offline retail experiences, she explained.
“There’s definitely a very strong sense of service,” said the executive. “We are able to offer a 360 customer experience before, during and after their journey. Our CRM program is quite unique. It’s not about discount – it’s about earning points and burning them.
“On average a loyalty member spends four-times more than a non-member. They come twice a year, and the average spend is $350,” she said. “What do we offer to them? It’s definitely about a personal shopping assistance, local delivery.”
Pre-order, pre-sell and retail-tainment are also key to DFS, among other services. “We give a lot of space to brands,” continued Gentzbourger. “We preserve their DNA and make sure they are able to totally express themselves in the best way.
“Our priority is definitely to excite our customer, adjust our product offering and our marketing approach constantly,” she said.