Travel Retail Resets to a ‘New Normal’
CANNES, France — A new normal.
That is what travel retail beauty executives are grappling with and focused on during the recent TFWA World Exhibition and Conference.
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The Cannes, France-based event, held from Oct. 1 to 5, was fittingly dubbed “Open World” by trade show organizers. Everything is now open to discussion and analysis, as travel retail resembles nothing like it did in 2019, pre-coronavirus pandemic.
“The consumer does not want the same thing as before,” said Gwendoline Bommier, director merchant perfumes and cosmetics, duty free global at Lagardère Travel Retail.
There is that, coupled with today’s volatile geopolitical and economic contexts making for an uneven channel recovery, among other factors.
“The world has shifted dramatically since 2019,” said Alexandre Callens, president global travel retail at Groupe Clarins.
“Everything has changed,” agreed Giovanni Sgariboldi, Euroitalia president.
Beauty is a bellwether for travel retail. With about a 40 percent share, perfume and cosmetics was by far the number-one category sales-wise in the channel’s almost $65 billion business in 2022, with more than 60 percent year-over-year growth, according to Generation Research. Behind beauty comes wine and spirits, and fashion and accessories, with about 15 percent each.
Among beauty categories overall, skin care generated more than half of total sales, followed by fragrance and makeup.
Beauty executives at TFWA percolated with excitement, ideas and optimism, with many saying their business had already surpassed 2019 levels, despite the fact that Chinese consumers — traditionally top luxury cosmetics spenders, especially for skin care — are still not traveling beyond their country’s borders.
“There is plenty of positivity around duty-free and travel retail at the moment,” said Erik Juul-Mortensen, president of TFWA, during the opening conference. “People are hungry to travel again…but we are not quite back to where we were in 2019.”
Overall passenger numbers by the end of 2023 are expected to reach 90 percent of 2019 levels, according to travel analytics company ForwardKeys, a travel analytics company. It estimates the Americas and Middle East and Africa regions should be up 101 and 105 percent, respectively, while Europe and the Asia-Pacific regions to be at 94 and 70 percent, respectively, of the 2019 levels.
ForwardKeys forecasts the global 2019 level of international Chinese passengers will be reached in 2026, but that some regions such as the Middle East and the Americas should recover earlier, in 2025.
“The surge in air traffic, although welcome, has created some staffing problems, since 43 percent of airport workers worldwide left the sector during the pandemic,” said Mortensen, citing Air Transport Action Group statistics. “It remains true travelers are returning, but buying habits have evolved.”
“The channel must adapt to the evolution of the worldwide population and the traffic,” said Antonin Carreau, global director for beauty at Dufry Group, which will soon be called Avolta.
Helping shape the new face of travel retail is the rise of the Gen Z demographic, born between 1997 and 2012, which is highly proactive of their well-being and that of the planet. Gen Z represent 25 percent of the world’s population and $7 trillion-plus in purchasing power, according to management consultancy Oliver Wyman.
“Our world is largely dominated by the younger generation valuing experience, digitalization and social responsibility,” said Carreau, who noted a greater demand for luxury experiences, such as personalization, cocreations and exclusive events.
Some challenges have a bright side.
“From a macro level, the challenge — and the opportunity — is traffic recovery,” said Israel Assa, global president, travel retail at the Estée Lauder Cos. “As traffic grows, the industry has the opportunity to grow with it.”
Yet it’s not always a perfect equation.
“Even though traffic is recovering strongly, average spend per passenger is below pre-pandemic levels,” said Mortensen.
To help ramp up in-store penetration, L’Oréal is accelerating digital activations for preflight marketing, according to Vincent Boinay, the group’s outgoing general manager for travel retail worldwide, who early next year will become president of the the company’s North Asia zone and chief executive officer of L’Oréal China.
Gebr. Heinemann is taking a similar approach.
“That’s where we see big opportunities for us to make sure that more customers buy in our stores,” said Britta Hoffmann, director of purchasing for perfumes and cosmetics at the German operator.
A TFWA-commissioned study suggests the travel retail industry must transition from a one-size-fits-all approach to a segmented value proposition tailored to each customer category.
“This is where we have collectively, as a trinity, a challenge,” said Boinay, referring to the triumvirate of suppliers, retailers and airports.
Other factors are shaping travel retail’s new normal, too. Ya?l Blassin, regional director at Interparfums SA, highlighted a rise in special offers in European travel retail doors.
