Global travel retail promises much for Coty in 2023, as the beauty giant continues to ratchet up its presence after exploding into the skincare and cosmetics arena in recent years having concentrated solely on fragrances pre-Covid.
In a recent sit-down interview with TRBusiness, Coty Senior Vice President Global Travel Retail Guilhem Souche discusses the expected renaissance in outbound Chinese travel, premiumisation, digitalisation and what he sees as the accelerating ‘retailisation’ of Coty’s brands in DF&TR, within Asia and beyond.
The conversation is timely. Travel retail yielded healthy growth of +30% year-on-year in the beauty giant’s latest Q3 earnings, accounting for 8% of Group sales. With momentum for the multi-pronged business expected to continue in key regions, Souche affirms favourable sentiments from Chief Executive Sue Y. Nabi, who has previously spoken of the ‘significant white space opportunities’ in travel retail.
How would you characterise the performance of Coty’s global travel retail business across the Consumer Beauty and Prestige segments in 2023 so far?
Coty is a beauty powerhouse with significant untapped potential across its portfolio. China and travel retail represent the next legs of growth for Coty. We are actively capturing white space opportunities as we grow market share in these segments. Year-to-date travel retail accounts for 8% of our sales and continues to grow at a tremendous pace. All categories, including fragrances, collections, colour cosmetics and skincare, are performing above the sales trend. Take Chloé as an example – it’s a very popular premium brand, and we’ve been successful in moving it into the ultra-premium fragrance market with Chloé Atelier des Fleurs. The collection is now ranked number four in China travel retail.
Another big initiative is skincare. I would say that in travel retail, Asia started emphatically, leading the way with Hainan last year, and there’s been a large push in China this year. From March, we opened on Douyin, Tmall, and in physical department stores as well as boutiques in travel retail. We have boutiques with China Duty Free Group (CDFG) and with Wangfujing in Wanning (Hainan), which is a very new project. We have also seen strong traction and acceleration in skincare with Lancaster.
What are your growth expectations for Coty’s travel retail division in 2023?
Travel retail has been a growth engine in the past year and it’s going to continue to be a growth engine next year. In fact, we see there is a huge white space opportunity particularly with travel resuming in Asia. On the back of this and the success of Chloé Atelier des Fleurs, we plan to double our already large presence in travel retail and APAC over the next three years. We also see tremendous opportunity for Orveda in China and travel retail.
Global travel has been rebounding but [passenger] volume remains 20% lower than 2019. Our travel retail business has rebounded well despite this backdrop and is back to pre-Covid levels. We’ve grown our travel retail market share in each key region, with EMEA seeing a particularly impressive market share momentum. With Asia recovering, our partners estimate that Chinese traveller levels will reach 70-80% [of pre-Covid levels] by the end of this calendar year. At the moment, we are seeing significant increases in basket sizes despite the lower number of current travellers.
Coty has broadened its portfolio beyond fragrances to makeup and skincare. In which Asia Pacific travel markets do you see the greatest consumer demand across these respective product categories, and what’s your strategy to increase sales from Chinese consumers now China’s borders have unlocked?
We’re happy to see the return of Chinese travellers. When travelling, they want to indulge and we are very happy to welcome them. Fragrances now account for over 10% of China’s beauty market, and Chinese consumers continue to gravitate towards the most premium fragrances so our Gucci, Burberry and Chloé fragrances are doing very well.
Category expansion has been critical in travel retail market share growth. We continue to ramp up our footprint in Prestige makeup, with this segment accounting for one fifth of our travel retail sales last year. Our strategy is to continue to improve our ability to meet our customers’ demand; to accelerate premiumisation; to introduce more unique fragrances and fragrance collections; and continue to grow our skincare and make up categories.
You’ve touched on premiumisation… Can you tell us more about your plans for skincare in travel retail, particularly the new ultra-premium offering from Lancaster expected this year in Asia, and Orveda?
Coty has a comprehensive skincare strategy. We are building buzz across the ultra-premium brands Lancaster and Orveda, and scaling these in the coming quarters. Over the past few months, we’ve undertaken a number of exciting Coty skincare launches, in-store brand activations, as well as new campaigns and ways of communicating with consumers.
The most exciting of which was the launch of Lancaster’s ultra-premium skincare line Ligne Princière in China’s leading stores, including Hangzhou Intime and Nanjing Deji. The Ligne Princière line has reached the number one spot in social buzz across social media platforms in China, a critical component in driving consumer awareness and trial. The conversion rate at new counters in China, especially Hainan, are exceeding leading beauty peers, with Lancaster Ligne Princière driving the majority of sales. The early results are promising with much more to come.
