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Travel Retail Takes Off Again Gently

Executives are optimistic that the channel will fly high again.

CANNES, France — The recent TFWA World Exhibition and Conference might have been small from an exhibitor- and attendee-count perspective, but that belied the big optimistic buzz permeating the halls, as industry experts strategized for the channel’s recovery.

The premier travel retail gathering ran here from Oct. 24 to 28, marking its first session following a two-year hiatus due to the coronavirus pandemic.

What once took over the coastal city and its sprawling Palais des Congrès convention center with a swell of visitors, hundreds of stands and massive brand billboards flanking buildings shrank to a whisper of its past.

Major American corporations, such as Coty Inc. and the Estée Lauder Cos. Inc., were notably absent, while Asian and Russian buyers were largely missing from the quiet aisles and streets.

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Yet those present lauded the event.

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“For us, it’s a good show,” said Philippe Benacin, chairman and chief executive officer of Interparfums SA, echoing the sentiment of many.

At the subdued session, there were just 262 stands from 272 exhibitors, and 3,408 attendees, versus 504 exhibitors and 7,531 attendees in 2019, according to organizers.

As the health crisis unfurled starting in early 2020, travel in most parts of the world ground to a screeching halt, causing sales in travel-retail locations to tank.

How quickly people can start taking trips and buying in duty-free shops abroad again will have a major impact on the business of companies selling luxury fragrance and cosmetics, which comprise travel retail’s number-one product category and pre-health crisis could generate up to one-quarter of a beauty group’s overall sales.

Travel retail has been the retail channel hardest hit by COVID-19.

“It’s not yet back anything close to 2019, which was a record year, but it’s starting to come back, especially since this summer,” said Jean-Christophe Babin, CEO of Bulgari. “In the western part of the world, it’s coming back pretty rapidly.”

“Demand is here,” confirmed Jérôme Goldberg, retail and travel retail customer success manager at ForwardKeys, a travel analytics company.

“There is pent-up demand, so as soon as [people] can travel, they will be traveling,” agreed Gordon Clark, vice president of business development, travel retail at ForwardKeys.

The Chinese, top luxury consumers in the channel, still aren’t able to go abroad.

“We’re not expecting any real comeback before the last quarter of ’22,” said Babin.

International Air Transport Association numbers reveal passenger demand for flights in August was down 68.8 percent for international travel and minus 32.2 percent for domestic trips versus 2019.

Traveler levels should rival those of 2019 in 2024, ForwardKeys projections show.

“It will be interesting when you start to see Middle Eastern and Chinese [people] travel again, whether they will still visit the U.K.,” said Clark. That’s because from January 2021, the U.K. banned duty-free shopping.

A recent survey by Generation Research indicates that duty-free sellers overall should hit pre-COVID-19 sales between 2024 and 2025, with those in certain regions like Asia moving faster than others, according to Dirk Mettlen, chief operating officer at the duty-free and travel-retail market research specialist.

Two years ago, travel-retail sales made $86.3 billion, up 9.8 percent on-year, according to Generation. Of that, perfume and cosmetics generated about $37.6 billion, a 20.1 percent gain.

Although footfall is picking up, visibility remains murky. People question whether new waves of the virus might rise, causing more country closures, as well as how big will supply-chain disruptions will get for everything from product components to transportation, leading to stock shortages and price increases.

Despite all that, travel retail is a resilient channel, having shown its mettle, bouncing back after the attacks of 9/11 and recessions.

“I feel a lot of optimism,” said Benacin.

“In 2021, we’ve seen a steady recovery of our business in most locations around the world,” said Antonin Carreau, global director of beauty at Dufry Group. “There is an important appetite for consumption.”

“We can be cautiously optimistic, especially for the second half of this year and also for 2022,” agreed Britta Hoffmann, director of purchasing for perfumes and cosmetics at Gebr. Heinemann, adding the operator’s business in September and October has been above plan.

Britta Hoffmann
Britta Hoffmann Photo by Bruno Vandeville

La Prairie’s travel-retail sales are nearing 2019 levels.

“We are closing the gap month after month,” said Noelle Goris, vice president travel retail at La Prairie Group, who credited the rise of China and Hainan Island, which has become a tax-free haven, and downtown duty-free stores.

DFS has long traded both in airports and such downtown locales.

