Chanel has taken the decision to pull its market leading $1bn equity brand out of the inflight DF&TR sector.

 

Airline inflight departments and their concessionaires are reeling from the decision by Chanel – one of the few brands in duty free and travel retail to have a retail value of more than a billion dollars – to pull its beauty products out of the inflight channel, a move that will have major repercussions for airlines in the months to come, but also opens up opportunities for competitor brands.

 

Chanel declined to comment on questions from Best&Most citing company policy to keep its trading business confidential, but other sources say that its withdrawal is from all points of sale in the airline channel on a gradual basis.

 

In British Airways’ latest short-haul inflight catalogue, Highlife Shop (February to April 2012) a feature entitled ‘The Legend Behind Iconic Scent Chanel No5’ was flagged on the cover but had been dropped from the inside, along with any sign of the iconic brand. However, the airline is still carrying Chanel products on its long-haul routes for the time being according to its concessionaire Tourvest.

 

One high-level inflight industry executive comments: “While I don’t agree with the strategy and believe it will have a negative impact on Chanel, it is certainly within their right and I respect their decision.”

 

So what will the impact be on Chanel moving out of inflight?

 

The French brand’s beauty sales in the DF&TR industry amounted to more than US$.1,000 million in 2010 according to Generation Research, which is around 8% of the entire DF&TR beauty business (valued that year at US$.12,009.7).

 

Without inflight, which accounts for less than 6% of Chanel’s overall DF&TR beauty sales, Generation Research estimates that Chanel will still retain its ‘billion dollar brand’ status this year. The effect of the withdrawal will be most prominent in Asia Pacific, where Chanel’s airline sales are proportionally higher than other regions.

 

At Hong Kong-based concessionaire Inflight Sales Group, which has more than a dozen airline partners in Asia, Managing Director Tony Detter comments: “We are disappointed with Chanel’s decision, but I am not really surprised by it. Chanel has a strategy to focus more on fashion and to work in environments where a full offer can be made to customers. I see this as a warning to the channel that to continue to grow the business we can’t be content only with the status quo.”

 

ISG has been stressing to its customers that it must develop partnerships with emerging brands. Chanel’s key competitors will be able to take advantage of the void that is left behind, but the pull-out will spotlight other industry concerns.

 

It is clear that Chanel’s emphasis on brand image and equity conflicts with cabin environments, but the issue of shrinkage (stock theft) could also be a motivating factor in its decision, a topic that airlines do not like to talk about.

 

At last year’s Airline Retail Conference in London, Pierre Freyssinet, CEO of Uleotech, which makes highly-secured onboard trolleys, said: “Duty free losses are a fact and they hurt. At a conservative estimate they equate to 4% of global turnover, which translates into losses of US$90 million per year. Around 70% to 80% of shrinkage takes place during the ground journey of the trolleys.”

 

What Chanel loses in inflight sales from its move, it may make up through more aggressive activity in airports where it has been stepping up its use of large corners like that in World Duty Free Group’s new Biza store at Manchester Airport, exclusive product tie-ups with retailers and novel concepts such as Chanel Espace at London Heathrow Airport Terminal 3 – all of which tend to produce strong sales uplifts for the brand.

 

[The statistical content above is as up-to-date as its availability and compilation allowed at the time of publishing. All data are subject to revision in subsequent articles and charts as additional source material becomes available].

 

IMPORTANT NOTE: This feature originally appeared on the website www.bestandmost.com and is reproduced with the permission of our good friends at Generation Research, Sweden. www.bestandmost.com is a subscription website and further details may be obtained from Helen Hägglund at [email protected] and Malin Eriksson at [email protected]  Tel: +46 660 103 20.