Travel and glamour have long been stablemates and the travel retail industry is working hard to ensure that the channel maintains its reputation for glitz. This year’s TFWA at Cannes (31 October to 4 November) was no exception. Georgina Caldwell reports from the event.
While the past year has seen some of the most memorable natural and human disasters, with the Asian tsunami wiping out tourist hotspots in Thailand, Sri Lanka and Indonesia and terrorist attacks on Bali, Egypt and London, newspapers have barely ceased reporting tales of a suffering tourism trade in a number of countries.
Despite these setbacks, the travel retail industry appears to be booming. According to Erik Juul Mortensen, president of the Tax Free World Association, 2004 has seen the first significant rise in sales since the 1990s, following five years of virtual stagnation in the travel retail market. In 2004 sales reached a value of $25bn worldwide, up from $20.5bn in 2003 and representing a rise of 22%.
This rise can be attributed to two possible scenarios – either more people are travelling or those travelling are spending more. Mortensen suggests that the increase can be attributed to both cases and that future growth depends on how retailers and manufacturers work to maximise the potential of both positions.
Rising passenger traffic is an inevitable consequence of cheaper air travel and rising wealth, but this growth is being driven by developing countries, in particular China, India and Brazil. In 2004 there were 3.9bn passengers worldwide and this number is predicted to rise to 7.4bn by 2020, a rise of 4.1%. The emergence of China and India as global heavyweights will be instrumental to this rise, with these countries forecasted to reach 30% of global GDP by 2030. With a combined population of 2.4bn these countries have rapidly expanding middle classes and are witnessing a significant boom in air travel.
In China outbound travel has increased by 45% in the last two years, rising from 16.6m passengers to 20.22m in 2003 and 28.85m in 2004. By 2030 one million households in China will have an income equivalent to the Western average and throughout the Asia Pacific region the number of consumers with a household income between $5,000 and $30,000 per annum is expected to double in the next ten years. In 2004, 222m Asian consumers had an income in this bracket and this figure is estimated to arrive at 404m by 2014.
India’s middle class is also growing. This demographic should reach 400m by 2020. To put this in perspective, this is larger than the combined weight of this demographic in America and the EU today. Domestic passenger growth is also experiencing a dramatic rise in India. Mortensen anticipates a rise of 50m domestic passengers by 2015. Today there are nine low cost domestic carriers in India, and four more are due to launch next year.
Mortensen suggests that companies must learn from their experiences of the rise in Japanese travellers. While most companies benefited from Japanese outbound travel, only a handful of companies were sufficiently equipped to understand and meet the demands of this new market, and it was those companies that reaped the rewards. Now, says Mortensen, companies should focus on Indian and Chinese travellers and prepare for their needs. “The world has moved on. Now we must move on too,” he encouraged.
While these emerging markets develop, companies must focus on ways to encourage their existing customers to part with their cash at airports. Mortensen points to the difficulties that have dogged the industry in recent years. Externally the disintegration of custom tariffs means that the price differential that has made duty free purchases so attractive in the past has diminished and products sold at travel retail have lost some of their competitive advantage. This has allowed mass market and imitation products to enter the marketplace and has upped the competition within the channel.
Internally, Mortensen has accused the travel retail channel of a lack of dynamism. The era where travelling was exciting and rare and brands were not widely available has passed. Now high street retailers and internet sites are working relentlessly to make the experience glamorous and introduce rare or valued brands into store. Mortensen claims that the ability to focus on the customer is central to the future success of the travel retail channel. Luckily the industry has already embarked on the path to change, which Mortensen proposes as consisting of five steps: analysing the industry by collecting and sharing data, looking outside of the industry for insights on best practice, challenging established practice, listening to the consumer and being better organised to defend the industry. “We have a unique industry that needs vision to explore boundaries and deliver something new and exciting,” he said.
Magic moments
The industry, said Mortensen, is wonderful at rolling out the red carpet for itself in Cannes and needs to deliver some of this pomp and splendour to its customers. This year’s Cannes was no exception. The 21st TWFA exhibition attracted 452 exhibitors, up 0.6% from 2004. Of these, 131 (29%) were cosmetics and fragrance companies – down from last year’s 134 attendees. New and returning exhibitors included Lulu Guiness, Armani, Ferré and Lacoste. The exhibition was sold out, with a total of 18,263sq m.
