Travel retail’s beauty assortment is getting hipper as niche brands move in

Duty-free retailers are “definitely looking for younger, more up-and-coming indie brands and brands that will appeal to a younger traveling audience, [in an effort] to branch out and diversify their assortment,” said Anna Teal, CEO of Grown Alchemist.

Grown Alchemist entered travel retail for the first time in the second quarter of this year with plans for a “very aggressive rollout plan,” said Teal. It first launched in travel retail in Sydney, Australia. It plans to enter 16 more locations across Europe in 2023, followed by rapid expansion across the APAC region. The brand is currently stocked at global duty-free giants Heinemann and Dufry, with plans to expand into more retailers in the future.

Malin + Goetz is also expanding its presence in travel retail in 2023, building on years of exposure to traveling consumers through partnerships with hoteliers and Delta. It launched first at DFS’s new beauty concept shop for domestic travelers at New York’s JFK Airport and at DFS in Macau at the end of last year. It has plans to expand to Dufry in the APAC region; Korea-based duty-free retailers Shinsegae, Hyundai and Shilla; and Hainan Tourism Investment Duty Free (HTDF) on the island of Hainan in China in 2023.

“A  lot of these operators are looking for more lifestyle and emerging brands like us to offer something different than the usual assortment that you see,” said Malin + Goetz CEO Brad Horowitz. “You see the sections now that are developing in these travel retail footprints. They’re starting to create these lifestyle walls of emerging brands. You see it in beauty and fragrance. They’re trying to create a more interesting assortment for their travelers.”

Acquired by L’Occitane Group in March 2022, Grown Alchemist is one of several examples of beauty conglomerates’ new portfolio brands that have moved quickly into the travel retail channel. L’Occitane Group’s Sol de Janeiro also made its travel retail debut with Dufry in April this year, sponsoring travel retail pop-ups at airports across Europe in June. This followed Shiseido Group-owned Drunk Elephant’s travel retail entrance in the fourth quarter of 2021, and Estée Lauder Companies’ introduction of Dr. Jart+ into the channel in 2020. 

Indie brands have made their way into the channel, as well: Tata Harper first entered the duty-free channel via Macau in 2021, ahead of its September 2022 acquisition by Amorepacific. Luxury skin-care unicorn Augustinus Bader also first launched in the channel in 2021. 

The entry into duty-free is part of brands’ overall international expansion efforts. Malin + Goetz, for example, is concurrently expanding its domestic presence in mainland China. On August 8, the brand opened a new store in Shanghai, marking its first freestanding store in mainland China and its 25th store globally. 

Horowitz said that 40% of Malin + Goetz’s revenue this year will come from outside North America. In the future, he expects travel retail to make up 20% of the brand’s revenue. According to industry sources, the brand currently makes $55 million in global revenue. 

“We see it as a really big strategic opportunity for the brand — [for] attracting the modern traveling consumer, but also the global consumer, because we have very big global ambitions,” said Teal. “Travel retail will form a very important role as part of our international expansion plan.”

Duty-free retailers are intent on capturing the interest of young travelers, especially as data has shown that Gen Z is more apathetic to travel retail than other generations. According to survey data from travel retail research firm m1nd-set, 41% of Gen-Z respondents said they had purchased duty-free items while traveling, compared to an average of 51% among all respondents. Their average spend was also lower at $73, compared to $123 on average. 

“The frequent traveling customer is, on average, becoming slightly younger. They’re obviously looking for breadth and to discover different brands,” said Teal. 

Due to the pandemic, travel retail has not been an easy market to get into. Most recently, ELC’s fiscal 2023 third-quarter results showed an 8% decrease in sales due to a slump in travel retail in Asia. The company’s next results will be released on Friday. ELC CEO Fabrizio Freda said in a statement at the time that Asia’s travel retail market recovery was “proving to be both far more volatile than we expected and more gradual, relative to what we experienced in other regions.”

In Shiseido Group’s earnings report for the first half of 2023, the company stated that “travel retail sales decreased due to retailer inventory adjustments associated with tighter regulations.” It was referencing China’s measures against third-party sellers purchasing duty-free goods abroad to sell at cheaper prices domestically, which had historically bolstered more traditional luxury beauty brands.

But there are optimistic signs of recovery for the rest of the year, as LVMH’s recent financial reports stated that DFS has returned to profitability.

The UN World Tourism Organization (UNWTO) has reported that 2023 is on track for a “full recovery” in tourism, with international travel reaching 80% of pre-pandemic levels in the first quarter of 2023. The European Travel Retail Confederation (ETRC) Business Performance Index found that total duty-free sales in 2022 reached 83% of what they were in 2019.

Horowitz is optimistic about the outlook for travel retail at the end of this year.

“We get a view of what’s happening with travel four months before it’s going to happen because all of our global amenity partners are ordering in advance all of the products for the hotel rooms. So we actually knew well in advance that there was going to be this huge year in travel, and in fact, it’s turned out that way,” he said. 

Despite volatility, travel retail is part of Grown Alchemist’s strategy to “have a really nicely balanced mix of business, not just from a channel perspective, but also from a geographical footprint perspective,” said Teal. She predicts that travel retail will comprise 10% of the brand’s sales within the next three years.

Rather than gift items, younger travelers are often shopping duty-free beauty for “self-gifting” products they plan to use on their trips, said Teal. Both Grown Alchemist and Malin + Goetz are focusing on multi-product travel kits for their duty-free sales.

Travel retail exclusives are also a priority for brands, contributing to a big investment on the brand’s behalf that also includes staff training and marketing activations such as airport pop-ups. 

“It is a high investment model upfront. But it’s definitely worthwhile, if you get the model right, hence why it’s not a decision to be taken lightly. There are lots of investments across multiple different touchpoints that have to be made,” said Teal of entering travel retail.

But young brands have the advantage of being courted by duty-free retailers looking to shake up their assortment. 

“In the past, it was harder for more emerging brands or niche brands like us to get space on the floor,” said Horowitz. Now, “the barrier to entry for emerging brands is lower. It’s an exciting time in our business where a lot of [niche] brands are getting a lot of attention.”