“The duality of that channel has helped us to weather the storm with much more resilience than some of our other industry peers,” said Benjamin Vuchot, chairman and CEO of DFS.

“To compliment the duality of airport and downtown, we are also layering now what we call ‘travel e-tail,’” he continued. “This is really about riding on the transformation that COVID-19 had on consumer behavior, combined with the increased level of technology into beauty, which L’Oréal, Lauder and LVMH brands have embraced so much, as well as some of the retailers. The consumer today connects first with their mobile phone before there is any purchasing intent.

“Travel retail was the only white space left that has not gone through a digital transformation,” he said.

“COVID-19 has been a clear catalyst to accelerate the digital transformation of our industry and all the actors of the ecosystem,” agreed Sophie Neyertz-Ehrsam, chief digital, marketing and retail officer at L’Oréal Travel Retail. “Digital is really a key enabler to drive consumer engagement along the traveler’s journey…in order to drive them to shop and convert them.”

L’Oréal has, for instance, been carrying out digital precision advertising; 360-degree online-plus-offline “always-on” activations for the group’s brands; strategic partnerships with online travel agencies — such as Alibaba’s Fliggy — to connect with travelers as soon as they book an airplane ticket, mostly in Asia; livestreaming, and live selling.

DFS’ new platform allows it to link up with people before they start their trip.

Benjamin Vuchot
Benjamin Vuchot Photo by Bruno Vandeville

“We meet them throughout their journey, whether it’s in an airport, a Galleria, but more importantly, we build loyalty when they come back from their journey,” said Vuchot.

La Prairie executives have continued to focus on upgrading the quality of its doors, consumer engagement, as well as giving clients the same level of service and experience in travel retail as in domestic markets.

“Now’s the moment to test and learn,” said Goris.

When travel retail was shuttered, brands like Bulgari worked to cement their client relationships in local markets.

Babin said while COVID-19 has been a tragedy from a human perspective, it’s also been an opportunity to better know Bulgari’s domestic clientele, such as in China, and forge deeper bonds in domestic stores, which can then benefit travel retail when international travel resumes.

Pre-pandemic, Chinese clients used to make 70 to 80 percent of their luxury purchases abroad. Using data culled internationally on them is part of Bulgari’s outreach to, for instance, extend invitations to events in China.

“The growth with local clientele has been really huge this year, in low to high double-digits in most [countries],” said Babin, referring to results of many major luxury goods companies.

All eyes remain on China.

Hainan is a huge priority for Coty, said Caroline Andreotti, executive vice president global travel retail at the company, during an interview prior to the TFWA show. She highlighted how the island generates about $4 billion in retail sales today, will become fully duty free in 2025 and then is expected to ring up retail sales of $50 billion.

Coty chose to launch its revamped Lancaster lineup in Hainan travel retail with Lagardère Sanya.

Interparfums will invoice around 2.5 million euros in the country’s travel-retail channel this year, which it’s recently entered.

“That compares to approximately 700,000 euros in 2019,” said Renaud Boisson, CEO of Interparfums Asia Pacific.

To get to know these local customers, COVID-19 has spurred a focus on data like never before.

“There was a definite increase in terms of access to data, using data,” said Kevin Rase, chief operating officer of Generation Research, explaining that included making sense of the information — “not only being able to consolidate everything, to put data altogether to understand more macro-level trends, but also to be able to dive down and spot certain opportunities that were rising in very particular areas.

“People will continue to use a lot more data than they did before,” he said.

“Data is absolutely key,” exclaimed Neyertz-Ehrsam, adding that involves leveraging retailers’ consumer relationship management databases and other partners’ databases in the travel ecosystem.

Aglaé de Beauregard, Sophie Neyertz-Ehrsam and Anne-Laure Lecerf
Aglaé de Beauregard, Sophie Neyertz-Ehrsam and Anne-Laure Lecerf. Photo by Bruno Vandeville

Teamwork is also essential. Dufry aims to work with its brand partners to enhance digital content, customer relationship management and develop an omnichannel platform.

Executives said there’s higher penetration in travel-retail shops and bigger baskets versus prior to the health crisis. Kaatje Noens, vice president of travel retail at Puig, chalked that up to the heady mix of “revenge traveling” and “revenge shopping.”

“People are going for the best brands when it comes to quality, legitimacy, authenticity and…social responsibility,” said Babin.

