Tackling Beauty’s Travel-retail Conundrum
CANNES – Travel is flying again, but shopping in airports hasn’t taken off in kind.
That was a key talking point at the most recent edition of TFWA World Exhibition and Conference in Cannes, as brands grappled with how to increase conversion rates and offset losses that continue to plague the Chinese market.
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“There is a reset that must be done at the industry level to envision differently the passenger experience and convert [them] better,” said Emmanuel Goulin, president of L’Oréal travel retail.
As the channel always first impacted by geopolitical and socioeconomic turbulence, travel retail is now navigating a period of war in regions such as the Middle East and in Eastern Europe, while China’s economic recovery is taking much longer than expected.
Nonetheless, executives remain bullish. “Travel retail continues to be a key channel for us. Our strategic outlook has not changed, despite a lot of volatility right now,” said Peter Jueptner, group president of international at the Estée Lauder Cos., echoing the sentiment of many.
As the Tax Free World Association celebrates its 40th anniversary in 2024, the 39th edition of the trade show, which ran between Sept. 30 and Oct. 4, opened with former U.S. Secretary of State Hillary Clinton as the keynote speaker. Many of TFWA’s founders and early supporters were present in the Palais des Festival’s vast auditorium and were greeted with rounds of applause.
Erik Juul-Mortensen, TFWA’s outgoing president, recounted the history of the association. Its first trade event took place in 1985 in Nice, France. That started small, but quickly blossomed and this year welcomed 7,456 visitors and 462 exhibitors.
The travel-retail industry has developed exponentially, too.
“Over the last 40 years, duty free and travel retail has grown its turnover from around $5 billion to well over $60 billion,” said Juul-Mortensen, who added that was despite the crises the channel has weathered, including financial meltdowns, volcanic eruptions, SARS and COVID-19, all while helping to build a more connected world. “Our industry has been boosted by waves of tourism, as the Japanese, the Koreans and the Chinese discovered travel. But it has also been driven by socio-econoic change.”
Those included the first package holidays, low-cost carriers opening travel to the masses and cruises’ recent exploding popularity.
“Only a fool would try to guess what the next 40 years will bring,” said Juul-Mortensen. “So let us look at the market today.”
In 2023, the global travel-retail market generated $72 billion, a 18 percent year-on-year rise. Beauty remained the largest category at $25.8 billion, making 36 percent of the total, according to Generation Research.
Airplane passenger numbers are currently up 11.5 percent versus last year, Airports Council International World, or ACI World, data showed. That puts them at a level higher than in 2019, before COVID-19 struck.
In the first six months of 2024, the number of international passengers rose 1.4 percent against the same period in 2019, and domestic passenger footfall increased 1.3 percent.
“The Middle East and Africa bounced back strongly in the first half of this year, followed by Latin America, while North America and Europe were more measured, with growth just over 4 percent,” said Juul-Mortensen. “Asia-Pacific remains below its pre-pandemic level, although the deficit has reduced to 5.6 percent in the first half of this year and passengers were up 18 percent. ACI World’s long-term outlook is encouraging.”
Air traveler levels should increase 4 percent above pre-COVID-19 traffic this year and 29 percent above by 2028, for instance.
“Less positively, several European and North American Airlines have reported weaker than expected results, as revenge travel comes to an end and demand suffers,” said Juul-Mortensen. “We are also hearing of lower spend per head.”
“Spend penetration is detiorating very fast,” confirmed Alexandre Callens, president of global travel retail at Groupe Clarins. “We assume in beauty that the spend penetration is about 70 percent of 2019.”
“The biggest challenge for everyone is the conversion,” said Markus Stauss, vice president of global marketing travel retail at Coty Inc.
“The room for improvement here is huge, because one person out of 10 buys,” said Gwendoline Bommier, Lagardère Travel Retail’s director merchant perfumes and cosmetics for duty free global.
A factor contributing to the eroding spending is the product price convergence between travel retail and local markets, many of which have become highly promotional. That is especially true for Chinese traveling abroad.
