CANNES, France — Travel retail’s outlook may be cloudy in spots, but beauty executives expect smooth sailing in certain market areas. That was the consensus of executives meeting at this week’s annual Tax Free World Association Exhibition here.
This time last year, travel retailers were bemoaning the challenges presented in Asia, following the outbreak of SARS. But now emerging markets there are showing increased promise, particularly China, said executives attending the show. India and Eastern Europe are also continuing to emerge as promising outlets for development.
Numbers for most companies proved to be up, although many noted that year-to-date figures are bolstered by comparisons with a weak 2003, which was affected by a litany of problems, including the war in Iraq, SARS and fears of additional terrorist attacks. “Nobody knows if there will be a sickness tomorrow, or another crisis,” said YSL Beauté’s Chantal Roos. “Strong brands resist and wait for better days to come back.”
While a recovery has been felt worldwide, the European travel retail market isn’t experiencing the stellar comeback seen elsewhere. Travel retail sales on the Continent have been impacted by the strength of the euro and price promotions in local markets, which put added pressure on the traditional price advantage offered in travel boutiques.
However, the U.K. has proven that it is possible to buck the trend. In fact, if the rest of the travel retail universe had followed the success of BAA, rather than ringing up sales of $21 billion globally, the industry would have generated sales of more than $35 million this year, said Brian Collie, group retail director of BAA and chairman of World Duty Free, in a keynote speech that set the tone for the conference.
Collie warned that rising competition and the lack of initiative displayed by some operators in the travel retail industry could spell trouble if not addressed.
Collie identified what he claims are the three key aspects of successful operation in travel retail — optimism, commitment and success — to a matched set of fragrances, and warned that only through a combination of the first two aspects could success follow.
“The forecasts show that there will be a huge numbers of travelers as potential customers to reach, and there’s clearly a changing mood in the industry right now,” said Collie. “I think this year could be a real watershed for the industry — we’ve all experienced just how tough things can be, and we now have an opportunity to revive the industry and push it into the 21st century.”
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One major growth factor, Collie believes, is Airbus’ new A380, a 600-passenger aircraft that will make its Heathrow debut in 2006. The airplane will have the effect of creating extra capacity for travel retail operators, and along with that extra capacity comes increased pressure to handle the flow of customers.
To deal with the situation, Aeroport de Paris’ Pascale Cartier suggested working closely with airport security to facilitate passenger traffic in terminals and to increase automated check-in capabilities, giving consumers more time to shop while also freeing space inside the terminals for more retail capacity. “Traffic is back, but turnover is not,” she said, suggesting that the security levels that the war in Iraq requires, not to mention the weak dollar-to-euro ratio may be hampering business for travel retail operators in Europe.
In order to optimize sales from customers who are inside the terminals, Cartier suggested using more semimobile units — displays that can be moved from one area to another during construction or other factors that might hamper consumer access to retail stores in order to catch customers where they are. ADP has already implemented the strategy with the food brand Paul, and Cartier noted that the initiative had not cannibalized the brand’s existing business; instead, it allowed it to grab customers who otherwise would not have had the chance to buy. “It brings flexibility to the offer,” she noted.
And flexibility is just what retailers need, said Donatienne de Fountaines-Guillaume, managing director of Cosmopolitan Cosmetics’ travel retail business. The company is a division of Procter & Gamble. “The problem is penetration,” she said. “The products are there, and the shops are there. But the travelers are not making it into the shops.”
Part of the reason for that, she said, is that customers are rushing to the gates due to added security checks. But one way to draw them into the shops is to offer exceptional service and differentiated brand presentation. Signage that informs passengers of the time remaining before boarding is also very important, she noted, adding such facilities would enable customers to spend more time in boutiques without the fear of missing their flights. Executives said drawing consumers into those stores with excitement and a relevant product offer is also key.
Lancaster chief Michele Scannavini said, “We need to find a way to add fun and entertainment in airports.” He pointed to a Davidoff Cool Water promotion tied to the Olympic Games in Athens this summer, and a beach theme that will be implemented to promote the upcoming Jennifer Lopez fragrance, Miami Glow.
Claudio Tenan, export manager at EuroItalia, noted that gift sets and multiproduct packs are a plus in travel retail. “Our aim is to give something while traveling that [customers] can’t find somewhere else,” he said.
As well, products that are specific to the travel retail channel can help draw customers in stores. That’s a strategy that is being tried by numerous powerhouses — including LVMH Moët Hennessy Louis Vuitton, L’Oréal and the Estée Lauder Cos. The Lauder brand showcased its first travel retail-specific fragrance, Pleasures Exotic, at the conference. The scent is an addition to the brand’s existing Pleasures franchise. “It’s good way to recognize the difference of the client, and a way to capture more passengers and get them into stores,” said Cedric Prouvé, the group president of Lauder who is responsible for the company’s travel retail business.
“We do think consumers are interested in buying something when they travel that they can’t find elsewhere,” said Olivier Bottrie, senior vice president and general manager, travel retailing worldwide, for the Estée Lauder Cos.
LVMH has employed the strategy for several years, particularly with star brands like Christian Dior and Guerlain. Guerlain will launch its latest offer, Love Is All, worldwide in February. “[Passengers] don’t have a lot of time to think about what they’re going to buy [when they are traveling],” said Renato Semerari, president and managing director of Guerlain. “They are an impulse purchase, and you must have visually grabbing merchandise and visuals.” He added that the scents are also giftable, particularly as souvenirs for traveling customers.
