Cosmetics major Estée Lauder Companies is anticipating annual net sales to fall 10% to 12% as recovery in Asia’s travel retail market remains sluggish.
President and CEO Fabrizio Freda said during the firm’s third quarter earnings call: “As the shape of recovery from the pandemic for Asia travel retail comes into better focus, it is proving to be both far more volatile than we expected and more gradual relative to what we experienced in other regions.”
The company announced on May 3 that its organic net sales fell 8%, blaming a slow recovery in Hainan, China as well as Korea. Overall organic sales for travel retail globally decline by 45%.
Despite this, Freda expressed that the travel retail business was tremendously important for the firm.
“This is kind of a reset. But after this reset, travel retail will remain a large, very important channel.”
He elaborated that it was particularly important for customer acquisition and remains a growing channel.
“To grow market share, to be strong, travel retail will remain important.”
Furthermore, he highlighted the importance of travel retail for the Chinese market, particularly for smaller cities that may not has as much access to its brands through physical retail channels like department stores.
“In the case of Asia, China travel retail is very important for coverage because in many emerging markets for sure in China, the coverage of small cities is possible only via online or via people travelling.”
Freda also highlighted travel retail as an important channel for discovery and experience, which is important for its luxury brands.
“Obviously, in the moment of the pandemic, travel retail is being more difficult to predict and more volatile to anticipate. But in terms of the positives of the channel in the long term for brand building, for trial building, for being in a creative and positive profitable channel in the long term remains intact. We believe that out of the pandemic, this will remain an important channel.”
Major headwinds in Q3
In Hainan, the company experienced lower replenishment orders as a result of retailers’ expectations for a more accelerated recovery.
“In Hainan, the pressure from elevated inventory in the trade has proven to be deeper and longer lasting, driven by this lower-than-expected consumption trend, compounded by the retailer inventory tightening,” said Freda.
At the same time, travellers had not returned to Korea as expected.
“In China and Korea, the resumption of international flights was subdued. Limited visas were granted, and group tours were slow to restart,” said Freda.
CFO Tracey Travis added: “Korea benefits from having a lot of organised tour business for Chinese travelling consumers. And that has been slower to come back. So, that certainly is pressuring our fourth quarter as well.”