Visitor numbers were also up, totalling 5,289 visitors from 2,638 companies, a rise of 4% on last year. TFWA ceo Andrew Ford reported that visitor numbers from Eastern Europe and Asia Pacific were particularly high in comparison to previous years.
If it is to tempt customers to spend the industry needs to understand who buys products at travel retail and the motivation behind their purchases. Several companies were willing to share their insights into the market. Estée Lauder’s Annette Alvarenga-Johnson reports that limited editions, prominent in-store signage and new products all help to draw customers to the counter and increase overall sales. This year Estée Lauder has created a limited edition of the hugely successful DKNY Be Delicious fragrance, colouring the juice pink. Its travel retail sets, sold exclusively in duty free outlets, are also popular with customers looking to buy a gift. Estée Lauder’s popular makeup brand Clinique is particularly successful in this area.
L’Oréal Produits de Luxe International’s Jean-Michel Bostroem, international marketing director for travel retail, revealed that cosmetics and fragrances represent almost a quarter of all purchases made in the travel retail channel. This figure can be reduced to a split of approximately 68:32 for fragrance and cosmetics. However the divide varies by region, with the US and Europe being more perfume-oriented (75:25) and Asia much less scent-centric (32:68).
Bostroem reports that Lancôme is the number one beauty brand at travel retail and has a 10% share of the market, leading by a clear percentage point with its nearest competitor taking 8.9%. Lancôme’s latest fragrance, Hypnôse, recently went into travel retail and the company has high hopes for it, given that is already number three in the French fragrance sales charts, and number two in terms of volume. Retailer Douglas reports that the fragrance is its best seller in Germany, making Hypnôse L’Oréal’s greatest fragrance launch of all time.
Bostroem was also eager to allow ECM a sneak preview of L’Oréal’s planned fragrance launches. In early 2006 Ralph Lauren Pure Turquoise will cross the pond from the US to the European market, closely followed by the international launch of Armani Code for Woman in April.
As the owner of several high profile and international fragrance brands, L’Oréal is keen to point out that high profile brands must be truly international to enjoy the same success worldwide. Armani, for example, enjoys a greater awareness in travel retail (18-20%) than Cacharel (12-15%), which is a more European brand, while Miracle by Lancôme does better in Asia than in its local market. Bostroem claims that the support invested in the brand is key to capturing a market, so the company has used several in-flight spots to promote Miracle in Asia.
The travel retail channel is also an ideal environment for recruitment. Bostroem estimates that Cacharel saw a 50% recruitment level at travel retail, while more established brands tend to experience lower recruitment rates. The environment is credited with encouraging trialling and shoppers tend to be more willing to treat themselves. “When people travel they tend to be in a different mood. They are more exploratory and relaxed. The experience feels more indulgent and exclusive because access to the shops is restricted. This makes them more susceptible to persuasion,” he explained. “It’s also a market with lots of new and interesting products.”
For this reason L’Oréal is on the verge of creating a collection of fragrances under its Lancôme brand that will be distributed solely in duty free outlets. The first of the Collections Voyages, Tropiques, can be expected next Spring.
Bostroem is philosophical about the value of exclusivity in travel retail. In terms of launches, he believes that simultaneous releases onto both domestic and duty free markets is ideal in the majority of cases because more people will be aware of the brand: “A product seen is a product sold,” ventures Bostroem. However, there is value in launching in travel retail before domestic markets in certain circumstances. For example, the company chose to launch its Lancôme skin care brand for men in travel retail channels three months before it hit domestic markets because the majority of travellers are men. According to Bostroem, 70% of all travellers are men and for this reason duty free stores have the edge over the traditional domestic perfumery.
Pascale Vermeerbergen, international director of communication at Spanish fashion and fragrance brand Loewe (LVMH), agrees that it is vital to manage launches at travel retail and the company has a policy to stock its products at travel retail only in countries where its domestic markets are consolidated. This strategy, says Vermeerbergen works as a complementary method, so as to avoid bleeding its local markets. The company reveals that it is looking to open in the Middle East, Asia and Portugal, where it is already successful domestically.
