Despite hand luggage restrictions, the ongoing threat of terrorism and counterfeiting, the travel retail market is going from strength to strength. Georgina Caldwell reports from the Tax Free World Association (TFWA) Exhibition in Cannes on the channel that has finally hit the mainstream
The travel retail channel has now become a serious contender in the beauty retail stakes, as 2005 saw sales of cosmetics and perfumery outstrip those of alcohol and tobacco for the first time. According to Generation Databank Best & Most 2006, 28.1% of the $27bn global travel retail industry is now taken up by the cosmetics and perfumery sector.
Jean-Michel Bostroem, international marketing director for travel retail, L’Oréal Produits de Luxe reveals that the travel retail industry is finally being taken seriously. “Travel retail is a secret that has now received worldwide recognition. Jean-Paul Agon, ceo of L’Oréal, visited the TFWA exhibition in Cannes, marking the first time that the ceo has put in an appearance at the exhibition. This is surely recognition of the contribution that the travel retail channel makes to the company’s brand image, sales and bottom line.”
Indeed the growing importance of the travel retail market is underlined by the gradual shift in the impetus placed on the cosmetics industry’s various events. Admittedly the TFWA World Exhibition, falling in the last quarter, is ideally placed in the calendar to exhibit forthcoming launches, but in the last five years Cannes has become increasingly accepted as the official launch pad for new products. Whereas Cosmoprof used to be the highpoint in the launch schedule, particularly for Italian companies, several companies such as Pupa and Collistar, who eschewed this April’s show in Bologna, were present on the Cannes roll call.
Cosmetics and perfumery has also put in the largest growth across the travel retail market, up 12.3% in 2005. The phenomenal growth of the cosmetics and perfumery sector also exceeded the growth of the travel retail market as a whole, which grew 8% in 2005.
Within the cosmetics and perfumery category, women’s fragrance still account for the majority of value sales, taking 38.2% of the market. But the gap between perfumery and cosmetics is steadily closing, as skin care in particular is becoming more and more popular worldwide. The ageing populations in the largest travel retail markets have boosted the skin care category to a 22.3% share of the market, followed by men’s fragrance in third place (19.9%). Make-up is giving chase with a 17.7% share, while the remainder of the market is sewn up by coffrets (1.8%).
In terms of geographical zone, Europe is by far the largest travel retail market, with cheap flights and business travel taking the continent’s share up 6.8% to 46.5%. Asia Pacific soared 19.4% to occupy over half of the remainder (27.2%) with South America accounting for 11% of the market (+19%), North America rising 11.7% to 9.7% and the Middle East and Africa comprising 6% (+16.6%).
However, TFWA president Erik Juul-Mortensen poured cold water on any celebrations. “Simply looking at year to year sales figures in isolation is too simplistic and can lull us into a false sense of achievement. Whilst the long-term trend for travel retail is positive, we need to challenge ourselves to at least match annual passenger growth – and exceed it,” he explained.
See and be seen
According to the International Air Transport Association (IATA), passenger traffic was up 5.9% for the year to 1 November 2006, a statistic which swiftly strips the rose-tinted glow from the channel's success. Indeed, the 8% rise in travel retail sales in 2005 pales in comparison to 2004’s 22% boom.
Whether this year’s figures will stand up to passenger growth, in view of the hand luggage restrictions imposed by airport authorities as a response to the threat of terrorism, is yet to be determined. But in lieu of any official figures, the industry appeared to be putting a positive spin on the extent of the damage. Bostroem reports that all indications show L’Oréal's travel retail figures remain healthy. “We have been hit, like everyone in our industry. After several high profile launches, such as Lancôme’s Hypnôse and Polo Black from the Ralph Lauren portfolio, we were expecting a brilliant year. Instead we will have a very good year, only just missing out on double digit growth.”
However, several of the brands present at TFWA pointed out that the travel retail channel should not be evaluated purely on sales figures. Instead, companies should think of the channel as an enormous advertising opportunity, one that has the potential to reach millions of people every year.
Of course the very nature of the travel retail channel ensures that the traffic is international and hails from all demographic groups. Thus presence in the channel will inevitably mean that your brand is seen by a wider selection of people than ever before. As Heather Hurst, press representative for Klein Becker points out: “For us the travel retail channel is about branding. There are so many people passing through airports, from so many places. Most of these people will have never seen the brand so it is an opportunity for us to recruit new devotees and familiarise a core group of consumers with the brand, even before we have entered their domestic market.”
Maike Kiessling, managing director, Distributor Markets & Duty Free at La Prairie agrees: “It’s true that the majority of our sales come from existing customers replenishing their stock as they pass through the airport, but the promotional aspects of our larger travel retail areas, combined with the services that we can offer there definitely help to convert new consumers to the brand.”
Indeed, larger standalone boutiques have become an increasingly common phenomenon in large airports. Standalone stores provide another way for brands to stand out. La Prairie has done just this, reporting excellent results from its boutique in Zurich airport, and is planning to install the concept in Hong Kong in December. The company has installed a soundproofed treatment room where customers can experience 20 minute facials and ten minute massages. L’Oréal is also pursuing this strategy with several of its brands. “We opened a Kiehl’s boutique in Hong Kong in July and we are flabbergastered with the sales so far. We have plans to extend the concept to Copenhagen in April, followed by Oslo. It’s not a solution that we would carry to all of our brands. Some are obviously more suited to this strategy than others. The Body Shop, for example, has always flourished as a standalone store – it’s a strong concept that exists well on its own. Increasing square footage works well for brands that are subject to limited distribution on the domestic markets, so that the store really stands out as a one-off,” explains Bostroem.
This prospect is even greater when the travellers become a captive audience and this is certainly a positive take on the recent security measures. Travellers are now arriving at airports up to three hours in advance of their flight to ensure that they pass through security in time for boarding, which means several more precious minutes of browsing once airside.
And when travellers have no choice but to sample your brand through complimentary toiletries, the power of a captive audience is exponential. This may well be the motivation behind Ferragamo’s recent deal with Singapore Airlines to provide the in-flight toiletries for first class passengers. “We are delighted that we won the Singapore Airlines contract and we are now working on deals with other airlines and a major hotel chain to produce toiletries. It’s a great way to reach our target market, through first class passengers and five star hotels, and it will mean that our brand is seen worldwide,” comments Luciano Bertinelli, managing director, Ferragamo Parfums.
Of course, both domestic and travel retail markets benefit from strong, creative brands that concentrate on delivering true innovation. This year’s TFWA was remarkable for the number of launches that stood out for their uniqueness, something that in recent years has been rather lost among droves of line extensions, rebranding and copycat products. Guerlain, for example, showcased its forthcoming Terracotta bronzer, a make-up product that has crossed over to sun care with the inclusion of self-tanning ingredients, billed as an active make-up compact.
Beset with difficulties at every turn, it is impressive enough that the travel retail industry managed to turn in a positive performance this year. But the positivity among manufacturers in the market, combined with some strong product innovation to drum up excitement for the most glamourous industry in the most glamourous locations, certainly bodes well for the future ahead, come what may.