Travel retail is showing its mettle, yet again. Industry executives say the business is rebounding, despite the fallout from the alleged terrorist plot to blow up planes flying to the U.S. from the U.K.
Travel retail might have gone into a tailspin of late, but the sector seems to be largely correcting itself. Following news of an alleged terrorist plot to blow up planes fl ying from the U.K. to the U.S. in August, shockwaves rattled the industry—particularly in London-based terminals catering to U.S.- bound fl ights. However, industry executives were quick to underscore the sector’s resilience, that even a scare like this has mostly only short-term effects.
“I don’t see this as a major blip,” said Colin Hargrave, managing director of BAA U.K. Airports Retail, a division of the British Airports Authority (BAA), which owns seven U.K. airports.
Since that security alert, airport retailers and beauty manufacturers have focused on furthering business and working despite the constraints from heightened security procedures. For some, that’s meant nuts-and-bolts measures, such as introducing sealed plastic bags to hold liquid-based travel-retail purchases that are then delivered to gates. Executives have also had to look into how best to serve increasingly stressed passengers with additional services.
Beauty brand and store executives are wary of quantifying the impact of the terrorism scare and its ensuing security restrictions on liquids, which in certain airports meant some passengers were banned from buying cosmetics, skin care and fragrance in travelretail stores. However, while many said the impact was signifi cant in the days following news of the threat, it was highly localized.
“We are still feeling some effects in certain locations of the alleged terror alert,” said Joe Porcelli, vice president, managing director of Coty Prestige Worldwide travel retail and export Latin America.
“It depends on the terminal,” added Mark Riches, managing director of travel-retail operator World Duty Free (WDF), which is owned by BAA. He added terminals with high levels of U.S.-bound traffi c were most impacted.
“Some are not affected at all,” he said.
Concrete signs of a major turnaround came in late September, when the U.S. Transportation Security Administration alleviated shopping restrictions. At magazine press time, U.K. security regulations prohibiting U.S.-bound passengers from purchasing liquids in travel-retail stores were still in effect. And the EU Aviation Security Regulatory Committee had recommended that the European Commission ease regulations regarding liquids on board planes.
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A spokesman for the European Travel Retail Council welcomed new security moves.
“Business has been absolutely dreadful,” he said. “[Gate delivery] is not good for business, and U.S.-bound passengers tend to be very good customers. No one likes gate delivery.”
For travel-retail executives, the alleged terrorist threat was just one more in a long list of incidents that have persistently plagued retailing in travel environments in recent years. There were the Sept. 11, 2001, terrorist attacks in the U.S., bombings in London and Madrid, SARS, the war in Iraq, avian fl u and the abolition of intra-European duty free, to name the most impactful.
However, travel retail has proven it can bounce back. In 2005, fragrance and cosmetics sales in the channel hit $7.58 billion (?5.96 billion/£4.04 billion), an increase of 12% year-on-year in dollar terms, according to tracking fi rm Generation DataBank. In local currencies, sales rose 10.4%. By comparison, total travel-retail sales grew just 8% to reach $27 billion.
“We’re used to crisis,” said WDF’s Riches, adding the most recent London terrorist scare differed from previous events, since it resulted in structural changes in how retailers do business.
According to executives, what is key to maintaining strong business performance looking ahead is to ensure that all passengers can once again shop for beauty in travel-retail stores.
“Whatever will happen, there will be a way to fi nd a solution to solve the problem,” said Coty Prestige’s Porcelli, “possibly including the establishment of more arrival shops close to the baggage claim.”
WDF’s Riches noted, however, that such schemes could cannibalize business in traditional travel-retail stores and are complicated to arrange because of customs regulations.
“It is successful in certain countries, such as Israel and Norway,” he said. “We’re looking into it.”
Meanwhile, attracting passengers to existing travel-retail boutiques is paramount, according to industry executives, who are bullish about the relevance of the channel, even during times of heightened security.
“It’s a convenience no passenger can do without,” said Nadia Miller, vice president of brand development for Beiersdorf-owned La Prairie’s international business, adding her fi rm clocked double-digit growth in the past year.
The channel can be lucrative for beauty brands. Groupe Clarins, for example, rings up 11% of its overall sales there.
“[Airport shopping] is very much part and parcel of the travel agenda,” continued Riches. “It’s the most pleasurable part.”
