Travel Retail Industry Faces Challenges and Opportunities Amid Global Changes
CANNES, France – The travel retail sector, valued at over $70 billion, is currently navigating a complex landscape shaped by geopolitical tensions, shifting consumer behaviors, and economic uncertainties. This was a central theme at the recent TFWA World Exhibition & Conference held in Cannes from September 28 to October 2, 2023, where industry leaders gathered to discuss the future of travel retail under the banner “Explore New Horizons.”
The Current Landscape
Rudolph Lohmeyer, a senior partner at Kearney Foresight, emphasized the industry’s precarious position, stating, “You’re sitting right on the nervous system of globalization.” He predicts that the current state of disorder will persist for the next three to five years, driven by geopolitical headwinds and trade issues. Philippe Margueritte, president of TFWA, echoed this sentiment, highlighting that “business uncertainty is the worst poison for all of us,” which ultimately affects consumer spending.
Despite these challenges, the fundamental desire for travel remains robust. Air passenger numbers are projected to double over the next two decades, reaching 18 billion annually. Matthew Growdon, president of Asia-Pacific and travel retail worldwide at Estée Lauder, noted that travelers represent a highly qualified consumer base with disposable income, making them a prime target for luxury brands.
The Disconnect Between Passenger Growth and Retail Sales
However, the anticipated increase in foot traffic does not guarantee a corresponding rise in retail spending. Margueritte pointed out a significant lesson learned post-COVID: the disconnect between passenger growth and retail sales. A recent Kearney study revealed that passenger spending has declined at a compound annual growth rate of 4% from 2019 to 2024, with an estimated drop of 5% from 2023 to 2024. This trend suggests that what was once perceived as a temporary issue may now be a structural challenge for the industry.
In response, Margueritte called for a “retail revolution,” urging brands to create more engaging and exciting shopping environments. Olivier Dubos, senior vice president at Estée Lauder, emphasized the need for innovation, stating, “The environment has changed, and it has forced us to truly reinvent the wheel.”
Embracing Technology and AI
One of the most intriguing developments discussed at the conference was the potential of artificial intelligence (AI) in enhancing the travel retail experience. Margueritte introduced Ameca, a humanoid robot developed by Engineered Arts, which demonstrated the capabilities of AI in engaging consumers. Ameca highlighted several factors contributing to the slower growth in retail sales, including the end of post-pandemic “revenge buying,” rising inflation, and unfavorable exchange rates.
Valentina Colombo, managing director of Bulgari’s perfume business unit, noted that travelers are spending less time in airports due to streamlined check-in processes, which has reduced dwell time significantly. This shift poses a challenge for retailers, as 75% of passengers’ downtime is not spent shopping. Consumer expert Bobby Jones raised a critical question: “How do we make travel retail more engaging than the scroll?” This is particularly relevant for younger generations, such as Gen Z, who are expected to account for 30% of travelers by 2028.
The Importance of Experience
The conference underscored the need for travel retail to enhance the consumer experience. L’Oréal’s outgoing president of travel retail, Emmanuel Goulin, emphasized the importance of creating memorable customer journeys. Brands are increasingly focusing on localized experiences, with Clarins launching an explorer collection that highlights local landmarks and culture.
For instance, Estée Lauder has customized products based on location, such as a New York-themed version of its Advanced Night Repair serum. This strategy aims to connect emotionally with consumers, as Katalin Berenyi, general manager of Clarins, noted, “The experience has to be local.”
Adapting to Market Dynamics
As the travel retail landscape evolves, companies are adopting agile strategies to respond to changing market dynamics. The Estée Lauder Cos. has established hubs in Singapore and London to better serve regional markets, while Avolta, a Spanish travel-retail operator, is focusing on localized collaborations to resonate with consumers.
Britta Hoffmann, director of purchasing for perfumes and cosmetics at Gebr. Heinemann, highlighted the importance of understanding regional dynamics, stating, “Every region has a bit of its own challenge.” This localized approach is crucial for navigating the complexities of currency fluctuations, inflation, and consumer preferences.
Emerging Markets and Demographics
The travel retail sector is also witnessing the rise of new demographics, particularly Indian travelers. Growdon noted that Singapore is becoming a key corridor for this emerging market. Meanwhile, the beauty travel-retail sector in the Asia-Pacific region experienced a 13% decline in the first half of the year, largely due to changing consumer behaviors among Chinese travelers.
Despite these challenges, the European beauty travel-retail market remains dynamic, with a 7% increase in sales, particularly in the fragrance category. The Middle East and Africa have also seen a 10% rise, driven by strong demand for luxury products.
Future Prospects
Looking ahead, industry leaders remain optimistic about the future of travel retail. Carreau stated, “Despite today’s external volatility and challenges, we do see a very strong resilience of the category.” The sector is not merely recovering; it is undergoing a transformation. As Jones aptly put it, “Travel retail is no longer in recovery; it’s in reinvention.”
In conclusion, while the travel retail industry faces significant challenges, it also has ample opportunities for growth and innovation. By embracing technology, enhancing consumer experiences, and adapting to regional dynamics, the sector can navigate the turbulent waters ahead and emerge stronger than ever.
