DESPITE DUTY-FREE ABOLITION, BEAUTY TAKES OFF IN TRAVEL RETAIL
Byline: Pete Born / Jennifer Weil
CANNES — Beauty has been upgraded in the European travel-retail business.
Whether it is a case of “macroeconomics,” as one top cosmetics executive asserted, or rather that the evolution of cosmetics and fragrance merchandising in airport and ferry shops has been jumpstarted, it is clear that ever since inter-European Union duty-free selling was abolished in July 1999, beauty has begun to grow in prominence.
At least that was the consensus that emerged here from some key cosmetics executives attending the Tax Free World Exhibition, which began Monday and ends today.
According to a number of executives exhibiting new product offerings, there is a growing sense that fragrances — and, more recently, cosmetics — are benefiting from a renewed emphasis by retail operators in airports and on ferries, thanks to the diminishing role of tobacco and hard liquor in the duty-free business following the duty-free abolition.
Tobacco and liquor goods were hardest hit, according to executives, because those products carried the highest taxes that had to be paid after the abolition. While airport operators by and large began shouldering the lower tax on fragrance and cosmetics — which was less hefty — it was more difficult for them, especially in some northern European countries, to make up the difference in order to keep prices at pre-abolition tax-free levels.
Some leading executives speculate that the woes of tobacco in particular are playing into the hands of fragrance and cosmetics, with more emphasis, and eventually more space, being devoted to the beauty category. The beauty companies will be able to offer wider product assortments and more knowledgeable, trained staff, which will lead to higher sales, they say; several executives assert that color cosmetics — a long-neglected category — has been given more attention. They also suggest that beauty is rising in the esteem of airport shoppers. Instead of being a secondary purchasing priority, it now is moving into the front rank along with fashion accessories.
But not everyone agrees. Eric Lauzat, managing director of L’Oreal’s Division Produits de Luxe Travel Retail, sees the resurgence of beauty more in terms of the fact that more people continue to travel. He added, “Macroeconomics works.” In addition to the heavy airport traffic, sales improvement has also been helped by manufacturers offering the right product mix. He noted that worldwide travel is up by 7 percent.
L’Oreal, which claims to be the number-one duty-free cosmetics manufacturer, can boast a 12 percent increase in post-abolition Europe, more than 20 percent growth in Asia and a rise of 14 percent in the Americas.
“For the first time in a long while, we are flying the plane with all three engines running,” Lauzat said, also acknowledging the possibility of a long-term benefit for beauty in Europe, particularly Eastern Europe, where he said there is an “untapped potential.” He added that there is a huge potential in China and India. “The future looks good,” he said.
However, he discounted theories that there has been a windfall with the demise of tobacco. “Change in space has been marginal,” he said.
One of the other great powers is Estee Lauder. “We are here to show our confidence in the future,” said Patrick Bousquet-Chavanne, president of Estee Lauder International, underscoring his assertion that Lauder intends to take a leadership role in the development of travel retailing worldwide. He pointed out that the company was the first to rename its efforts from duty-free to travel retailing in 1992. And now, following the seismic quake of abolition, he returned to Cannes to demonstrate Lauder’s faith in the channel — particularly in Europe.
“The industry is going through a questioning and challenging time,” he said, adding that there is a need to “redefine and reassess.” He noted that cosmetics and fragrances are getting more emphasis at point of sale in terms of their brand identity. Worldwide, he noted, beauty has captured close to 25 percent of the total market share, with that proportion going as high as 35 percent in key airport doors.
In the “easy times” of the 1990s, duty-free retailing was primarily based on price savings. But the balance is now shifting to the power of the brand instead of just the price break. Under Lauder’s strategy of focusing on “better doors,” Bousquet-Chavanne focuses on three fundamental pressure points: One is increased visual representation of brands at point of sale, second is an increase in the number of trained beauty advisers in shops, and the third is a conversion of merchandising from an item business to a fuller brand presentation. “It’s about representing makeup not with three shades but with 25,” he explained.
Bousquet-Chavanne asserted the average transaction has been “going up substantially” where Lauder has increased training and staffing levels.
He noted the Lauder Corp. took the top spot in travel retail in the Asia-Pacific region.
One key factor for Christian Courtin, president of Groupe Clarins, is that passengers have been forced to spend more time in airports — either due to delays or the requirements of security precautions. “If you are going to London, you don’t mind being there one hour earlier; you can buy a nice book, or a nice cashmere. There’s fantastic shopping.” He pointed out that Clarins was the first to open a beauty institute in Gatwick, offering facials, four years ago. He agreed that the key components are service, quality of products and the shopping experience.
Another change is that airport traffic is growing exponentially, said Manuel Puig, chief executive officer at the Puig Group. During a presentation at the opening of the conference Monday, Jose Luis Zoreda, chief executive officer of the World Tourism Organization’s Business Council, said that in 1999, 664 million people passed through airports and rang up $455 million worth of sales; he estimated that 1.561 billion travelers will generate $2 billion by 2020.
The duty-free business has been picking up particularly in the Asia-Pacific region, but he sees the future of the channel in developing products that are unique for the business. “You are traveling, and you find something different. That is the future,” said Claude Palatin, president of Escada Beaute.
Harry Diehl, general manager of Gebr. Heinemann, a German distributor and duty-free store operator, was one of the leaders in setting up the Travel Value group of duty-free retailers, which now numbers 30. “We have not arrived yet, but we will arrive,” he said, referring to the struggle to achieve complete coverage of Europe with the network. However, he has observed fundamental shifts in the business. “No doubt we have to work more conservatively than in the past,” when duty-free retailers offered presold products at an attractive margin; nowadays, the priorities are reversed. “Now you have to look for the consumer and then try to get the margin.”
