Where next? Can travel retail recover from COVID-19?

Where next? Can travel retail recover from COVID-19?

It’s no secret that COVID-19 has all but wiped out the travel industry and a bounce back is looking increasingly unlikely this year as passenger numbers continue to be affected by outright bans, onerous quarantine requirements or – in the odd locale where the freedom to travel still exists – fear. Lauder’s latest results release (Q4 2020) acknowledges that consumer traffic continues to be impacted by travel bans in most travel retail locations. American Airlines has reduced its October schedule by 55 percent and the International Air Transport Association is predicting losses of US$84 billion for its members over the year.

And with fewer passengers passing through airports, beauty travel retail has been similarly affected. From being described as a ‘powerful engine of growth’ (The Estee Lauder Companies – Year in Review 2019) this time last year, the channel has had its fortunes reversed. P&G saw its US$1 billion travel retail segment decimated in 2020, with COO and CFO Jon Moeller telling investors on the US FMCG giant’s Q3 earnings call that the travel retail business was ‘gone… gone because there is no travel’. What’s more, since many prestige players depended on duty free for discovery – The Estee Lauder Companies revealed that nearly 60 percent of new beauty consumers make their first purchase in airports – the knock-on effect will be significant too.

Yet Vogue Business is predicting a rebound for travel retail. From where we’re standing, it’s hard to see this happening anytime soon. Firstly, because the all-important summer season in the Northern hemisphere is now over with many countries still imposing strict entry bans or onerous quarantine restrictions. And, with a return to lockdown in parts of Australia and New Zealand, it’s unlikely that travel will bounce back by the time the peak season kicks off once again in the South and Asia. Especially as, in China, the world’s largest outbound tourism market, domestic tourism remains the norm, despite an easing of almost all restrictions internally; the country’s ‘green lanes’ strategy, which paves the way for reciprocal international tourism, is in its infancy and currently extremely limited.

Second, because most multinationals continue to protect cash flow with restrictions on business travel, and almost every single major conference and event scheduled for the autumn has been moved online. And recalling P&G’s Moeller above, where there’s no travel, there’s no travel retail.

Now we’re by no means saying that the channel is doomed forever. But with second waves threatening across Europe, cases continuing to spiral in the US, Brazil and India and some major vaccine trials paused, we can’t see a rebound to pre-pandemic levels happening imminently, if at all.

Indeed, as the pandemic has accelerated macro trends that dictated eventual digital dominance, will consumers go back? Vogue Business, quoting London Heathrow’s Retail Director, Fraser Brown, says buying behaviour hasn’t changed permanently but brands will need to up their game. Shiseido’s travel retail arm is on it – launching a slew of new products this summer to meet demand as and when it does appear from its biggest market, China. “We need to be prepared to meet consumer demand when travel restrictions are lifted, while aiming for long-term growth and a continued commitment to creating beauty innovations for the traveller,” Elisabeth Jouguelet, VP of Marketing said in an interview back in July.

But will bringing their A game be an option for all? With many travel retail doors still shut or considerably underperforming, investment in the channel has been swiftly diverted over to online. The longer we rely on digital (let’s not forget we’re now eight months into this), the more likely it is that our new shopping habits will be lasting. One thing is certain, the effects of the pandemic will continue to be felt for years to come.