Estée Lauder’s travel retail sales flat in Q1 as business in Hainan flourishes

By Charlotte Turner |

The Estée Lauder boutique at the CDFG Haitang Bay Sanya complex spans 1,510sq ft.

The Estée Lauder boutique at the CDFG Haitang Bay Sanya complex spans 1,510sq ft.

Estée Lauder Companies has reported a year-on-year net sales decline of -9% to $3.56bn (on a reported basis) for its fiscal first quarter ended 30 September, 2020; $3.90bn in constant currency.

 

ELC said the decline was driven by some temporary retail store closures and lower foot traffic in those which remained open, attributable to Covid-19. However, the group also said that the performance of its bricks & mortar stores was partially offset by strong growth online.

 

Quite miraculously, ELC also reported that global travel retail net sales were relatively flat year-over-year and net sales from the Company’s acquisition of Have&Be Co. Ltd. (‘Dr. Jart+’) contributed approximately 3 percentage points of net sales growth.

 

“The adverse impacts from Covid-19 on international passenger traffic were mostly offset by strong growth in Hainan, partly reflecting increased duty free purchase limits, the opening of some travel corridors in Asia, and online pre-tail growth facilitating higher conversion,” said ELC.

 

Of particular note, was the company’s performance in Korea where net sales growth reflected incremental net sales from the Company’s acquisition of Dr. Jart+ in December 2019, which includes the brand’s travel retail business, as well as high single digit growth in the rest of the Korea business.

Estée Lauder, in partnership with China Duty Free Group (CDFG) staged an ambitious holiday celebration last December.

Estée Lauder, in partnership with China Duty Free Group (CDFG) staged an ambitious holiday celebration in Hainan last December.

‘STRONGER Q1 THAN EXPECTED’

Fabrizio Freda, President and Chief Executive Officer said: “We are pleased with the stronger than expected start to our fiscal year amid this difficult moment as the global community continues to confront Covid-19.

 

“We delivered significant sequential improvement in net sales growth in every product category driven by progress around the world. Asia/Pacific again excelled with double-digit year-over-year growth in mainland China. Travel retail was a stand-out performer as Chinese tourists were drawn to the growing duty-free shops in Hainan Island and purchase limits increased there.

 

Fabrizio Freda, President and Chief Executive Officer said: “We are pleased with the stronger than expected start to our fiscal year amid this difficult moment as the global community continues to confront Covid-19."

Fabrizio Freda, President and Chief Executive Officer said: “We are pleased with the stronger than expected start to our fiscal year amid this difficult moment as the global community continues to confront Covid-19.”

“Innovation flourished, representing over 30% of sales in the quarter, and the online channel thrived in every region. We successfully adjusted our cost structure to minimize the deleveraging effects of lower sales, while continuing to invest for growth, enhancing our capabilities online and supporting our innovation.”

 

Freda also announced that today it is releasing its fiscal 2020 Citizenship and Sustainability Report, entitled ‘Beauty Inspired, Values Driven’.

 

The report highlights the achievement of ELC’s 2020 ESG goals as well as progress towards its 2025 goals. “These milestones were reached across our citizenship and sustainability priority focus areas, despite the challenges of the pandemic,” said Freda.

 

GOVERNMENT RESTRICTIONS RE-IMPLEMENTED

The outbreak and global spread of Covid-19 continues to cause significant disruption in the Company’s operating environment, temporarily impacting retail traffic and consumer preferences. During the three months ended 30 September, brick-and-mortar business continued to re-open gradually in countries around the world.

 

However, the resurgence of Covid-19 cases in various parts of the world, including the United Kingdom, Ireland and other countries in Europe, has caused the re-implementation of government restrictions to prevent further spread of the virus.

 

These restrictions include the temporary closure of businesses deemed ‘non-essential’, travel bans and restrictions, social distancing and quarantines. The Company said that it will continue to invest behind the most attractive growth opportunities while taking measures designed to protect the safety of its employees, beauty advisors and consumers.


The Covid-19-related closures of offices, retail stores and other businesses and the significant decline in social gatherings have also influenced consumer preferences and practices, said ELC.

 

Demand for skin care and hair care products has been more resilient than the demand for makeup and overall fragrance. Within skin care, the demand for innovative products within hero franchises has remained strong, driving double-digit growth at Estée Lauder and La Mer during the first quarter of fiscal 2021.

Skin care net sales in particular grew across most regions, led by Estée Lauder and La Mer. Net sales of Dr. Jart+, which the Company acquired in December 2019, contributed approximately 6% to skin care net sales growth.

Skin care net sales in particular grew across most regions, led by Estée Lauder and La Mer. Net sales of Dr. Jart+, which the Company acquired in December 2019.

LUXURY AND ARTISANAL FRAGRANCES

As stores re-opened throughout the quarter, consumers have re-engaged with the sensorial experience in fragrance, contributing to double-digit net sales growth at several luxury and artisanal fragrance brands, including Le Labo and Editions de Parfums Frédéric Malle.