Another cause for optimism is the projected growth in passenger numbers. In U.K. airports alone, they’re expected to rise to 500 million per year by 2030 and 400 million by 2020 from 200 million today, according to the Department for Transport.
“There are new types of consumers with more and more people traveling with low-cost airlines,” said Eric Henry, chief operating offi cer of Shiseido-owned Beauté Prestige International (BPI), adding Chinese travelers are also boosting the sector’s potential.
“Asia-Pacific is still growing really fast,” he said, adding BPI’s total travel-retail business rose by double digits in the fi rst half of 2006.
“More and more women are traveling, which will further develop the cosmetics side of [business in travel retail],” continued Jean-Michel Bostroem, vice president of brand and product development at L’Oréal, adding the French beauty giant has had an excellent year in the channel. “We’ve enjoyed very healthy growth, especially in Europe, which is booming.”
Further, emerging markets for the sector, including China and Russia, are performing well, say executives.
Miller said La Prairie’s sales in St. Petersburg airport have overtaken those in Moscow, for instance. While L’Oréal’s business in China posts double- and sometimes triple-digit growth.
“The Middle East is booming,” added Bostroem.
Although travel retail has stumbled upon a few hurdles of late, Kao-owned Molton Brown is giving it its vote of confi dence. The British beauty brand and retailer is looking to expand in the arena by having drafted an executive to oversee the sector, for the fi rst time, in July.
“We’re in the infant stages,” said Amy Nelson Bennett, vice president of global marketing at the company. “We’re retailers. We’re used to volatility—ups and downs are the name of the game, so you have to be good enough at what you do to work around them.”
Among strategies the company aims to take in travel retail is to offer passengers who have already been through security a relaxing retail experience.
“Consumers are going to need more reassurance, relaxation and entertainment in the space after security,” said Nelson Bennett, adding the company could potentially offer hand massages and mini treatments like it does in its non-travel-retail stores.
Indeed, hands-on services and in-store animation will be key focuses for travel-retail stores in the future, according to executives.
“For skin-care and makeup companies, there are lots of things they can do,” said BPI’s Henry. “With fragrance, with enough space to create excitement, we can destress the consumer.”
WDF’s Riches claims Heathrow’s Terminal 5, which is scheduled to be opened in March 2008, will go beyond traditional retailing.
“The total retail offer will have more services and entertainment in the mix,” he said. “[Manicure stations], massages and spa treatments are keying into the mood of passengers who may wish to take a moment and use it productively.”
One airport operator taking the cue is Gebr. Heinemann. The German airport operator will run its second Beauty Lounge event in Frankfurt airport from Nov. 5 to Dec. 2. The function, which is to be held in the airport’s B-East store, will feature promotions on three yet-to-benamed brands and involve hand massages and makeovers. A spokeswoman for the company said a similar event held last year tripled the turnover of participating brands—Shiseido, Clarins and La Prairie.
Miller noted passengers are increasingly seeking out services in airport environments and added that visitors to La Prairie’s fl agship travelretail store in Zurich airport are signing on for services, such as hand massages and makeup retouches.
“Who knows, maybe one day we might be able to go through the airport and get a Botox shot,” she said.
Certainly, the market is going high-tech in other ways already.
L’Oréal’s Lancôme this year introduced Biômetric devices in its travel-retail stores. The gizmos allow customers to test virtual makeup looks on computer screens. The tool, which is now used during some promotions, may become a permanent feature in certain stores.
“It’s a question of space,” said Bostroem. “We have luxury brands, and luxury brands are all about services. It is a way to bring loyalty.”
Space, as Miller noted, is always at a premium in airport environments and therefore might limit the services that may be offered there.
“If we could push the walls it would be a different picture,” she explained.
In some cases, brands are creating their own “walls” and introducing freestanding stores.
La Prairie, for one, hopes to replicate its Zurich boutique in locations such as London, Paris, Moscow, Hong Kong and Tokyo. And L’Oréal, which opened a 390-sq.-ft. Kiehl’s location in Hong Kong in June, would ideally like to have a similar store in one airport on each continent, said Bostroem.
Such spaces help allow brands to fully express their values and up the service element a notch or two, and that’s key.
As Miller said, “It’s well-known that our business is down to service, service, service.”
This article appeared in WWD Beauty Report International a special publication of WWD.