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Is Estée Lauder Preparing for a Travel Retail Boom?

March 20, 2022
March 20, 2022
Estée Lauder

Estée Lauder Companies has just announced an important leadership handover in a strategic segment of its business: travel retail. The channel continues to suffer badly from a lack of airport shoppers worldwide due to the pandemic: in 2021 their numbers were just 43% of what they were in 2019.  

Yet revenue has rocketed in one place: the duty-free island of Hainan, China, which has been generating huge sales for the luxury beauty business. Hainan has been a lifeline for travel retail during the COVID crisis and has made up for the airport shortfall. 

Of Lauder’s $16.2 billion revenue in fiscal 2021 (ending last June), the channel accounted for just under 30%, making it bigger than the entire Americas business. In a statement, the beauty house—whose brands include Origins, MAC, La Mer, Jo Malone London, and Tom Ford—admitted that “pivoting to Hainan and Chinese domestic travel have been critical to maintaining success for the channel and the company.”

Since 2004, travel retail has been in the very capable hands of Olivier Bottrie as Global President. He also took charge of retail development from 2017. He pushed travel retail’s share of Lauder’s net sales from 6% in 2004 to roughly 29% today, an achievement which prompted CEO Fabrizio Freda to commend him for “transforming travel retail into a growth and profit driver for the company.”

Bottrie retires on June 30, after a two-month handover to Israel Assa, currently the Commercial President of Travel Retail Worldwide, who takes the hot seat from May 1. 

Role split 

But Bottrie’s role is being divided: Assa becomes Global President of Travel Retail Worldwide, while the add-on retail development element is being handed to Andrea Dorigo, who is currently Senior Vice President and General Manager for Global Retail and Head of Commercial, North America. Both Assa and Dorigo will report directly to Peter Jueptner, Lauder’s International President. 

The split is an indicator that Estée Lauder Companies wants Assa to fully focus on the channel without distractions, for a good reason. This year—assuming the war in Ukraine does not creep further into Europe—the airport retail business is set to rebound back pretty sharply as COVID restrictions ease.

From the 43% passenger lag in 2021, global airports body ACI forecasts this will be cut to 29%, which means airports sales will revive. Even if sales take a while to get back to 2019 levels—Bain research suggests this won’t happen until 2030—meaningful incremental rises should happen between now and then. 

Hanging onto share 

The current scale of Lauder’s travel business—at about $4.7 billion annually—could easily surge once airports are repopulated by passengers wanting to do a bit of revenge duty-free shopping. The company wants to be ready for this.   

Regaining airport momentum is also a priority for big international travel retailers like Switzerland’s Dufry, whose 2021 sales were 56% off their pre-pandemic 2019 level, and France’s Lagardère Travel Retail, whose sales were 46% off. CEO of the latter, Dag Rasmussen, has told BeautyMatter that his plan is to “see 2019 revenues by next year,” a very confident forecast given the economic, health, and now geopolitical uncertainties that prevail. 

Even if the airport bounce takes longer, it will eventually happen. Assa will then be leading a division that could be on fire and driving much of Lauder’s overall growth. The company is keen to make the most of the airport rebound in order to push up market share in the channel versus its main rival, France’s L’Oréal. 

Assa knows the travel retail channel extremely well, having had 21 years of experience in it. Taking Assa’s previous role from May, but based in Switzerland, will be Javier Simon, currently President of Travel Retail Asia Pacific, and another highly knowledgeable expert in the channel. 

Both will look to brand build, execute on experiential retail, and continue increasing Lauder’s market share position. The company claims: “In 2019, ELC became the market share leader in the total beauty category in travel retail, maintaining the top position in 2020 despite the global pandemic.” L’Oréal has not disputed this. At this crucial time of flux in the travel channel, there is everything to play for.

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