As a highly exclusive brand, Orveda is currently distributed in a very select number of ultra high-end stores and spas – La Samaritaine (with DFS Group) is one in travel retail. The brand was designed from the very beginning with the Chinese consumer in mind, ensuring that the formulas and textures would work well in this critical market. We see tremendous opportunity for Orveda to grow in key segments such as the U.S., China, and travel retail.
Which brands within your prestige category excite you the most in fragrances and makeup and can you point to some upcoming or recent activations or innovations in duty free?
We have iconic products that are very successful such as Burberry Hero, which is the number three male fragrance in China. We have also just launched Burberry Goddess in travel retail, the biggest activation this summer. Next to that we have mega brands like Boss, and it’s very impressive to see the impact it has generated so far. For instance, in India, I really feel there is the potential to premiumise Boss and attract new customers.
The new collections are doing extremely well, the most emblematic being Chloé Atelier des Fleur, but we have also seen great results with Burberry Signature and Gucci Alchemist’s Garden. What is most exciting to me is that we have a range of products from Calvin Klein to Gucci and Chloé covering all the geographies and different levels of customers, from young sophisticated consumers to new entrants into the category.
And what about makeup…
We are actively targeting significant white space opportunities in prestige makeup. We have expanded some of our brands like Burberry and Gucci into this space, while at the same time tapping into the strong Gen Z appeal of Kylie Cosmetics. By adding a makeup offering to our counters for Gucci and Burberry, we were able to increase the productivity of our counters by over 30%.
This year we launched two foundations in spring, one for Gucci and one for Burberry, that are very adept in terms of shades and textures for the Asian climate. Next to that we’ve got Kylie Cosmetics. In travel retail you have the space and traffic to make a lot of impact, and we did that in Sydney with great success. [Kylie Cosmetics] is also in Copenhagen, Tel Aviv and JFK; they’re all performing extremely well.
How are you seeking to evolve your digital proposition?
In travel retail you have beautiful examples of digitalisation. First of all, we are in a world where people want to experience, so we are developing a lot of tools that enable people to understand the product and be submerged in the full universe, we’ve shown this with Chloé and Gucci, among other signature brands.
Another example of digitalisation is our partnership with Alipay in China, which launched last year. This year for the first time we extended this partnership beyond China. If you flew out of Singapore Changi Terminal 1 between [15 April – 24 May], you will have seen a ‘Fly with Me’ [multi-brand fragrance] animation that we brought to life in partnership with Alipay.
What about the metaverse, web3 and gamification – is Coty actively investing in these areas to improve customer engagement across the brand portfolio or are you being very selective?
Strengthening digital is one of Coty’s key priorities. We’ve used digital activations to capture traffic. Take our ‘Fly with Me’ activation in Changi as an example – we had a flight simulator, where customers played a game with the different fragrances. The online-offline experience allowed customers to personalise recommended products. We’ve got a number of upcoming launches that feature gamification and education, so watch this space.
In Coty’s most recent 3Q23 results, your CEO Sue Y. Nabi pointed to the resilience of the business and the ‘significant white space opportunities ahead’ in travel retail, as you’ve remarked on. Can you elaborate on where these exist in key categories/channels/markets?
In China, skincare comprised over 70% of the prestige beauty market in 2022. Chinese consumers have a very strong preference for highly premium, science-based skincare products and product efficacy is crucial in this market. These reasons made China a key market to focus our strategic skincare efforts, which kicked off with the successful launch of Lancaster’s ultra-premium skincare line Ligne Princière.
We have been scaling our China business very quickly and will continue to build out our footprint in China, both offline and online, as well as expand our category assortment. We have the right brands, capabilities, and teams to succeed in China. Coty is already the number five prestige fragrance player in China; our business here is roughly 80% Prestige and therefore very profitable. It used to be the lipstick effect. Now, we’re talking about the fragrance effect. This is really something you can see in China with all the categories booming.
On top of that, we’re focusing on skincare, which is three quarters of the market in China. We see significant opportunity ahead for Coty in China with our highly desirable brand portfolio. Our ambition is to more than double our China sales in the next few years to over $600m. We also see huge potential for Southeast Asia and India’s very dynamic economy. The GDP for India is moving more than 7-8%. It’s booming, with beautiful airports and they [consumers] love fragrances, makeup and skincare. That’s another whitespace for us.
Finally, what do you see as the biggest beauty trends influencing travel retail in the coming year(s) and how does Coty expect to play a role in shaping these?
I think the Asia influence will be very strong in travel retail. What you will see is a very strong ‘retailisation’, offering a much more complete brand universe and immersive retailtainment experience. We’re offering unique experiences that you can only find when travelling. This is where we partner closely with airports and operators to bring our visions to life.
Watch out for the TRBusiness August/September e-zine for more from Coty.