FRANCE. Department store founder William Dillard famously remarked: “Location, location, location.” That sentiment is understood all too well by The L’Oréal group’s Florian Chanet (pictured), albeit on a somewhat larger scale.
Chanet – General Manager Travel Retail Europe, Middle East and Africa at L’Oréal Produits de Luxe International – is less upbeat about the year to date than many of his industry counterparts. But his (relative) dissatisfaction is down purely to the regions he looks after, and the specific issues that are affecting them.
“Obviously, last year was disappointing pretty much everywhere, because of the effect of SARS and the Iraq conflict,” he comments. “The market barely grew at all; perhaps +2-3%. This year, however, we are seeing growth in passenger traffic – Europe is up +9%. Yet in terms of fragrances and cosmetics, we are up only +5-6%. For the first time, the beauty market is below the traffic.”
Many companies would of course be more than pleased with any sort of increase, but L’Oréal sets pretty high standards. What then does it consider to be the problem?
“Penetration and spend,” responds Chanet crisply. “And there are three main reasons why. Firstly, the dollar is hurting [my regions]. Given the exchange rates this year, the US is about -20% cheaper than Europe and it’s the same story in the Middle East and Asia. That is having a huge effect.”
He continues: “Also, the main traffic growth is extra-European, which doesn’t greatly help us, especially if you factor in the amount of frequent flyers and the shorter check-in times of certain low cost carriers.
“Then we have the issue of the local markets. Certain countries compete with a heavy domestic discount presence and in some cases price advantage in travel retail is just not a reality.”
“WE NEED TO OFFER ADDITIONAL VALUE. THE SOLUTION IS DEFINITELY NOT TO OFFER DISCOUNTS AND PRICE-OFF – THAT IS SO SHORT-TERM. PRICE IS A CAUSE YOU CANNOT WIN. AND LONG TERM IT DAMAGES THE BRAND.”
Chanet shrugs: “Of course it is not bad for everyone. The L’Oréal group is getting good growth in the US and Asia for example. At Parbel and Scental my colleagues are very happy because their business is going through the roof. There has simply been a shift in zones and EMA [Europe, Middle East and Africa] has come off worst in this particular cycle.”
What then is the answer? “We need to offer additional value,” responds Chanet. “The solution is definitely not to offer discounts and price-off – that is so short-term. Price is a cause you cannot win. And long term it damages the brand.”
He continues: “Retailers need to improve their environment, and also their lounge operation and activities. Together we have to find new ways to increase penetration. For that, there have to be clear and specific messages, not just about price, but about service, the offer and the brands. There is so much more we could be doing. Why is so little being done with loyalty cards, for example? There are many options that should be explored.”
Chanet is aware that the group’s stance on price is unlikely to prove popular in certain retail circles, but he is unapologetic. “I foresee some tough times ahead in the next 18 months,” he acknowledges, “but we will defend our strategy.”
And he recognises – as have many before him – that change needs to filter down from the top of the travel retail food chain.
“Airport authorities in particular have to realise that it is more and more expensive for suppliers and retailers too to operate in duty free,” asserts Chanet. “Times are changing, and so must they.”
Or else – what? “Travel retail is the best shop window in the world, and there is no other circuit like it,” answers Chanet. “But that does not mean that you participate at any price.
“The costs involved must be reasonable. Quite simply, if we are not getting the returns that we need, we will have no choice but to pull out of the locations in question.”
“TRAVEL RETAIL IS THE BEST SHOP WINDOW IN THE WORLD, AND THERE IS NO OTHER CIRCUIT LIKE IT. BUT THAT DOES NOT MEAN THAT YOU PARTICIPATE AT ANY PRICE. IF WE ARE NOT GETTING THE RETURNS THAT WE NEED, WE WILL HAVE NO CHOICE BUT TO PULL OUT OF THE LOCATIONS IN QUESTION.”
Chanet’s views echo those of Nuance Group CEO Roberto Graziani, who only last month told The Moodie Report: “I cannot afford to stay in businesses that are unprofitable by definition.”
“[Graziani] was right to say what he did.” maintains Chanet. “He is not in business to lose money. Nobody is.”
And while actions speak louder than words, with both the world’s biggest airport retailer and the world’s biggest beauty group clearly stating that they are no longer prepared to sustain unacceptable losses stemming from “bad contracts”, the message should be loud enough and clear enough for everyone to hear.
Chanet might be candid in his criticism but, where merited, he is quick to praise too. “Who is getting it right?,” he muses. “Aelia and Aéroports de Paris is an interesting alliance, and so is BAA and World Duty Free (WDF).
“Gebr Heinemann and Kappé International are two other good examples. Because they have the benefit of long-term partnerships, they do not have to chase a short-term result.”
Chanet continues: “Time-scales are key. Imagine if when Selfridges opened its new Manchester Central store, it only had a three-year contract for it. Of course everyone would agree that it was crazy. It’s the same in travel retail. The only way out and forward is through serious, long-term partnerships.”
Chanet cites James Richardson at Tel Aviv Ben Gurion as another sterling example. “Israel is a fantastic operation, and not enough is written about it,” he comments. “Of course, it is another long-term partnership, so people are not afraid to invest because they know they will reap the rewards.”
On a brand-by-brand basis, results are generally pleasing, with one or two stand-out performances. “Lancôme is doing very well, and will finish on par with the market growth/above at year end,” predicts Chanet. “Cacharel is up about +20% thanks to the great performance this year of Amor Amor. Biotherm skincare is progressing well, and Rubinstein is stabilising. The key events for Armani this year have been the fragrances Armani Mania [for women] and Armani Black Code.”
Next year of course there will be a new kid – or two – on the block, when Viktor & Rolf’s Flowerbomb explodes onto the fragrance scene.
“It’s a big event for the group, but we will be selective [in travel retail],” explains Chanet. “The name is not so well known, so we will tread carefully when we choose our locations.”
Meanwhile on the specialist front, Shu Uemura and Armani Cosmetics are among the beauty boutiques that have just opened with WDF in London Heathrow terminal three. And Armani Cosmetics is scheduled to enter Istanbul at the end of this month.
So how key is the stand-alone strategy for the L’Oréal group? We’re back to location all over again. “The position comes first,” confirms Chanet. “You have to be in the traffic, so any specialist store must be within the main shop or at the very least, located very close by.
“We will progress cautiously, but we will keep watch for suitable opportunities. Such stores are big investments, so you need to be sure of an acceptable return.”
MORE STORIES ON THE L’OREAL GROUP
Viktor & Rolf’s Flowerbomb fragrance gets set to explode onto the global scent scene – 08/10/04
The L’Oréal group previews 2005 launch portfolio – 27/10/04