China is travel retail’s weakest geographic link. In the first half of this year versus first-half 2023, it registered a double-digit percentage sales decline, driven by downtown shops, including on Hainan, the tax-free Chinese island.
“Hainan is suffering a very strong decline this year,” said Jean-Christophe Babin, CEO of Bulgari Group.
That compares to growth of almost 20 percent in the Africa and Middle East combined region, above 10 percent in Europe, slightly below 10 percent in in the Americas and a single-digit decline in the Asia-Pacific region, according to Generation.
Significant changes need to be made in travel retail, not least due to shifting passenger profiles. The Chinese and Russians are not globetrotting as they did pre-pandemic. Rather, Chinese denizens are traveling less and staying closer to home.
“Discretionary money left for buying luxury is much less than before,” said Babin.
“The Chinese customer has been exposed to so much product in China at, unfortunately, a discounted price…there is less appetite to purchase in the regular channels,” said Benjamin Vuchot, the outgoing chairman and chief executive officer of DFS Group.
Concurrently, Russians are heading more to Istanbul and Dubai today, so not like Western Europe in the past.
“Our Turkish travel-retail business is increasing a lot,” said Philippe Benacin, chairman and CEO of Interparfums SA , adding the same is true for the group’s Middle East activity in the channel.
Local travel is vibrant.
“We need to shift back to the local consumers,” said Callens. That includes offering them a repositioned product assortment.
“We need the global brands, [but] also a regional taste,” said Britta Hoffmann, director of purchasing for perfumes and cosmetics at Gebr. Heinemann.
That’s in the channel’s new landscape, where skin care sales last year were in double-digit decline, while those of fragrances were up more than 25 percent and of makeup less than 5 percent, Generation numbers indicated.
Coty, for instance, created an ominichannel, multihouse concept.
“It will always bring brands together with a difference experience based on a sense of location — so where you are,” said Stauss.
“We need to be exactly where consumers show up,” said Caroline Andreotti, chief commercial officer of Coty Prestige at Coty Inc., adding that is “with the right assets and content.”
Youth Quake
With Gen Z’s full-on arrival, there has been a seismic shift in the travel-retail channel.
“Gen Z used to be about 25-plus percent of our traffic back in 2019, pre-COVID,” said Callens. “We estimate it close to 40 percent now.”
By 2030, Clarins predicts that age group will comprise nearly 70 percent.
“That changes a lot, because they have different aspirations,” he said. “Travel retail needs to evolve to be relevant in the years to come.”
Getting Gen-Zers — who have a penchant for buying online — into travel-retail stores and then converting them to buyers is a big challenge.
“There’s high expectations on service, outstanding experiences, assortment, exclusivity, rareness, uniqueness,” said Hoffmann. “Self-indulgence is something which is more important, as well.”
Brand selection, such as of Kylie Cosmetics, can be a huge draw for the demographic, according to Stauss.
It’s key to give consumers a reason to shop.
“There is room, therefore, for other players, alternative players or categories, that may have not been so exposed in the past to all the different channels,” said Vuchot.
That includes high-end, artisanal fragrances. Avolta is riding the trend by rolling out Haute Parfumerie stores and shops-in-shop.
“Niche brands and private collections are also booming,” said Bommier, naming labels such as L’Artisan Parfumeur, Byredo and Maison Francis Kurkdjian, and lines including La Collection Privée Christian Dior, Les Exclusifs from Chanel and L’Art & La Matière from Guerlain.
“In our shops, we dedicate an area specific to those brands,” she said.
Bulgari has increased the travel-retail distribution of its high-end Le Gemme and Allegra collections, with perfumes selling at around 350 euros and 250 euros, respectively.
“Brands or products that are high-quality and not overly distributed, that can be for self-consumption or for a gift, are still making the mark,” said Vuchot.
To wit, DFS is putting at the forefront brands such as Byredo and Diptyque. The operator has also been expanding The Beauty Collective, its edit of emerging clean beauty brands, cult favorites and luxury classics, in a carved-out retail space.