Among the attractions at the Givenchy stand were Alain Lorenzo, the newly minted president and ceo of Parfums Givenchy, and the brand’s new initiatives, including My Givenchy, a new scent created just for travel retail. While Lorenzo noted that such fragrances can add to the clutter at counter, he said that airport operators are increasingly open to the idea of dedicating more space to retail.
A travel retail specific fragrance is also in the works at Perfumes Loewe, according to Juan Pedro Abeniacar, its president. “There is an opportunity today in travel retail to differentiate [products] from other parts of [the retail distribution world],” he said.
L’Oréal’s Lancôme brand is also creating a special offer for the channel with a limited-edition eye shadow palette called Color Fan, noted Eric Lauzat, who heads up the company’s travel retail business worldwide, including Eastern Europe, Africa and Asia-Pacific. The palette includes six eye shadows, is priced at 32 euros ($40 dollars at current exchange) and will bow in late January 2005.
“Local markets are jealous,” quipped Jean-Michel Bostroem, international marketing director, travel retail worldwide for L’Oréal.
Lauzat added that the company’s travel retail business is up 15 percent across the board, with Europe flat, the Americas up 15 percent and Asia up 30 percent. “Asia is booming and America is doing better,” he said. “Europe is disappointing. Travel is up, although the business does not follow.” His theories for the problems include a weakened dollar, discounting in local markets and less-than-buoyant local economies.
Lauzat echoes other executives who point out the need for exciting initiatives in travel retail. “We have a captive audience, yes, but shopping is not their primary care,” he said.
“The penetration [of shoppers in travel retail] is low,” said Jean Mortier, senior vice president of international for Unilever Cosmetics International. “Our job is to bring them into the stores.
With the prospect of increased traffic and a consensus that theater is key to building a business in travel retail, some brands are taking the next step and opening freestanding boutiques.
“The stores are good publicity statements, and a good way to learn about people that fly,” said Lauzat, whose L’Oréal Paris brand has just opened a freestanding store at Heathrow. “They’re a captive audience, but [really] they’re not. You have to convince them that it’s a good time to shop.”
While many executives agree that freestanding stores are an excellent showcase for brands, they also underline that image isn’t everything —numbers count too.
La Prairie, which does more than 16 percent of its business in the travel retail channel, has just opened its first freestanding store at Zurich airport, a door that industry sources estimate could do as much as 3 million Swiss francs ($2.4 million) in its first year of operation. The store will be followed by as many as 10 others within the next few years, said Nadia Miller, vice president of brand development for La Prairie’s international business.
Executives are bullish on the increasing presence of Chinese consumers in the global travel retail market, as restrictions ease and an influx of travelers from that country visit — and shop — in other markets. Europe, traditionally a travel retail stronghold and accounting for 50 percent of the travel retail market currently, will account for slightly less of the pie within the next five years, according to Lauzat.
In that time-frame, he estimated, Europe and Asia will both represent about 40 percent of the total travel retail market, with the Americas accounting for the remaining 20 percent.
Clarins chief Christian Courtin noted that the buoyant Asian market will have a domino effect globally. “We’ll see an improvement locally in Asia, but we’ll also see that benefit in the rest of the world,” he said.
While the mood was optimistic at the show, executives were aware of potential pockets of turbulence on the radar screen, including continued softness in Europe, which is at least in part explained by the continued weakness of the dollar and heavy discounting in local markets.
“As a skin care specialist, when I think of the time and money spent on research, and in the end you have to cut the price or offer a gift-with-purchase [to sell skin care] it leaves me with a bad taste in my mouth,” said Courtin.
In travel retail, as in local markets, executives are wary of the unrelenting flood of fragrances bowing every year. “Today, out of the top 15 fragrances on the market, nine are 15 years old or older,” said Claude Saujet, president and managing director of Compagnie Internationale du Luxe. “Everyone tells you consumers are looking for newness. It’s a little true, but it’s not 100 percent of the market.”
A sizable chunk of the increase in passenger numbers in Europe can also be attributed to the growth of low-cost carriers, leading some executives to believe that such travelers may have less spending power than those traveling on traditional carriers.
“A flight [on one of the low-cost carriers] from London to Berlin costs what a perfume does,” said Manuel Puig, chief executive officer of Puig Beauty and Fashion Group, adding that prestige beauty may not be affordable to all budget travelers.
“Business is not recovering as quickly as traffic has recovered — it may have something to do with the quality of the passengers,” said Eric Henry, chief operating officer of Beaute Prestige International.
Ferdinando Silva Coronel, managing director of Giver Profumi, noted that a tough local economy also contributed to Europe’s woes. “People have less money to spend,” he said.
Still, most here were optimistic.
“The mood [in travel retail] is positive,” said Scannavini. “Business is rebounding, the outlook for the next few months is positive, unless something else happens.”
“Here, the mood is excellent,” said Werner Hofmann, chairman of Cosmopolitan Cosmetics USA, adding that he’s confident in his firm’s growth potential and that of the segment.
And retailers and manufacturers are keen to have shoppers in equally good form. Whether in travel retail shops or in local markets — it’s all about “retail-tainment,” reminded Fontaines-Guillaume.
“We can’t take the channel for granted,” said Lauder’s Prouve. “We can’t sit back and wait for people to come into stores. We have to create theater.”