CANNES — Travel-retail executives are taking a long, hard look at the way they do business.
This story first appeared in the November 7, 2003 issue of WWD. Subscribe Today.
Many are calling for a total revamp, believing they have to change the way they work completely — from the interaction between beauty brands, airport operators and retailers, to the development of channel-specific products.
“We see travel retail as very vulnerable,” said Eric Lauzat, general manager of L’Oréal’s prestige and collections travel retail division worldwide, speaking at the Tax Free World Exhibition, which took place here from Oct. 24 to 27.
Lauzat explained that for decades, the industry had clocked 5 to 7 percent growth yearly, but in 2003, the business stagnated in some parts of the world and now many firms are looking to end the year flat, or up slightly at best.
“This year, we discovered biological risk [with SARS],” he continued. “It has been an annus horribilus. It was the worst year — the most horrible year I’ve ever seen.”
To counter this, executives need to take action, said Eric Juul Mortensen, president of the Tax Free World Association, in a speech at the opening trade show conference and echoing the sentiment of many.
“Being proactive rather than reactive puts the industry on a better footing,” he added.
One example he gave is the industry task force, tagged the Trinity Forum, which recently assembled in London to draft a white paper outlining suggested new terms for airport landlords.
“The old model is busted,” confirmed Mark Riches, managing director at World Duty Free. “It’s no good having retailers bid stupid money and brands being asked to pay for it.”
But, he added, airport owners, retail operators and manufacturers all have to work together to develop a new strategy.
Ariel Gentzbourger, travel retail director of Shiseido, which has been aggressively expanding into travel retail in the last three years, acknowledged that some operators are “tough on brands and have been so tight on business. I see this particularly in the European region, not the Asian region.” She stressed, however, that it has rarely happened to her brand.
Stock and delivery issues are also paramount. Executives say manufacturers have had to become more flexible in order-taking and product delivery. Until recently, retailers would stockpile goods in their own storerooms, but now it’s often up to brands to keep items themselves. And while orders were formerly placed with the expectation of deliveries within two weeks, these days it’s a question of smaller quantities more frequently with shipments expected in just 48 hours.
Another change on the travel-retail scene is the shift toward the creation of channel-specific products, rather than global ones.
Bulgari, for instance, is introducing numerous items exclusively for the channel. Among the new offers will be The Contemporary Collection, containing seven 5-ml. fragrances. The coffret, which will be introduced in March, is to retail for $40 at current exchange rates, or 35 euros. A second set, including individually boxed 5-ml. miniatures, called The Ultimate Selection, will be sold starting in July for $33, or 29 euros.
According to industry sources, such new items could bolster Bulgari’s travel-retail business by 15 percent to 20 percent.
Also specifically for travel-retail, Parfums Givenchy showed its third one-shot fragrance, called So Givenchy, which is for launch worldwide in March.
“Travel retail is becoming much more competitive,” explained Alain Crevet, president and chief executive officer at Parfums Givenchy. “It’s the reason why we create new travel-retail exclusives. We need to build excitement [in the channel].”
So Givenchy is a floral, fruity scent that comes in a light pink bottle. The 50-ml. eau de toilette will retail for $40, or 35 euros.
“The travel consumer has different expectations than regular consumers,” continued Crevet, who explained they’re typically after convenient, compact items at good price points.
“The travel retail consumer has different time to devote to the act of purchasing,” said Renato Semerari, president and managing director at Guerlain. “[The business] needs an offer tailor-made to one consumer group. The travel operators are putting more emphasis on these — you might see gondolas with travel-retail exclusives, [operators] tend to give higher visibility to them.”
However, Chantal Roos, chairman and chief executive officer at YSL Beauté, Gucci Group’s beauty division, warned that designing products for travel retail makes sense, but only if the items have a reason to be. “If it’s just an opportunity, you are cheating the customer and the customer knows it,” she said.
Another way travel-retail buyers differ from domestic shoppers, said Leonard Lauder, chairman of the Estée Lauder Cos. — whose appearance at the Tax Free show was a first — is that they frequently buy beauty products as gifts for family and friends. Lauder cited as an example his company’s individually boxed lipstick tubes that are packed together. Travelers often purchase them to break apart to offer as presents.
“The travel-retail business is another way of getting to the consumer with self-liquidating samples,” he explained, pointing out that his company was built on the strength of its gift-with-purchase promotions, really a sampling technique.
William Lauder, Leonard’s son and chief operating officer of the Estée Lauder Cos., said the travel-retail business has more sophisticated, well-heeled clientele as opposed to most other channels, and it’s also blessed with a consistent merchandising philosophy worldwide.
“It really is the only truly global business,” he maintained.
While the travel-retail industry looks to reinvent itself, following the turbulence and loss of momentum caused by SARS, the war in Iraq and depressed economies worldwide, indicators point to something of a rebound in the short term at least.
“The good news seems to be the global strength of traffic flows worldwide,” said L’Oréal’s Lauzat. “The U.S. is doing better finally, and Asia is coming back very strong, very fast. It’s looking like a good year barring any exceptional event.”
“We have really seen an improvement since summer,” said Roos, who added she expects her firm will close 2003 ahead of 2002.
“We see some positive trends, particularly in Europe and the U.S.,” agreed Patrick de Lambilly, senior vice president of commercial at Lancaster Group Worldwide. “There’s been double-digit growth in Germany — very positive numbers versus the trend a couple of months ago. For Asia, we don’t see significant recovery yet, [although] the Japanese business is recovering fast, in double digits.”
Harry Diehl, managing director at German airport operator Gebr. Heinemann, concurred, maintaining things are looking up. In the airports Heinemann represents, business was down 3 percent in March, 5 percent in April and 2 percent in May. But then there was an about-face and in September, business was up 1.2 percent and 2.5 percent in October year-on-year. Diehl added that, between January and September, the Cologne/Bonn and Frankfurt/Hahn airports’ travel-retail stores registered a beauty sales growth of 90.4 percent and 101.2 percent, respectively.
“It is a resilient industry,” said Cosmopolitan Cosmetics’ managing director Donatienne de Fontaines-Guillaume.
“I feel the worst is behind us,” confirmed Philippe Benacin, president at Inter Parfums SA. “I feel 2004 will be good.”
Such a resurgence was reflected in the strong turnout at the Tax Free World Exhibition. On the first day, 3,848 attendees were counted, a 27 percent increase over the show’s same period in 2002. Of that, the number of Asians was up 50 percent. The session had 4,963 visitors during the four days, versus the 5,403 attendees for the five-day event last year.
Yet the one cloud on the horizon is the weak dollar, which has devalued upwards of 20 percent against the euro.
“[It] is doing damage to most of us,” said L’Oréal’s Lauzat, adding that it’s particularly true since so many currencies are pegged to it. “This year we were able to hedge our correct rate, but next year it’s not going to be the same going.”
“The dollar for us is a nightmare, since it directly impacts our profits,” continued Beauté Prestige International’s chief operating officer Eric Henry.
But despite such difficulties, most European executives agree that — at least for now — they will not change their pricing policies in the noneuro zone.
“We need price consistency around the world,” said Guerlain’s Semerari. “And American-based companies have no interest in raising prices. It’s a bit gloomy for Europe.”