Certain consumer behavior has been surprising to executives. In the heart of the crisis, concern arose that people would never want to interact with beauty assistants or touch testers again. But that’s not been the case as markets reopen.

“[Some] go back as if COVID-19 never existed,” said Noens. But that’s not true for others. Therefore, agility — a watchword at the trade show — is key.

“We’ve made sure that we have the consumer experience for both these kinds of passengers,” said Noens.

Puig launched touchless sampling involving a ticket system and digital entertainment, plus made sure QR codes are available, so people can discover novelties themselves.

In Istanbul Airport, for instance, a Penhaligon’s pop-up was opened featuring Puig’s Magic Monocle digital tool, created with Ailice technology, which lets people snap a photo of a perfume bottle to preview visually on screen the fragrance’s scent without smelling it. Images of the juice’s ingredients are sized to reflect their concentration, and the technology also suggests other scents in similar olfactive families.

“The engagement and the conversion is there for that kind of consumer,” said Noens.

Coty is testing a multiscent tablet, which BAs can access for try-ons using dry-smell technology, and it is deploying a touchless sampling dropper.

L’Oréal has rolled out touchless fragrance testers, too, plus QR codes for people to learn about makeup and skin care products, as well as digital tools for beauty advisers to diagnose beauty needs.

“What I observed, for example, in Istanbul is people are dying for advice,” said Anne-Laure Lecerf, L’Oréal Travel Retail Active Cosmetics and Professional Products Divisions general manager.

Among other shifts in consumer habits are the polarization of interests.

“On the one hand, they go for bigger brands, longer treatments, more expensive products, and are seeking quality and excellence,” said Vuchot.

From L’Oréal, for instance, among the super premium brands that have been gaining traction over the past two years are Crema Nera from Giorgio Armani and Pure Shots from Yves Saint Laurent.

“But on the other [end of] the spectrum, there’s always this quest for discovery, seeking the new product, trend, color and shade, and that forces us to be much more agile,” said Vuchot.

In the Samaritaine in Paris, DFS has created a large clean beauty space. It’s a product segment Heinemann will be delving more into, as well.

“We know that clean beauty is really even more than ever important for consumers,” said Hoffmann. “So we’ve reworked the assortment, design and communication.”

Sustainability is top of mind, and she said that by 2030, Heinemann targets to generate more than 50 percent of its sales from sustainable products and responsible suppliers.

Consumers in the channel are asking for more sustainable options. A recent L’Oréal study shows people expect products to have lower carbon footprints and be recyclable, for instance.

Social responsibility is becoming increasingly important in travel retail, as well. On Nov. 1 the Estée Lauder Cos. revealed that it’s launching a new program with Florida A&M University to foster the next generation of Black beauty leaders in the channel.

Other trends are on the rise, too, like miniatures. For Heinemann, Mini’s to Fly, which can be preordered, have been successful and are to be rolled out in further locations.

“We realized also this year that local sense of place [and taste] is becoming more important,” said Hoffmann.

De Beauregard noted regional trends impact the product categories sold.

“For example, in Europe, we’ve got a huge focus on fragrances — close to 70 to 75 percent of the market,” she said, giving as comparison about 65 percent pre-COVID-19.

L’Oréal kept to its launch roadmap in all product segments, including introducing perfumes from it new brands Valentino, Prada and Mugler.

“In Asia, skin care has gotten even bigger,” said de Beauregard.

Hoffmann said there’s a need for more products specific to travel retail — especially with a “wow” effect.

“There’s no better way to recruit customers than with newness,” said Vuchot. DFS is exploring hair care, for instance.

Brands in that category were present at TFWA, such as Kérastase, from L’Oréal, which is already in the channel.

“It’s growing very fast,” said Lecerf. “What we see is that COVID-19 has enhanced the search for expert products a lot.”

It was the first time that Frédéric Fekkai was at TFWA as an exhibitor. “Today, we are ready to do international and travel retail,” he said, of his namesake brand.

Frédéric Fekkai
Frédéric Fekkai Photo by Bruno Vandeville

Fekkai explained people shouldn’t always use the same hair care while traveling as at home. So he is considering, for instance, creating a shampoo for Southeast Asia, where it’s humid and there’s a high pollution factor.

“My dream is to have a family of products that addresses a region,” he said.