“For the retailers, it now represents 15 percent to 20 percent of their fragrance business,” she said.
“One of the challenges is the massive discounts we see in the beauty category everywhere,” said Hoffmann.
This has a large knock-on effect.
“The retail price convergence between travel retail and local markets or pure players means there is no more price advantage,” said Callens, who explained it is therefore essential brands start building consumer loyalty through CRM data. “That is where the industry needs to reinvent itself.”
Another concern voiced by executives is the vast number of products in store.
“The biggest challenge is the reduction in space [for existing brands], because retailers are listing more and more,” said Blassin.
Experiential Retail
A key phrase of this 38th edition of TFWA — which clocked 7,385 attendees, up 23 percent versus 2022 and down just 2 percent against 2019 levels — was “experiential retail.”
“We have to provide experiences, retail-tainment,” said Bommier. “It’s not a transactional relationship anymore. In our shops, we need to adapt our concept, our journey, which must be seamless.”
In Cannes, DFS revealed it will open a “seven star” luxury retail and entertainment destination in Hainan, China, by 2026. That is to spread more than 1.38 million square feet and carry more than 1,000 luxury brands. Called DFS Yalong Bay, it is the largest project ever conceived by the LVMH Mo?t Hennessy Louis Vuitton-owned travel retail operator, and will also boast immersive concepts.
Category-specific, DFS reopened a renovated and expanded store, called Beauty Store of the Future, in Galaxy Macau in late October 2022.
“This is the type of experiential retail, catering to one category only, which is beauty, that encapsulates what we’re aspiring to do,” said Benjamin Vuchot, CEO of DFS Group.
The location offers a wide selection of products and services. There are Valmont luxury treatment rooms with a full-service menu, for instance, and artisanal fragrances from the likes of Maison Francis Kurkdjian, Le Labo and Diptyque.
“[They are] very beautiful brands that require a little bit more space to narrate what they’re all about,” said Vuchot.
Digital touch points are important, as well.
“We wanted to make sure that those touch points that people see online are replicated in the store,” he said.
The Beauty Store of the Future has a studio for livestreaming.
“We can invite KOLs, journalists or even our staff, which we call our key opinion staff, to use a camera, stream and send it to their customers,” said Vuchot. “It’s really a next-generation store, which goes beyond making sure that we have products and prices that will satisfy the customer. We also have a story to tell them and a point of view.”
DFS sets out to create “destinations within destinations,” said Vuchot.
Heinemann is working to further expand and diversify its assortments, while focusing on innovation, new concepts and experiences. In the Düsseldorf, airport, for instance, the operator opened its Test and Learn concept.
“We have dedicated spaces for the beauty category specifically, for online brands that are targeting Gen Z — assortments that maybe we don’t typically have in duty-free,” said Hoffmann. “The first learnings is that it works super well.”
Every three to six months, the concept and brands here will change, and Test and Learn is expected to roll out to other airports.
Perfume Mania
In travel retail, as in the domestic market, fragrance — especially high-end perfume — is driving the beauty category’s growth. In 2022, fragrance was the second-largest category overall, after skin care, which makes more than half of beauty’s overall sales, according to Generation.
“Fragrance was traditionally a very large segment of the European and Latin American businesses, but the fantastic thing is that we’re seeing very strong growth for artisanal and luxury fragrance from the Asia-Pacific region,” said Assa. “So, it’s truly a global phenomenon.”
“It’s a lever of growth in the months and years to come,” said Bommier. “We will build this category with the brands.”
Other travel retail operators were quick to jump on the trend, too.
Dufry has developed an Haute Parfumerie concept, involving fragrance brands such as Penhaligon’s, Maison Francis Kurkdjian, Acqua di Parma, Parfums de Marly and Amouage. The first location was launched in Zurich airport in March. The 1,940-square-foot, freestanding store has lots of digital assets, including fragrance finders.
“We’re looking into expanding the concept worldwide and evolving it from a store design and consumer standpoint,” said Carreau.
Puig has a rich portfolio of niche brands in very tight distribution. L’Artisan Parfumeur, for instance, is found in just 300 doors globally.
“We really consider the airports as windows of the world,” said Kaatje Noens, executive vice president of global travel retail at Puig.
The company sets out to have a unique, dynamic offer in the channel. Beginning in July, it prelaunched Rabanne’s new image in Heathrow Airport T2.
“What we’ve seen is the amazing engagement of passengers with that new image and look, and that elevation of brand equity,” said Noens.