By the end of the quarter, all of the Company’s manufacturing and distribution facilities were operating at sufficient levels.

As stores re-opened throughout the quarter, consumers have re-engaged with the sensorial experience in fragrance, contributing to double-digit net sales growth at several luxury and artisanal fragrance brands, including Le Labo and Editions de Parfums Frédéric Malle.

As stores re-opened throughout the quarter, consumers have re-engaged with the sensorial experience in fragrance, contributing to double-digit net sales growth at several luxury and artisanal fragrance brands, including Le Labo.

Skin care net sales in particular grew across most regions, led by Estée Lauder and La Mer. Net sales of Dr. Jart+, which the Company acquired in December 2019, contributed approximately 6% to skin care net sales growth.

 

Double-digit growth from La Mer was driven by Asia/Pacific, with significant strength in mainland China, as well as growth in many markets globally. Net sales in travel retail also grew strong double-digit.

 

Net sales declined in makeup with declines at all brands except Too Faced, which delivered a small increase. The effects of Covid-19 continued to disproportionately impact makeup, particularly foundation and lip, and makeup sales continued to be soft in most markets.

 

Net sales declined in makeup with declines at all brands except Too Faced, which delivered a small increase.

All makeup brands saw a sales decline, except Too Faced, which delivered a small increase.

MAKEUP IN DECLINE

Makeup operating income declined, primarily reflecting lower net sales, partially offset by disciplined expense management across all brands in response to Covid-19.

 

Net sales of fragrances decreased, primarily due to declines from Estée Lauder, Clinique, certain designer fragrances, Jo Malone London and Tom Ford due to the impacts of Covid-19.

 

Certain luxury and artisanal fragrance brands grew during the quarter as retail stores opened and consumers were able to enjoy sensorial experiences in person. Targeted expanded consumer reach also contributed to growth at the artisanal fragrance brands.

 

Strong double-digit net sales growth in Asia/Pacific accelerated year-over-year driven by the Company’s luxury and artisanal fragrance portfolio.

 

Hair care net sales were flat, reflecting an increase at Aveda that was offset by a decline at Bumble and bumble driven by some temporary retail and salon closures during part of the quarter due to Covid-19.

 

EXPECTED CLOSURE OF 10-15% OF FREESTANDING STORES

The Company continues to believe that strong consumer demand for its products remains despite ongoing challenges related to Covid-19. For the fiscal year, the Company expects to continue to build global share while global prestige beauty progressively returns to growth.

 

The Company is driving to return to its long-term growth targets of 6% to 8% sales growth, after a period of normalization as the impacts of Covid-19 subside.

 

“The pandemic has also rapidly accelerated macro trends in global prestige beauty that were expected over a longer period of time,” said ELC. “These trends include shifts in where consumers shop, what they value, and how they engage with the Company’s brands in an increasingly digital and omnichannel world”.

As a result, the Company announced its Post-Covid Business Acceleration Program in August, which includes the expected closure of between 10-15% of its freestanding stores globally, as well as certain less productive department store counters that the Company elects to close. In addition, several retailers have also announced a planned reduction of their footprint through door closures.

 

The Company is mindful that some retail locations in certain markets may not re-open and there are likely to be lingering adverse global economic and social impacts.

 

‘RATIONALISING UNPRODUCTIVE BRICK & MORTAR STORES’

In fiscal 2021, the Company is continuing to pursue several long-term strategic initiatives, among them rationalising unproductive bricks & mortar stores, increasing manufacturing capabilities, expanding the fulfilment capabilities of its online business, and investing in the growth opportunity of Asia/Pacific.

 

The Covid-19 pandemic has significantly accelerated certain trends – most notably consumers’ adoption of the online channel – and as a result, the Company is quickly reallocating resources from certain unproductive brick-and-mortar stores, primarily in Europe and in North America, to investments in consumer-facing, high-touch online services, information technology and other new brand-building distribution opportunities.

 

“We expect that this reallocation will also make the remaining brick-and-mortar footprint more productive and sustainable for the long term,” added ELC.

Reported net sales are forecasted to decline between 5% and 3% in the second quarter fiscal 2021 versus the prior-year period.

 

The Company’s recent acquisition of Dr. Jart+ is forecasted to contribute approximately 2% to the Company’s overall sales growth. Excluding the impact of the acquisition and 1% benefit from currency, net sales are forecasted to decrease between 8% and 6%.

 

Given the uncertainty around the timing, speed and duration of the recovery from the adverse impacts of Covid-19, the Company is not providing specific sales and EPS guidance for the fiscal 2021 full year.

 

1Online sales refer to sales of products from ELC’s websites and third-party platforms, as well as estimated sales of  products sold through ELC’s retailers’ websites.

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