Ref International, a Swedish professional hair care line, was at TFWA for the third time. It is sold in 40 airports and works with a few airlines and boat companies in travel retail, where the brand has traded for seven years.

“Now we are working to expand, to get [more] international listings,” said Edward Ernstberger, CEO of Ref.

Meanwhile, COVID-19 has been reshaping the landscape of travel retail’s more traditional beauty categories.

“We saw skin care as the most resilient category, dropping by about 10 percent overall and really boosted by the weight of Asia and ease of buying products online,” said Andreotti. “Skin care global share of business in travel retail has actually increased to 87 percent of overall beauty sales.”

That compares to 72 percent pre-pandemic.

“Novelties, exclusive products…and promotions remain the main drivers, and certainly benefit the sales of fragrances,” said Carreau.

Since last year, Lagardère Travel Retail has been running a major communication campaign on leader brands and price savings versus what can be found on the domestic market.

“It is something that we didn’t communicate on in the past,” said Guillaume Robert, director merchant of perfumes and cosmetics at Lagardère Travel Retail.

Some operators have found that with greater competition from online and local markets, competitive pricing has become key.

“The other priority is still to continue having differentiation versus the domestic market,” said Robert.

He referred to travel-retail exclusives and new brands, such as Drunk Elephant and Kylie Cosmetics, which haven’t launched in the channel years after the domestic market, as was tradition. These days, some products are being introduced in Lagardère even before they hit domestic markets, such as Puig’s Phantom from Paco Rabanne, the creative scent contained in a connected bottle shaped like a robot that had a one-month exclusive at the travel retail operator starting in July.

“[Phantom was] ranking in the top one or two in the U.K., for instance,” said Carla Troadec Morishita, head of fragrance at Lagardère. “The results are amazing.”

Dufry also carried Phantom prior to its debut on the U.K. local market. The operator was the first to launch Creed in travel retail in Western Europe, starting in Heathrow terminal five in September.

Dufry will introduce at the end of 2021, starting with the U.K., four indie makeup brands: Huda Beauty, Hourglass Cosmetics, Pat McGrath Labs and Kylie Cosmetics.

Some airport operators said they will continue to develop their offer of niche fragrances and perfume collections, as consumers — especially from Asia and the Middle East — skew toward exclusive and personalized products.

“That is where we are growing double digits,” said Troadec Morishita.

“We are looking into niche fragrances further,” said Hoffmann.

Seventy percent of the operator’s fragrance and beauty sales are generated by perfume, versus 50 to 55 percent pre-COVID-19.

For skin care at Lagardère there’s an emphasis on natural brands and dermocosmetics, while for makeup a new plan was in order, not least since brands like Becca and Two Faced Cosmetics were taken out of the channel. Today, emphasis will be placed on influencer and makeup artist brands, such as By Terry.

Challenges and opportunities often converged for executives at the trade show, who ticked off among them learning how best to service the ever more savvy, digitally driven Chinese consumers when they travel abroad again, and how best travel-retail locations can compete with local market shops.

There’s no upbeat way to view the market’s volatility, the slower than expected uptick of international travelers or the supply chain woes, however.

“Making sure that we have the stock is an absolute priority,” said Carreau.

Even with the challenges, executives at the trade show said they wouldn’t have missed it.

At the TFWA World Exhibition and Conference
At the TFWA World Exhibition and Conference. Photo by Bruno Vandeville

“There was no doubt in our mind that if we could, we would come,” said Goris. “It’s important we show solidarity” with the travel-retail community and make a personal connection.

“Connection with people, with teams,” continued de Beauregard. “After so many months going through probably the industry’s most challenging crisis, it was important for us to have face-to-face meetings.”

“Longterm, there’s no way of envisioning our business without travel retail,” said Noens, adding it will be the main channel bringing the most growth in years to come, beside e-commerce and Asia. “So that’s why our presence is here.”

She had been finding the meetings at the show highly qualitative, despite its low occupancy.

“You look at opportunities differently,” said Noens.

Everyone showed optimism.

“We are not yet out of the woods, but we see the light at the end of the tunnel, and the light is shining brighter than it used to,” said Goris.

“Hopefully, in 12 to 18 months’ time we’ll look back at this period of COVID-19 with relief, but also a sense of achievement that companies that have a strong backbone and that believe in innovation and change will have taken advantage of this crisis and help with transformation,” said Vuchot.

FOR MORE, SEE:

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