Travel retail contributed an astonishing 29% to The Estée Lauder Companies’ net sales of $16.2 billion in its full financial year ending June 2021. This makes the channel bigger than the whole of the Americas for the US company, and it will remain a big focus for the company going forwards, despite the sluggish return of international passengers who underpinned airport shopping pre-pandemic.
Travel retail’s global sales of $4.7 billion dwarfed the $3.8 billion seen in the Americas, where there was no growth in FY21 chiefly due to brick-and-mortar shutdowns that started from March 2020.
In an earnings call on Thursday, the 29% share was confirmed by CFO Tracey Travis, who noted strong growth from the channel in the fourth quarter (April to June). Travel retail is financially accounted for within Estée Lauder’s EMEA region, which grew by 11% to $6.95 billion, led mainly by the channel and also by online sales.
So where have these sales come from, especially given that international air travel was, and continues to be, very subdued? In 2020, global air travel decreased globally by 60%, according to airline association IATA. While the channel has been devastated by the lack of airport footfall, it’s been a very different story in domestic locations where duty-free sales are allowed.
Among them are domestic offshore duty-free tourist havens in South Korea and Hainan, China. The latter, in particular, has allowed beauty players to recoup lost sales at hub airports worldwide.
The tripling of allowances from about $4,200 to $14,200 in the Hainan island province last summer, coupled with the Chinese government banning international travel in the wake of the pandemic, have both led to an influx of domestic mainland shoppers to the holiday hotspot of Hainan.
Portfolio beauty houses like Shiseido, L’Oréal, and Estée Lauder have been among the winners. Queues have often been seen outside their stores and pop-ups in various duty-free malls like China Duty Free Group’s International Duty Free Shopping Complex in Sanya, Hainan’s core shopping destination.
Government statistics indicate that sales in duty-free stores in Sanya exceeded $5.4 billion in the year since the new duty-free allowance program started.
According to Hainan IEDB, the island’s investment promotions arm, sales of duty-free products in Sanya account for about 75% of total volumes provincewide. Since the new allowance was introduced roughly a year ago, Hainan IEDB says that duty-free sales across Hainan have reached about $7.3 billion—an increase of 226% year-on-year.
Estée Lauder’s CEO Fabrizio Freda commented: “In the long-term, domestic travel retail in China—which is a very important addition—has led to extraordinary development. We are going to serve the Chinese consumer wherever they choose to shop, whether in Hainan, online or department stores. And when international travel restarts we will be there.”
Overall, Estée Lauder revealed strong growth in FY21 (up 13%)—helped, and hindered, by several factors:
- Estée Lauder, La Mer, and Clinique helped skincare to grow sharply by 28% to $9.5 billion.
- Makeup declined 12% to $4.2 billion, led by M·A·C and Clinique and partially offset by growth at Too Faced and La Mer.
- Fragrance sales accelerated during the year, growing 23% to reach $1.9 billion, largely due to increases from Jo Malone London, Tom Ford Beauty, Le Labo, Kilian Paris, some designer fragrances, and Editions de Parfums Frédéric Malle.
- Global online e-commerce as a percent of total sales has nearly doubled since fiscal 2019, accounting for 40% of all sales in the Americas and 36% in Asia-Pacific.
- The Americas’ flat annual performance was affected by temporary store closures due to COVID-19 and the loss of 900 retail locations.
- The acquisitions / increased ownership of Have&Be Co (Dr. Jart+) and Deciem Beauty Group contributed 2 percentage points of growth to reported net sales.
- There was strong acceleration in Q4 (April to June), with sales up 62% to $3.9 billion versus the same period in 2020, and 10% ahead of Q4 in FY19.
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