DUTY FREE RETAIL


I


t is fair to say the impact of Covid-19 on international travel and important retail routes for the duty free sector – such as airport boutiques and the cruise industry – has been crushing. Basel-based Dufry, the world’s biggest duty free company, operating across 65 countries and incorporating retail brands including World Duty Free and North America’s Hudson, saw 2020 first half net sales of just CHF1.5bn, compared with nearly CHF4.1bn in the same period of 2019. “The pandemic has had a catastrophic effect on international travel and consequently on duty free and travel retail sales,” Sarah Branquinho, President of the global industry association Duty Free World Council, observes. “The impact has been global and across all sectors, aviation and maritime.”


And what is bad for travel retail is equally bad for the cosmetics industry, with beauty and fragrance being the largest duty free product category. For some luxury brands in the cosmetics, perfume, fashion and accessories spaces, prior to the pandemic, the travel retail sector represented between 30 and 50% of their revenue, says David Dayan, President of Beaute Luxe, a leading duty free distribution company. Moreover, beyond the financial considerations, Dayan adds that travel retail has historically offered valuable visibility to brands selling through the route. “Airports enabled brands to get recognised by more than a hundred nationalities per day and this made it possible to gain legitimacy within domestic markets,” he tells Cosmetics Business. “In the span of three weeks, all countries had confined their populations and had put in place strict travel bans. As travelers are the sole source of income in our sector, the drop in revenue has been spectacular for all players in this market. “Unfortunately, we see today that the pandemic continues to persist and that many markets are closing their borders.” Exacerbating the


situation is the absence of a


consistent and coordinated approach to restoring international travel, something Branquinho says is of major concern to the travel retail industry.


“Research has shown the public appetite to travel for leisure and business remains. Where travel is still taking place, spend per head is good. However, for people to travel they need to have confidence that restrictions or additional travel requirements will not change at very short notice.” She notes that the International Civil Aviation Organization (ICAO) published guidelines in May setting out recommendations for a coordinated approach. But, despite these guidelines being adopted by 80% of ICAO member states, “on the ground, individual Health Ministries implement measures without regard to the guidelines – this creates uncertainty and prevents a recovery in travel”.


EYEING APAC & ONLINE


Despite duty free and travel retail remaining in something of a limbo generally as many nations’ travel restrictions tighten amid second waves of the virus, there are some localised


cosmeticsbusiness.com


success stories. One example is China’s solid duty free performance, specifically in its Hainan island province. In its 2021 Q1 financial report, Estée Lauder Companies’ President and CEO, Fabrizio Freda, pinpointed China as a bright spot, stating: “Travel retail was a standout performer as Chinese tourists were drawn to the growing duty free shops in Hainan Island and purchase limits increased there.” From 1 July 2020, Hainan became an especially attractive duty free destination by increasing its annual tax free shopping quota from yuan RMB30,000 to RMB100,000 per person. At the same time the range of duty free goods expanded from 38 to 45 categories and the old tax free limit of RMB8,000 for a single product was lifted. DFWC’s Branquinho notes: “In recent months, Hainan Island has shown signs of a strong recovery based on visiting Chinese travellers, but this is probably the only area which has experienced any kind of real sales recovery.” Travel retail players and beauty companies have responded positively to this localised uptick. In October, Korean beauty brand owner Amorepacific announced a strategic business partnership with China Duty Free Group (CDFG), the largest travel retailer in China. The deal particularly focuses on the Hainan travel retail market. Digital content will play a major role, with Amorepacific President Saehong Ahn saying the companies were “responding in both online and offline retail channels” to provide top quality services and products. Hainan was likewise on L’Oréal’s radar with L’Oréal-owned


Kiehl’s Travel Retail Asia Pacific announcing its sixth ‘Kiehl’s Loves Hainan’ pop-up in collaboration with China Duty Free Group at the Sanya International Duty Free Shopping Mall last month.


“The drop in revenue has been spectacular for all players in this market


Also eyeing China and with a laser focus on digital, Dufry formed a joint venture with Alibaba Group in October, bringing together the former’s duty free expertise with Alibaba’s knowledge of the Chinese retail market. At the time, Julian Diaz, Dufry Group’s CEO, commented: “Alibaba Group is a leader in digital commerce with an ecosystem of more than 800 million consumers in China. Dufry holds a leading position in travel retail globally and brings in its strong operational expertise in 65 countries and over 2,500 shops. By fostering existing and new business models in offline and online travel retail, we are convinced the joint venture will capitalise on growth opportunities and will support Dufry to become the leading digital travel retail company worldwide.”


Meanwhile, August saw Hong Kong-based DFS Group – part of LVMH – pick up a 22% stake in Shenzhen Duty Free Ecommerce Co (majority owned by Shenzhen Duty Free Group), with a spokesperson for DFS noting: “Our future is highly digital, and very focused on China”. The aim is to bring the level of luxury DFS is associated with and “mirror that experience for them [customers] digitally – pre-trip, in- market, in-store and once they return home”.


TURNING THE SITUATION AROUND Mona L’Hostis, Head of Global Travel Retail Marketing at L’Occitane, believes e-commerce will form a big part of travel retail’s future. The luxury beauty and personal care brand boasts travel retail counters at over 1,000 doors worldwide through airports, ferries and cruise lines and airline listings.


December 2020 59


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