Estee Lauder Can Fly To $63 With Airport Retail Growth

Estee Lauder (NYSE:EL) is gradually expanding its retail presence at domestic airports of key emerging markets like China and Brazil. It has succeeded in capitalizing on the growing travel retail market over the past few quarters and currently sells its prestige beauty products through more than 1,000 airport outlets. This channel has performed particularly well within Europe, Asia-Pacific, the Middle East and Africa, generating double-digit net sales growth in fiscal 2011.

With improved global airline passenger traffic, particularly in China, Russia and Brazil, Estée Lauder has been focusing on improving its marketing and distribution at high-end airports to convert travelers into purchasers and continue its growth momentum in the fastest growing travel retail segment. Its travel-retail business has benefited from its strategic investments in local markets as well as through the increase in international travelers, particularly in Asia.

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Fast Growth In Travel Retail

According to a recent Verdict report, global travel retail has quickly become the fastest-growing retail channel for beauty, fashion and accessory products. It estimates that the travel retail market is likely to grow sharply by 60% to $45 billion by 2015. In particular, beauty sales are likely to grow by more than 80% in the next five years. (Read Travel Retail Industry Takes a Beauty Boost) BCG estimates that the overall luxury goods sales could grow by 15% during the same period, which implies that most of this growth will materialize at travel retail outlets.

Growth in travel retail is driven predominantly by passenger volumes, which are increasing rapidly in emerging markets, rather than an increase in average spend per passenger. In 2011, Europe was the largest airport retailing market, but Asia Pacific may overtake it in 2012, which could grow by 75% by 2015. The Middle East & Africa is emerging as the second-fastest growing market, which is likely to expand by 40% by 2015.

China In Focus

Being fond of shopping during travel, China’s emerging middle class has been the single largest driver of luxury sales growth in the last few years. Estee Lauder’s growth in Chinese prestige beauty market has largely relied on airport retail and online channels. However, it anticipates some moderation in growth in the market over the next few quarters, and seeks to fuel further growth by expanding into smaller Chinese cities and airports. According to the Global Business Travel Association, China is likely to add 100 new airports in the next decade including emerging cities like Chongqing and Wuhan.

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