Travel retail’s improved fortunes were an important theme on The Estée Lauder Companies’ Q1 earnings call yesterday (2 November), conducted hours after the US beauty group revealed encouraging results for the period (see tables below).
Global travel retail was a strong contributor to the stand-out Asia Pacific region (+10% organic net sales growth) mainly due to an improvement in South Korea and the Hainan offshore duty-free online business, the company said.
In his upbeat opening remarks on the call, President and Chief Executive Officer Stéphane de La Faverie commented: “Our first-quarter performance marks another powerful step forward for The Estée Lauder Companies. Growth is accelerating, profitability is strengthening significantly, and the impact of Beauty Reimagined is becoming increasingly evident across our business.
“Simply said, we have moved beyond restoring growth. Through Beauty Reimagined, we are creating a stronger foundation for sustained, profitable growth and the progress we are making gives us even greater confidence in the future we are building.”
Travel retail is playing an integral role within that bounceback and not just in the key North Asian markets (where Hainan showed double-digit sales growth in Q1).
Travel retail in the west, while a smaller component of the group’s business, saw sales growth accelerate sequentially to mid-single digit, outpacing the industry, ELC noted.
“We have had strong growth in the quarter in travel retail and are very proud of the work the team is doing,” said de La Faverie.
“We’ve committed to put back investment into creating consumer experience in this channel. Put simply, travel retail remains the second-largest channel in the world after online.
“So it’s a very, very important channel and we are happy to see strong net sales growth in the East and also the acceleration in TR West.”
While much travel retail focus – for ELC and its peers – over recent years has been on North Asia (embracing among others the key Mainland China, Hainan offshore duty-free and South Korea markets), de la Faverie emphasised the importance in both revenue and market diversification terms of travel retail in the western hemisphere.
“Not only we are accelerating in TR West, but we are also gaining market share, thanks to the deployment of many of our brands in the channel that were not present – mainly our luxury fragrance brands like Jo Malone, Tom Ford, Kilian and so on,” he noted.
“So that has been very strong. We are seeing travel retail worldwide stabilising to a slight positive. The strengths are really coming from Hainan, Korea and the west in our case.”
Referring to the disruption caused by the change of retailers at Beijing Capital International and Shanghai Pudong and Hongqiao airports* in January (click below for details), de la Faverie commented: “The transition is complete and our performances are accelerating. Our team has worked very, very closely with our partners on the ground and all the transitions … are complete at this point and we are seeing some significant improvement overall.”
[*This saw Avolta take over Sunrise Duty Free’s business at Shanghai Pudong Airport Terminal 1 and Satellite Hall 1; Wangfujing Duty Free snare the Beijing Capital International Airport T2 concession; and China Duty Free Group take over the remaining businesses across all three locations from its subsidiary Sunrise Duty Free.]
Online acceleration for travel retail
He then turned to online travel retail in Asia. “Online is a fairly new phenomenon over the past few years. And online for travel retail is accelerating for the entire industry. It’s not only us, it is part of an ecosystem where we are capturing and retaining the consumers. It’s still a little bit in flux but we are working very closely with our partners to just make sure that we capture the consumer.”
Summing up the sector’s performance and prospects, la Faverie concluded: “Overall, I feel confident about the trajectory that travel retail is undergoing. And more importantly, I am very excited about what we are doing and what our team on the ground are doing to just bring back experiential retail and using online to be able to retain the consumer throughout this channel.
“We think about omnichannel exactly the same way in travel retail [as in the local market].”
While travel retail will face a higher year-on-year comparative base in Q2, de la Faverie said pure retail sales will continue to increase with the right momentum. “As I have said multiple times, we are really committed to ship our net sales in line with retail going forward,” he added in reference to the well-documented inventory issues of the recent past.
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On the record with Stephane de la Faverie 
