Estee Lauder benefits from airport retail market
The cosmetics company hopes to convert more travelers into purchasers.
It has succeeded in capitalizing on the growing travel retail market over the past few quarters and currently sells its prestige beauty products through more than 1,000 airport outlets. This channel has performed particularly well within Europe, Asia-Pacific, the Middle East and Africa, generating double-digit net sales growth in fiscal 2011.
With improved global airline passenger traffic, particularly in China, Russia and Brazil, Estee Lauder has been focusing on improving its marketing and distribution at high-end airports to convert travelers into purchasers and continue its growth momentum in the fastest-growing travel retail segment. Its travel-retail business has benefited from its strategic investments in local markets as well as through the increase in international travelers, particularly in Asia.
Fast growth in travel retail
According to a recent Verdict report, global travel retail has quickly become the fastest-growing retail channel for beauty, fashion and accessory products. It estimates that the travel retail market is likely to grow sharply by 60% to $45 billion by 2015. In particular, beauty sales are likely to grow by more than 80% in the next five years. BCG estimates that the overall luxury goods sales could grow by 15% during the same period, which implies that most of this growth will materialize at travel retail outlets.
Growth in travel retail is driven predominantly by passenger volumes, which are increasing rapidly in emerging markets, rather than an increase in average spend per passenger. In 2011, Europe was the largest airport retailing market, but the Asia-Pacific region, which could grow 75% by 2015, may soon overtake it. The Middle East and Africa is emerging as the second-fastest growing market and is likely to expand 40% by 2015.
China in focus
China's emerging middle class has been the single largest driver of luxury sales growth in the last few years. Estee Lauder's growth in the Chinese prestige beauty market has largely relied on airport retail and online channels. However, it anticipates some moderation in growth in the market over the next few quarters, and seeks to fuel further growth by expanding into smaller Chinese cities and airports. According to the Global Business Travel Association, China is likely to add 100 new airports in the next decade including emerging cities like Chongqing and Wuhan.
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