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By
Reuters
Published
Jul 4, 2012
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Luxury chains ride travel boom, eye new horizons

By
Reuters
Published
Jul 4, 2012

A rising class of affluent globe-trotters from China, Russia and Brazil is spurring retailers to expand their presence in high-end airports from the United States to Germany to China.




Travel retail has long been a fixture for brands like Estée Lauder Cos Inc and LVMH's Louis Vuitton. But sales at airports and other travel venues have risen far more quickly in recent years than at regular stores for many chains, putting this area of retailing front and center in many companies' expansion plans.

Chains with few such stores are adding new ones: Tiffany & Co is set to open a second store in Singapore's Changi this year and one at Berlin's new airport next year, bringing the jeweler's total to eight, while Swiss luxury watchmaker Hublot, which is also part of LVMH, is eyeing Frankfurt's airport.

Meanwhile, Estée Lauder Cos, with nearly 1,000 airport stores across its myriad brands of beauty products, is branching out to domestic airports in smaller cities in China and Brazil to find new growth in the travel business and scouting places that could one day be China's top vacation spots.

"It is the moment to ask ourselves, what is the St-Tropez of China?" Chief Executive Officer Fabrizio Freda said in a recent interview. Travel retail sales growth at the company has outpaced its overall growth.

Worldwide, duty-free and travel retail sales of perfumes, cosmetics and luxury goods jumped 28.3 percent between 2008 and 2011, according Generation Research. The Swedish data firm expects them to jump 25 percent to $44.5 billion by 2014 from its projection for 2012.

For perspective, Boston Consulting Group expects overall sales of luxury goods to rise 14.5 percent by 2014.

China's emerging middle class has been the single largest motor of luxury's growth in the last few years.

According to the Global Business Travel Association, there are plans in place for 100 new airports in China in the next decade. So called second-tier cities like Chongqing and Wuhan are emerging as major centers and attracting retailers' notice.

Spending thousands at an airport on a designer handbag is much more of a habit for shoppers from China and other emerging markets than for Westerners.

"The Chinese love buying when they travel-- it's a culture," said Hublot Chairman Jean-Claude Biver, noting how much those shoppers boost sales at its airport stores in Switzerland.

Even in the United States, where airports are generally seen as shabby compared with Europe and Asia's sleek venues, there is interest in opening stores when facilities are up to standard.

Estée Lauder Co's M.A.C. and Brookstone Inc were among the brands to open stores at the splashy $1.4 billion international terminal in Atlanta that opened in May.

Chris Anderson, Brookstone's director and general manager of airport retail, said he would gladly open many more under the right conditions, given how they serve as a billboard for the chain.

But for many, U.S. airports are generally not up to snuff, hampering the potential there.

"When I look at American airports, there is just no sense of trying to create in many of them a nice store," Samsonite International S.A. CEO Tim Parker said.

Olivier Bottrie, president of travel retail worldwide for Estée Lauder Cos, and other industry executives recognized the threat of a global economic crisis, but pointed to travel's quick recovery after shocks like 9/11 and the 2003 SARS epidemic.

"It is an area that is growing in terms of traffic and therefore in terms of sales potential," Bottrie said.

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