Birgit Maillefaud, trade marketing manager global travel retail at Procter & Gamble prestige & professional, fresh from the intergration of the former Cosmopolitan Cosmetics portfolio into its fragrance division, works on a similar principle: “Our sacrosanct principle is to treat all our customers equally.”
The art of giving
Florian Hanhausen, directeur marketing opérationnel stratégique monde, from Beaute Prestige International (BPI), a subsidiary of Shiseido, reveals that there are two types of shoppers at travel retail – business travellers (65-70%) of whom 65% are men, and holiday-makers (30-35%). The former group has three motivations when shopping: first purchasing for themselves, second buying on request and third what Hanhausen calls “Please Forgive Me Shopping” – those who buy gifts to atone for their absence. These shoppers, says Hanhausen, are normally motivated by guilt and provide purchasing peaks from 21.00 onwards – indicating that they have missed dinner and bedtime because there were delays or meetings ran on. Holiday travellers differ, in that usually they are travelling with the entire family and have to be at the airport earlier (up to three hours before charter flights) and therefore have plenty of time to shop. These shoppers browse and have no specific motivation to purchase besides occasional forgetfulness (if they didn’t pack sun cream etc).
Companies such as Revlon are cashing in on both markets with gift sets exclusive to travel retail outlets. The company has packaged together a number of its best sellers, creating the Unforgettable Journeys range. The key to creating gift sets, says Christina Teo, Revlon’s marketing manager global travel retail, is to choose popular items and package them together to create a specific look. Added extras also make customers feel that they are buying something special. For example, Revlon markets a set designed for use on the beach, called Unforgettable Aloha! in Hawaii, that comes with a wrist pouch that can be used to store keys and change. These added extras and an attractive creative also help the sets to stand out as potential gifts.
Mostly men
Male grooming is becoming increasingly common place and grooming products for men correspondingly more lucrative. In 2004 sales of men’s products were valued at $1.368m in travel retail outlets worldwide by Generation Databank, representing a rise of 23.9%. It appears that the long-awaited growth in men’s lines is finally taking off.
Bostroem is particularly pleased with the success of men’s skin care. Although over 70% of the market is taken up with shaving products, the skin care niche is growing fast – up 80% a year according to Bostroem. “It’s a very dynamic sector,” he says. “We’re keen to have more and more brands.”
Rival P&G has entered the market this year with Boss Skin. Loewe has also ventured into male grooming. Capitalising on the popularity of its male fragrances, the company has created a trio of skin care and grooming products. Total Vitality Treatment, Active Foaming Gel and Maximum Comfort After Shave are all designed to minimise irritation and leave skin smooth.
Shiseido’s travel retail marketing coordinator, Tuyet-mai Plonka, revealed that the company is also planning to add to its men’s range this spring, introducing a hair lotion said to help prevent hair loss and treat irritated scalps.
Retailers are also experimenting with new ways to sell grooming to men at travel retail. In May, World Duty Free opened a specialist men’s grooming area at UK airport Heathrow. The 279m2 space provides a Grooming Workshop to offer advice and a Men’s Bar offering trial treatments and skin analysis.
A year ago in Argentina InterBaires opened a men’s cosmetics area in Buenos Aires’ airport – placed at the centre of the wine concession. Distancing male grooming from women’s beauty is an effective way to bring it into the realms of acceptability for the average guy, said the company.
Child’s play
More companies are waking up to the power of the youth vote and are targeting tweens. Mattel and Puig have joined forces to create Barbie branded fragrances and several makeup brands are gearing up to adapt their products for a younger market.
Makeup sets targeted at a young audience have long been the signature of Micys’ makeup brand, Pupa, and this autumn is no exception. Pupa Puppets are soft toys with compacts concealed at their centre. Italian makeup brand Deborah (D&D) has launched a number of glittery gels under its sister brand Debby aimed at the pre-teen market.
With the UK Office of National Statistics reporting that the average girl aged 7-15 spends £13.60 a week and boys of the same age spend £12.40 it is not surprising that several companies are vying for their share of this market. Conversely, some parents are reluctant to grow up and buy into ‘kidult’ products.
The travel retail market is a unique opportunity to capture all ages, budgets and nationalities under one roof and companies must be on the ball to meet this challenge. Flexibility and a touch of magic are key to the channel’s success.
- Coming soon: the latest news, facts and figures from the travel retail industry will appear in ECM December 2006.