Paris – at Estée Lauder Cos. Great expectations regarding the travel retail business.
The group has just opened a new, state-of-the-art distribution center dedicated to the worldwide canal, headquartered in the Galgenen Hills, Switzerland, outside of Zurich. The multi-storey site, which is sustainably operated, occupies 300,000 square feet and doubles the company’s production capacity for travel retail.
Here, robotic robots work alongside people in vast rooms, boxes wrapped around them on conveyor belts. The futuristic 65-foot-high storage site, which looks like a metal grid with 11 lanes, can store more than 340,000 trays of boxes.
said Fabrizio Frida, President and CEO of Estée Lauder Cos. , during an exclusive interview with WWD in Galgenen: “This is created to serve the future growth of Estée Lauder’s travel retail business.”
He explained that the site better serves retailers by not only increasing volumes, but quality shipping as well.
“[It makes] Make sure we can adapt to different retailers and different market needs in a more efficient way.” That is the basic idea. This is also a way of preparing ourselves to serve this growth in a well-structured and evolving way.”
Travel retail, which spans through duty free at airports, downtown locations, airlines, cruises and border stores, has been the retail channel hardest hit during the coronavirus pandemic. With the health crisis spreading in early 2020, travel in most parts of the world has come to a complete halt, causing sales at retail travel sites to plummet.
Prior to COVID-19, in 2019, travel retail sales made $86.3 billion, up 9.8 percent year-over-year, according to Generation Research. Of that, perfumes and cosmetics made up the largest product category, at about $37.6 billion, representing a 20.1 percent year-over-year increase.
A study by Generation suggests that duty-free sellers in general should reach pre-COVID-19 selling levels between 2024 and 2025. However, the faster recovery occurred in Estée Lauder.
“Despite the pandemic, many closures in different parts of the world at airports and travel restrictions, the travel retail channel has been growing for us,” Frieda said. “Our travel retail business is much larger today than it was in 2019.”
Travel retail, which overall touches more than 3 billion consumers annually, is among the group’s fastest growing retail segments.
In its 2021 fiscal year, Estée Lauder Cos. Travel retail generated 28 percent of its total sales.
The growth is primarily due to business in China and Hainan Island in particular, which has become a tax-free haven for domestic Chinese travelers, who are not allowed to leave the country as part of the government’s “zero COVID-19” policy.
Frida said the number of Chinese traveling to Hainan already exceeded tens of millions of Chinese traveling abroad in 2019, thus almost making up for the lack of travel in the West, particularly in the early part of the epidemic.
While international Chinese travelers tend to come from first and second tier cities, those who go to Hainan for destination shopping generally hail from third or fourth tier cities, where there is no distribution of luxury goods.
Explaining, Frida said, “International travel has always been available to people with a passport [or about 20 percent of the Chinese population]while the local duty-free channel is open to all residents.
“I have a view that in the coming years, when the epidemic completely subsides, there will also be international travel to Hainan,” Frida said, describing the island as the most luxurious shopping environment anywhere.
However, Estée Lauder Cos does not own. All of its brands are in China at the moment.
“There are a lot of growth opportunities in terms of branding, distribution and penetration,” said Frieda, describing the company as the “market leader in Hainan.”
“Travel retail in general, and Hainan in particular, are very big long-term opportunities,” he said.
Frida believes the absolute growth of travel retail will be significant, driven by the restart of international travel; Continuous increase in traffic coming from emerging markets, such as the Middle East, Brazil, Indonesia and Hainan.
In the channel, buying per consumer and converting travelers into buyers are other major growth drivers. The level of conversion goes up with ‘Advance Reservation’. Frida described imagination as when people with airline tickets buy products before their flights, and then take them to airports or even on their flights.
“When there is this level of comfort, we know there is an increase – or conversion – of travelers into buyers,” Frieda said.
It’s a service deeply rooted in Asia, but not yet in the West.
“The better convenience of the model will drive the purchase of every consumer [and] Conversion, so we might have a chance to bring together the three drivers of the industry at the same time: increased traffic, conversion, and consumer buying around the world,” said Frieda. “And it’s very exciting.”
The Estée Lauder Cos. The new distribution center is its fourth in Switzerland and is justified in light of an “amazing opportunity” for retail travel retail, said Frida, concluding the conversation back to Galgenen.
For him, it is important to have an agile center that can customize distribution models – for example, having the ability to pack large quantities of the same product, or choosing one piece per product category for another retailer.
“To really participate in this growth, you need to somehow anticipate it,” Frida continued. “Because if you don’t see it coming, it’s very difficult to respond at the last minute.”
The development of the new Swiss facility has also focused on inclusion, sustainability and long-term safety.
In the center, four official languages are spoken. The Estée Lauder Cos. The Swiss subsidiary has 40 nationalities represented. 80% of its leaders and 90% of its employees are women.
“The concept of embedding has been taken to the next level,” said Frida, adding that heavy lifting by humans has been eliminated at the highly automated Galgenen site.
The center is “built with a flexible and modular perspective,” continued Israel Asa, global head of travel retail worldwide, in a separate virtual interview broadcast to Galgenen.
The facility, with solar panels on the roof, is designed to reduce energy and water use. The building has LED lighting, an energy efficient HVAC system and solar panels that generate 1,600 kilowatts at maximum performance.
A waste management system has been put in place to separate many of the recyclable materials. Electric trucks remove waste, and wood waste pallets can produce renewable heating energy.
“We expect to obtain and obtain LEED certification late this year,” Asa said, adding that this goal is in line with Estée Lauder Cos. Comprehensive sustainability goals.
Asa, who was promoted to the post on May 1, said the focus now is on the recovery of the travel retail business.
“The recovery is happening definitively,” he said. “We are also focused on creating touchless, technology-enabled experiences with our retail partners for our customers. The important thing is to deliver on that promise for this experience, and we are focused on delivering on that.”
Asa feels that the various stakeholders of the travel retail business are in harmony today and are working together to try to improve the consumer experience.
“We’re in this business not just to get a transaction, but to help form a memory,” he said.
Different product categories sell better depending on the consumer aisle. Luxury and artisanal fragrances, for example, are driving growth in geographies such as the Middle East, Europe, North America, and Asia. Luxury skincare continues to be one of the best-selling products in Asia.
“But the makeup is starting to show some really nice signs of recovery,” Asa said.
Estée Lauder Cos. She has been in travel retail for 30 years and has been in Switzerland for over 55 years.
According to 2020 Generation Research data, the company’s travel retail division holds the number one market share for beauty, including skin care, makeup, fragrance, and hair care.
The official opening of the Galgenen facility took place on June 7 and was hosted by Freda and Roberto Canavari, Executive Vice President, Global Supply Chain for the group. The session was also attended by Jane Lauder, Executive Vice President of Corporate Marketing and Chief Data Officer, along with retailers, suppliers and local government officials.
“We are very confident in the channel for the long-term,” Frieda said, during his opening remarks at the event. “The opening of the new distribution center in Galgenen is a testament to this trust.”
For more, see:
The Estée Lauder Cos. Suzanne Akkad on cultural capital
Assessing International Opportunities at Estée Lauder Cos.
Estee Lauder Opens Emerging Leaders Fund