“We create our own environment,” said Vuchot. “It’s an opportunity for us to incubate the brands that do not yet have the muscle or the financial [power] to go into established corners or personal stores.”
The concept was launched in DFS’s renovated store in Hong Kong’s Causeway Bay. There, it also promotes hair care and beauty tech existing elsewhere in tight distribution. The products therefore become a good talking point for the sales associates and weapon to help fight the conversion challenge, according to Vuchot.
“In some locations, they’re going to come out of this Beauty Collective and have their own presence,” he added.
Heinemann is expanding a test-and-learn area, which was first established in Düsseldorf, Germany, before being rolled out elsewhere. It gives space to brands that are not yet in travel retail and only have a small retail footprint. The concept began with direct-to-consumer skin care brands, which attracted younger consumers. Sexual wellness was then tested, as well as niche luxury fragrances.
Antonin Carreau, global director of beauty at Avolta, noted that over the past year or two there’s been a shift toward niche and lifestyle beauty brands, such as Sol de Janeiro, Drunk Elephant and Augustinus Bader.
More emphasis has been placed on health, well-being and sustainable products.
Also tapping into wellness and health, Heinemann just developed a specific concept of subcategories, including ingestibles and sleeping maskes, that’s entering Hamburg and Düsseldorf airports.
Lagardère Travel Retail is taking a holistic approach to well-being, too, by melding in various product categories, according to Bommier.
“The idea is to create this multicategory approach in our stores,” she said.
Heinemann has been enlarging its footprint of sustainable skin care, with brands such as Annemarie B?rlind. “We’re adding more brands to the category and diversifying a little bit,” said Hoffmann.
Bommier has seen strong growth in natural skin care brands such as Nuxe, Caudalie and L’Occitane en Provence in travel retail Europe.
Hair care is another category in expansion in travel retail. Lagardère, which currently stocks brands like Moroccanoil, Guerlain and Hair Rituel by Sisley, is looking to develop that segment further with prestige and premium labels offering a holistic approach.
“We have a huge lever of growth with that category, said Bommier. “Hair care can be really huge.”
Lagardère has also been developing the makeup segment, opening Charlotte Tilbury shops, for instance.
“The results are really amazing,” said Bommier.
“Digital is becoming really important in beauty in general and in travel retail as a consequence,” said Carreau. So Avolta is rolling out digital tools, such as virtual try-ons and skin care diagnosis.
Fragrance finders allow brands to interact with consumers in a different way “and make it fun for them to explore,” said Stauss, adding digital tools help customize consumers’ experiences.
“Consumer really look for innovation and differentiation when they go through travel retail,” added Andreotti.
Experience Matters
“People are in high demand for experience from the [moment] they step into an airport,” said Callens. And this must be more immersive than ever.
“We need to really reinvent the experience,” said Jueptner.
That’s to make a holistic, 360-degree shopping experience, including leveraging retailers’ loyalty programs.
“So it also becomes a lot more data-driven, heading into the direction of what we call ‘precision marketing,’” the Lauder executive continued. “Which is really addressing specific consumer groups.”
Travel retail is synonymous with data — a lot of it, from airlines, airports, retailers and brands.
“There is no ecosystem in the world that is so data-rich, that can personalize so much your experience than the travel-retail industry,” said Goulin. “But the fact is, no one is doing it, because everyone is working in silos.”
Everyone should work together to help with the conversion issue, he counseled.
“There is a fantastic opportunity to bring a memorable and personalized experience to shopping,” said Goulin.
“Just having data doesn’t make sense,” said Hoffmann. “We need to work on it together to understand what it’s about, the white spots category dynamics and share much more.”
In the Asia-Pacific region, Groupe Clarins is creating a CRM system of data collection. When someone purchases Clarins product, data on the transaction is sent overnight to the customer’s local market, which would then contact the person to thank them and start an ongoing dialog.