L’Artisan Parfumeur staged a pop-up in Charles de Gaulle airport in Paris, which has become a road map for further rollouts.
“Partnering with retailers to bring unique and different experiences is the only way we’re going to walk away from a price war that is a short-term element,” said Noens. “It’s not going to add value to the brand, the retailer or the landlord.”
Caroline Andreotti, CEO of Coty Prestige, said a fragrance brand like Chloé Atelier des Fleurs has hopped on a rising trend of perfume layering.
“We explain to the customers how they can layer different flowers together to get to a certain outcome,” she said, adding consumers are also layering ancillaries with scent to reinforce a perfumes’ long-lastingness.
Coty and others in the industry have noted the increasing importance of travel retail exclusives today.
“You have discovery sets,” said Markus Stauss, vice president of global marketing travel retail at Coty, citing as an example a coffret with five bestselling perfumes in 10-ml. spray bottles.
Molton Brown keeps rolling out its “fragrance first” strategy in travel retail.
“There’s such a demand from our consumer for services, individualization and personalization. Traditionally, those have been saved for our high-street locations,” said Mark Johnson, president of Molton Brown global, who earlier this year was also appointed president of cosmetics business AEMEA at parent company Kao Corp. “But now what we see is within the travel retail industry, the consumer no longer has that divide.”
Inspired by its global flagship on London’s Regent Street, Molton Brown reworked its T5 location in Heathrow Airport to become a space focused on perfume, with a gift bar and engraving. That reopened in November 2022.
As the niche fragrance trend grows, Euroitalia has been revamping its Atkinson brand.
“We’ve really worked on Atkinson to rebuild the image, fragrances, exposure and distribution,” said Sgariboldi. “We are ready to raise the visibility and presence of Atkinson in duty free.”
Retail-tainment and exclusives are also names of the game for perfume. The Estée Lauder Cos., among other groups, has been launching some products in travel retail before the domestic market. Tom Ford introduced a two-month exclusive preview of its Grey Vetiver fragrance in the Europe, Middle East and Africa region starting in April.
“It was an incredible success,” said Assa.
For the exclusive launch of Coty’s Boss Bottled Summer Edition 2023, there was a cross-category animation with Heinemann, including eyewear, watches and fashion, as well as immersive experiences in Frankfurt Airport, also in April. That included a surfboard with virtual-reality simulation and a photo booth with a surfboard and ocean backdrop.
“It was really to bring them into the universe of Boss as a brand,” said Stauss.
“More and more consumers are looking at travel retail to discover innovation that they don’t see in the domestic market,” said Andreotti.
In July, Coty introduced Burberry Goddess in travel retail worldwide for a one-month exclusive. The group said the launch is setting new market records.
Events — with glitter and a giant logo — for Jimmy Choo’s I Want Choo were staged in the channel in the U.K. a few times this year.
“For travel retail, [the concept] has to be understood immediately, because people are stressed, they do not have much time,” said Blassin.
Skin Care and Makeup
While perfume is booming, skin care and makeup sales are taking longer to recover in travel retail.
In part, that’s due to the fact fewer Chinese are traveling abroad, which has allowed beauty brands and retailers outside China to become less reliant on skin care.
“It’s more diversified, the growth footprint,” said Peter Jueptner, group president, international at the Estée Lauder Cos.
Still, the category’s business is picking up.
“We have noticed over the last four to six months a steady recovery on skin care, where brands have adopted their offer to be less Chinese-dependent,” said Carreau.
In China Duty Free’s International Duty Free Mall Xin Hai Gang, in Haikou, China, the Estée Lauder Cos. opened some treatment rooms for some of its brands, marking a first for the group in travel retail.
Assa said that has been well received from an experiential perspective.
“The consumer now has the ability not just to shop, but also be pampered while they shop, and that definitely resonates with the luxury, higher-end consumer,” he said.
Carreau expects by mid-2024 skin care sales in travel retail will reach 2019 levels, even without the full recovery of Chinese footfall.
At DFS, people have been seeking out clean beauty.
“I’m particularly interested also now in bringing products that are good for hair and sun care,” said Vuchot.
DFS launched in Galaxy and The Londoner, in Macau, an area called Beauty Collective, which gives an opportunity to bring in more indie brands. Its 2.0 version is due to be revealed late this year, and the rollout will include Hysan in Hong Kong in December.
