Estée Lauder’s travel retail sales top $1bn for first time
|Thursday, 16 August 2012 11:40|
Estée Lauder Companies – one of the two biggest beauty players in duty free and travel retail – has become a billion dollar company in this channel alone, with annual sales doubling in the past three years.
The New York-based company, on Tuesday, revealed fiscal year-end (to June) total sales of US$9,713.6 million, up a healthy +10% on the previous year with operating income rising even faster by +20% to US$1,311.7m, closing what has been a record fiscal year.
DF&TR now makes up at least 10.3% of ELC’s total annual sales, more than double the size of the company’s global hair care business and roughly half the size of its entire Asia Pacific business to put it in some context.
Reviewing the DF&TR performance in fiscal 2012, Fabrizio Freda (left), President & CEO of Estée Lauder Companies says: “Travel retail again had fantastic double-digit growth, more than four times the rate of international air passenger traffic. And, for the first time, net sales topped $1 billion. Net sales increases came from virtually every brand, and we gained 100 basis points of share in this channel.”
According to Freda, ELC became the number one player in travel retail in Asia Pacific, while maintaining leadership in skincare and growth in make-up. Across the company skincare grew by +14% to US$4,225.2 million while make-up rose +10% to US$3,696.8 million.
MANAGING THE TRAVELLING CONSUMER
With the DF&TR channel now so crucial to ELC’s revenues the company is also starting to be more proactive in how it leverages the spending power of travellers across its business with a much greater level of cooperation across different divisions.
Freda comments: “We are learning really to manage travellers, as a consumer, across all our business, rather than only having travel retail like a separate division. What I mean is (they are) really managed through corridors. We look at the consumers from Shanghai to Hong Kong and their travels to Paris in the airports, and we try to coordinate initiative activity. We look at marketing spending now in a more coordinated fashion.
“The level of collaboration between our outstanding travel retail division and the various affiliates has increased dramatically, allowing us very clear visibility for best resource allocation on travellers around the world – I think (this) is developing into another competitive advantage.
FAVOURABLE TRAVEL TRENDS
Freda was also upbeat on Lauder’s future performance in the DF&TR channel against competitors based on expected traffic. “In travel retail, traffic has been increasing in the last year by around +5%,” says Freda. “The information we have is traffic for the next 12 months is projected to be +4.2%, so a bit lower. The good thing for us is that whereas this traffic is slowing in Western Europe, Asia remains in pretty high traffic growth, I think the number is about +10%, and the Americas is also pretty solid, (so) Western European traffic will get strongly offset.
“We are the market leader in Asia, we are pretty strong in the Americas, and we are only the fourth or the fifth company in Europe. So we are less affected than our competition on where the traffic is going to slow, assuming those assumptions will prove to be true.”
In fiscal 2012 it is also worth noting that ELC’s China affiliate – with growth of +28% in local currency – overtook Japan to become the biggest in Asia. Particularly strong was the Estée Lauder brand, while La Mer, Origins, and ELC’s online business grew sharply, too. ELC brands are now present in 58 Chinese cities, 20 more than last year, and through e-commerce, the company reaches consumers in nearly 350 cities.
ELC believes its growth will again outpace the global prestige beauty industry despite certain Western European countries, South Korea and Australia seeing weakness due to economic uncertainties and volatility in financial markets. However Lauder remains cautious about macroeconomic factors “that may temper the growth trend of the Chinese economy”.
In the current first quarter of 2013 net sales are forecast to increase between +5% and +7% in constant currency. Foreign currency translation is expected to negatively impact sales by approximately -4.5% versus the prior-year period. For the full year net sales are forecast to grow between +6% and +8% in constant currency.
Hair care and skincare are expected to be the leading growth categories, followed by make-up and fragrance. Geographically, growth in constant currency will be led by Asia Pacific, followed by Europe, the Middle East & Africa and the Americas.