Diehl said he could give a detailed speech on what type of merchandising is required in a changing retail environment today, but he boiled it down to “make a clear offer, give a clear message.”
“We’re very buoyant,” said Alyson Reilly, director of buying, perfume, cosmetics and fashion for World Duty Free Europe, the wholly owned subsidiary and retail operating company of BAA. She added that BAA had been aware of the “huge potential of color cosmetics and skin care” well before the abolition. It had been developing the “primary” brands in skin care and treatment, and now BAA is working on the “second level,” including Christian Dior, Lancaster, Clarins and Isabella Rossellini.
BAA is preparing to open its second MAC counter at Gatwick South by early December. And three weeks ago, it inaugurated a 300-sq.-ft. Clinique outpost that is unusually situated in a lounge area of Gatwick North for the convenience of travelers. Reilly said that so far initial sales have doubled expectations.
On the issue of a debate between price versus merchandise offering, Reilly took a nuanced position, saying “It’s a question of balance between the two.” She asserted that a price advantage is enhanced by the quality of the environment and merchandise representation.
Guerlain has been making a concerted effort to build its presence in travel retail. In 1998, the company did 12 percent of its global volume in the duty-free business; this year the number is 14 percent to 15 percent, according to Eric Henri, managing director of international at the LVMH Moet Hennessy Louis Vuitton-owned brand. “We’re gaining market share in duty-free faster than in the domestic market.”
Another LVMH subsidiary, Parfums Givenchy, has also been focusing on duty-free. Alain Crevet, president and chief executive officer at the company, said that there needs to be “more focus, with an emphasis on merchandising” in travel-retail venues.
“Now we are becoming retail-driven rather than concession-led,” said Hans-Kristian Hoesjgaard, president of Group Lancaster. He explained that the vacuum left by the demise of the tobacco business caused operators to move beauty to the front of the store. “We are the big winners.
“When it becomes retail-driven, it is about transferring domestic know-how into a retail market,” he continued. “We have to create the same ‘wow’ effect as in department stores.” The company has been pushing hard on its travel-retail front; it now accounts for 13 percent of global volume, up from 9 percent four years ago, and the company hopes to push that percentage to 18 or 20 percent within four to five years.
Hoesjgaard said Lancaster is currently testing its Esprit brand in Hong Kong and Berlin before possibly rolling it out worldwide.
A number of veteran exhibitors expressed the opinion that traffic at the show appeared to be down this year and that all the favorite watering holes and lounges were not as packed as in previous sessions, although official totals put the numbers at 9 percent ahead of last year’s.
Whatever the number, it certainly didn’t dampen the party mood. Cannes, as in many years, was the site of a parade of new product events up and down the Croisette.
This fall, the travel-retail scene is shaping up into a battle between two major women’s introductions, Lauder’s Intuition and Lancome’s Miracle. Bousquet-Chavanne has vowed to make Lauder as important in Europe in fragrance as it is in color and skin care. In terms of fragrance, its Pleasures scent now ranks sixth in Europe, and Tommy Girl ranks 10th. Bousquet-Chavanne is planning to make Intuition the third Lauder fragrance in Europe’s domestic top 10.
Elsewhere in Lauder’s brands, DKNY’s women’s fragrance was launched internationally in September starting in Selfridges, where it set a record in the first two weeks, Bousquet-Chavanne said. He also noted it scored number one on British Airways and Lufthansa. The list of airlines that agreed to start listing the fragrance includes Swissair, KLM, Japan Airlines and Singapore Airlines. It is also the first time Lauder is showing its newly acquired Stila brand to the travel-retail market.
As for its MAC brand, Lauder has recently opened travel-retail stores in London, Hong Kong, Sydney and Singapore; it is also launching a MAC store-within-a-store in Moscow’s GUM department store in early March.
Beauty’s other giant, L’Oreal, is plugging for its Miracle scent, which hit the travel-retail market in Europe two weeks ago “with great success,” according to Lauzat, who claimed the fragrance beat out LVMH’s J’adore by Parfums Christian Dior, and Parfum Kenzo’s Flower By Kenzo in Charles de Gaulle Airport.
Miracle is going to be launched in the U.S. early next year, he said. Also, Ralph Lauren’s new fragrance, Ralph, is being launched into the duty-free network.
In other product news, Clarins was showing distributors two of its new products: Quenching Cream, which has a new technology to self-regulate the proper amount of moisture dispensed to the skin. The second-biggest introduction is Moisturizing Foundation, which Courtin described as both a skin care and foundation product.
Escada was showing its limited-edition season fragrance for 2001, called Tropical Punch. This year, it will be distributed early, on Dec. 26, in a special preview for selected stores, including Nordstrom, Saks Fifth Avenue and Bloomingdale’s. The 1.7 oz. eau de toilette spray retails for $45 and will be rolled out to additional stores in late February.
At Puig, executives were proudly displaying the new Nina Ricci fragrance, Premier Jour, and Parfums Loewe was introducing its latest scent, Agua de Loewe.
As night fell on Cannes, not all the stars were celestial. Nino Cerruti hosted a large cocktail reception for duty-free retailers to present his latest fragrance, Image Woman, at a beach club.
The convention kicked off to a glamorous start on Sunday with two parties: One was headlined by Naomi Campbell, who presented her second scent, Naomagic. The other stellar event was headed by Isabella Rossellini to fete her fragrance, Manifesto.
“Ten years ago, I was presenting my first fragrance, Tresor,” she said at the event. “For Manifesto, it was a pleasure to create something from scratch, to make something from my own voice.”