Dufry has been developing and launching a well-being concept dubbed Mind. Body. Soul., which works cross-category.
“It proves to be successful in recruiting consumers,” said Carreau.
Noelle Goris, vice president global travel retail and distributor markets at La Prairie Group, has also noted momentum ramping up again for skin care.
“We are ready,” she said. “We are gearing up our BA capacity and capability.”
Over the past year, while La Prairie has closed about 15 doors in the channel, the brand’s footprint in square meters has grown 10 percent.
“We gained in terms of quantity of space, but also a lot in terms of quality of space,” said Goris, adding the brand is gaining market share most everywhere.
La Prairie is implementing more services and a channel-related offer. In February, with Heinemann, it opened an Art of Beauty suite with two facial cabins in Sydney International Airport. This month, it launched its first travel retail discovery set.
“You have a full ritual,” said Goris.
All this is bearing fruit. La Prairie’s travel retail activity should close 2023 up in the triple digits versus 2022, except for in China and Korea, according to estimates.
Meanwhile, Groupe Clarins’ travel retail sales are today substantially above 2019 levels, according Callens. The company in September began launching its Precious prestige skin care range in travel retail in almost 90 doors, of which almost half are in Asia.
In the channel overall, the group is homing in on a seamless omnichannel approach, with the goal of having the Clarins consumers’ data shared between the travel retail and the domestic markets, to give clients a seamless experience.
“How do we fully integrate and recognize the loyalty of our consumer across the world, across the distribution channel, across all sorts of retailer barriers?” mused Callens.
It’s been a bit easier for Clarins to achieve that in Asia, especially China, due to the WeChat mini programs and the Tencent ecosystem allowing the company to engage and collect data through the equivalent of WhatsApp.
L’Oréal, with its portfolio of brands spanning dermocosmetics to hair care, and luxury to mass market products, sets out to sell beauty for all travelers, according to Boinay.
L’Oréal Paris, in an extension of a study begun last year, asked travelers on the Chinese island of Hainan why they enter travel retail stores. Thirteen percent said it was due to the accessible-luxury brand L’Oréal Paris. Of those that purchased L’Oréal Paris in the channel, 68 percent bought another brand, as well.
“So L’Oréal Paris is really a traffic driver and has tremendous recruitment power,” said Karina Behar-Lecuiller, general manager of the Consumer Products Division Travel Retail Worldwide at L’Oréal, while standing near a merchandising unit showcasing the new mascara Panorama.
Color cosmetics is the beauty category taking the most recovery time.
“Makeup will come back more strongly,” said Jueptner. “If you look at makeup today, it’s still behind significantly. We think it’s a matter of time. There’s a big opportunity to reinvent and upgrade the experience you have with makeup.”
“It is a segment in the channel that needs to be far more experience-driven — same as domestic, or even online — [more] than what it is today,” said Carreau.
Sustainability Minded
A sustainability focus has amped up in the channel of travel retail and at TFWA, where L’Oréal and Heinemann revealed a new partnership.
“We will be embarking on a collaborative green road map,” said Kim Rowney, travel retail sustainability director at L’Oréal.
Guido Tappesser, chief commercial officer of L’Oréal travel retail, explained that since the health crisis began, consumers have been demanding more sustainable products and brands with a purpose.
The first step of the tie-in will concern product assortment within Heinemann’s Future Friendly concept, slated to have a global rollout starting in 2024. The partnership will be wide-reaching, including CO2 emission reduction, cooperating on social projects and customer engagement.
“We are super convinced that our business can be green and profitable,” said Hoffmann.
Executives strongly believe in the health of travel retail mid- to long-term.
“All the fundamental drivers are intact,” said Jueptner. “You will have more people traveling, more middle class in the emerging markets, more people getting a passport.
“We’ve been through this COVID disruption and have seen amazing recovery in EMEA and the Americas,” he continued. “We’re basically back to where we were before — and then some. The recovery in China, particularly, is taking more time than everybody expected, but it will come eventually.”
This is a period of transition, but also a great opportunity for industry reinvention, according to Jueptner.
“It opens up the space to do more from a segmentation perspective, with different traveling corridors and travel nationalities,” said Assa.
“It’s a very interesting period of time, because it’s time to reset,” said Callens. “Forget about 2019 — have the same ambition or bigger ambition for performance. But the methodology behind 2019, which was for everybody the record year, doesn’t work. We need to change ingredients and make a different recipe.
“Forget about what we know,” he said.
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