The decimation of travel retail has hit traditional beauty brands hard. The channel represents up to one-third of revenues for some players, and brands aren’t willing to let it go.
“The pandemic has been extremely challenging for us,” says Sandeep Seth, CEO of SK-II, the P&G owned Japanese skincare brand known for its £170 Pitera facial treatment essence. Sales fell by a double-digit percentage in the last quarter, he said. “As a business we always prepare for crises and chaos but I don’t think anybody could have prepared for something of this magnitude.”
They aren’t the only ones. L’Oréal’s chief executive officer Jean-Paul Agon cited the closure of airport stores as one of the main reasons for the company’s 19.4 per cent decline in sales to 5.85 billion euros in the second quarter and Estée Lauder reported global travel retail declined less than 30 per cent in recent earnings. Overall organic sales in the skin and personal care category at Procter & Gamble decreased in the single-low digits. For travel retail operators, the situation has been close to catastrophic. Industry giant Dufry saw its sales decline by 62 per cent to $1.73 billion in the first half of 2020, while Heathrow Airport’s retail revenue was down by 88 per cent in July, according to its retail director, Fraser Brown.
The closure of airport stores has contributed to declining sales during Covid-19 lockdowns.
© Vancouver Airport Authority
Travel retail has been a steady growth winner for beauty brands in the past 15 years, with global revenues tripling to $69 billion by 2017, according to the Boston Consulting Group. Perfumes and cosmetics represent the largest share of the travel retail market, at 31 per cent, according to Allied Market Research, and the sector accounts for significant portions of sales at beauty brands. But the pandemic has exposed the industry’s over-reliance on the sector, especially versus nimble young direct-to-consumer brands. The strategy now is stick with it and go digital ahead of an expected rebound, but analysts are dubious.
“We live in an omnichannel world so it’s never smart to be overly reliant on one channel,” said Scott Clarke, VP and consumer products industry lead at Publicis Sapient. “Historically, people chose to buy duty-free for the price and convenience, but that has been usurped by the improved convenience that you get from shopping online.”
Patricia Abergel, general manager of export and travel retail at Clarins Americas, says travel retail will remain a significant part of the company’s business, “we just have to be patient”. At SK-II, business is beginning to pick back up, particularly in China, according to Seth. Prior to the pandemic, 32 per cent of SKI-II’s business came from travel retail, compared to 21 per cent from e-commerce. Now, e-commerce is 28 per cent, with travel retail fluctuating but ending “essentially flat” at the close of SK-II’s fiscal year, per Seth.
Even as travel retail revenue has grown, there are cracks in the model. Individual passenger spend has continuously declined since 2002 at a rate of 3.4 per cent, according to the Boston Consulting Group. Clarke attributes this to broader changes to the air travel experience.
“There used to be an enjoyment element to travel and people treated it like an event, stocking up on a lot of things they didn’t need impulsively,” Clarke says. “Today, it’s a more transactional and frustrating experience for a lot of people.”
Traveller demographics have also changed, bringing different shopping habits along with them. As more low-cost airlines like EasyJet and Spirit have entered the scene, air travel is more accessible, while luxury purchases are not, even duty-free. Millennials now also account for the bulk of business trip spending, at roughly 46 per cent, per BCG. “They are much more planned in their shopping behaviour, which online shopping enables, and their purchases are less impulsive,” says Clarke.
This presents an opportunity to rethink operations to be more flexible, says Brown, of Heathrow, which is expanding the capabilities of its Heathrow Boutique app and creating a more contactless passenger experience. A new feature lets travellers reserve a product ahead of time, enabling customers to pick it up quickly on their way to the gate. Vancouver Airport, which relies on a similar programme run by Dufry called “Reserve & Collect”, has seen more travellers using the programme throughout the pandemic, according to Scott Norris, the vice president of commercial development at Vancouver Airport Authority.
Sending travellers personalised offers and promotions via text and email when they get to the airport is another way to entice more airport shopping, says Clarke, of Publicis Sapient. “You can take advantage of the fact that the first thing people do after security or when they get off the plane is check their phone.”
Heightened customer service for travel retail, which can be less high-touch than traditional retail, may also drive growth. Effective training programmes for all retail staff drives purchases, says Norris, of Vancouver Airport Authority. On the digital side, SK-II is piloting touchless “Magic Scan” mirrors in some of its travel retail locations that offer an AI-enabled skin analysis and personalised product recommendations. Similarly, the travel retailer Gebr Heinemann is planning to roll out a virtual “lipstick bar” in some of its stores in the coming months, which features in-store tablets that use AI to see what different lipstick shades might look like on skin. Once a customer selects a colour for purchase, a light signal will indicate the exact shelf location of the product. Clarins, for its part, has begun pairing all of its products with QR codes that shoppers can use to learn more about the product.
Clarins expects travel retail to remain a significant part of its business.
© Gebr Heinemann/Clarins
These efforts will be key for travel retail in a post-pandemic world, says Clarke. “They need to think about the consumer journey in a more integrated way, with travel retail viewed as an extension of what shoppers experience online and in traditional stores.”
But for many of these brands, the online experience is still steps behind that of younger, direct-to-consumer beauty brands. That’s meant that their efforts to digitise the travel retail experience have come hand in hand with a rush to digitise the domestic brand experience.
“Digital was already part of our strategy but the pandemic has pushed us to accelerate further and think more about how we can serve our consumer’s changing needs,” says Clarins’ Abergel, who expects e-commerce to become a “huge part” of the business. The pandemic’s effects and the importance of growing e-commerce have not interfered with the company’s travel retail plans, which include expanding further into China and opening brand-owned boutiques in airports.
At SK-II, to further strengthen its digital presence, the brand started offering virtual beauty consultations on Tmall in China and via FaceTime in Japan and Singapore. In the US, an AI-powered digital influencer named Yumi offers 24/7 advice via live text and video chat. Despite these investments, Seth does not foresee e-commerce outgrowing travel retail, which contributes the highest growth to the company. “It will supplement the travel retail experience because people still want a physical space to try the product,” he says.
Industry experts believe that beauty’s accessible price point, replenishment factor and the low suitcase-space its purchases require will continue to make it a popular category in travel retail. “I don’t think the buying behavior will permanently change,” said Brown, of Heathrow, “but [brands will have to create more] pre-awareness of products and services, and offer pre-ordering tools to give passengers enhanced convenience, choice and peace of mind.”