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:
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