In three weeks across six counters, Clarins captured about 4,000 data points and found more than 80 percent of the consumers were first-time members of the brand’s domestic database.
Lauder is trying to implement something similar. “The collaboration between the local market and the TR team is super important. This is something we’re really dialing up,” said Jueptner, adding it gives a unified, seamless consumer experience. “TR is a brand-building channel.”
Early-bird Strategy
A key with travelers is to “connect and try to engage early, frequently and genuinely, because that’s what helps with the conversion and the long-lasting relationship,” said Vuchot.
Digital clienteling is a strategy DFS has recently begun expanding. It involves sales associates being equipped with digital tools, content and the ability to communicate with the clients directly to develop a better knowledge and understanding for making shopping recommendations.
“The conversion rate, the success of those initiatives and the spend once you got the customer really feeling trusted and understood is absolutely remarkable,” said Vuchot.
Lanc?me is working with an AI-generated beauty consultant that gives people beauty product advice in real time depending on their needs and destinations.
Alongside activating more traditional advertising for its fragrance brands outside its home market of Italy, in airports in cities such as London, Istanbul, Madrid, New York, Miami, Bangkok and Barcelona, Euroitalia has been activating digital experiences in its pop-ups and other travel-retail-related outposts, especially in Asia.
“We covered most of the biggest airports,” said Matteo Sgariboldi, the company’s head of business development, adding Euroitalia’s business in travel retail has grown by at least 20 percent since the pandemic.
“From a consumer perspective, it’s trying to put yourselves into the shoes of the consumer, being consumer-obsessed, to change the paradigm in terms of the type of experience they can expect to see in travel retail, then scaling that and moving it into airports,” said Israel Assa, global president travel retail at the Estée Lauder Cos.
“The idea is really to focus on the consumer and propose them an experience they will never forget,” added Bommier.
Among new concepts with a wow effect was Lauder’s first multilevel, 5,000-square-foot global flagship unveiled this year in China Duty Free Group’s Global Beauty Plaza, also known as Block C, in Haitang Bay, Hainan.
“It’s our largest Estée Lauder store in the world, across all channels,” said Assa. That offers full-service facials and the new Longevity Institute, offering consumers high-touch, targeted personalized services, including “age-reversal facials.”
It further boasts state-of-the art skin analysis tools and features the luxury Re-Nutriv line. There is also a Spa La Mer offering four different branded facials, including the signature treatment — a first for the Asia-Pacific region — a Bobbi Brown Brow Studio, an Aveda head spa studio and MAC Cosmetics makeovers.
There is the first Kilian juice and cocktail bar, featuring the brand’s fragrance-inspired drinks. “It’s this ‘scentertainment’ type of experience that the brand can offer,” said Assa.
Up next, starting soon in an undisclosed travel-retail location, will be a Tom Ford cross-category store, offering beauty, eyewear and fashion accessories. “It will be the first multicategory experience for the brand since we acquired it,” he said, of the $2.8 billion deal closed in December 2022.
In September, Clarins launched its ninth-generation Double Serum in an activation also in Block C.
“We needed to build resonance; a podium no longer suffices,” said Callens. So Clarins collaborated with Gen Z-relevant American-Chinese singer and actor Zhou Keyu. “He made a surprise appearance that we advertised heavily,” said Callens.
That was at “The Power to Change Your Skin’s Future” pop-up. Livestreaming accompanied the launch and reached 20.4 million in viewership, a record and boon for user-generated content. At the peak, 1.5 million people watched simultaneously.
DFS is experimenting with food and beverage in a beauty space to give people a chance to relax in-store.
“In Hong Kong, we’ve partnered with a super trendy café, called Elephant Grounds, and it’s smack in the middle of the beauty floor,” said Vauchot. “It makes the beauty floor a little less transient.”
“We have a big project around one of our brands to do a café,” teased Andreotti, who kept mum on details.
Beauty is ever becoming a destination category.
“The future is bright,” said Carreau.
“We are very positive about the future of travel retail,” said Andreotti.
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