“A convergence of minds” – Inside the groundbreaking agreement between Lagardère Travel Retail, JD.com and JIC

“We know that this digitalisation trend, multi-channel [retail] is mostly Chinese today. What we know is that if we learn from the best country with the best player, we can then maximise the chances of spreading all these good ideas in the [Lagardère] Group. So it’s a Chinese-born project, which we will follow very intensively centrally and globally.” Lagardère Travel Retail Chairman & CEO Dag Rasmussen sums up the potentially transformative nature of this month’s announcement that ecommerce giant JD.com and leading Chinese state-owned fund JIC are investing CNY720 million (US$111.4 million) in Lagardère Travel Retail’s North Asia business. The deal, when completed (expected to be this month), will see the investors hold 22.36% of the company’s post-offering share capital. Having launched operations in Mainland China in 2007 and Japan in 2020, Lagardère Travel Retail is now present in 32 airports and 28 high-speed railway stations in North Asia, with a network of 480 stores across categories including luxury, duty free, travel essentials, speciality retail and food & beverage. That platform is set to grow strongly working alongside JD.com, which has a customer base of some 530 million people. Rasmussen and Lagardère Travel Retail North Asia CEO Eudes Fabre spoke with The Moodie Davitt Report Founder & Chairman Martin Moodie soon after the announcement. On the logic behind the partnership, Fabre said: “Omnichannel retailing is happening, it’s something we’re seeing more and more. You see it increasingly apply to duty free, especially in Hainan, where you have the opportunity to buy online after you have travelled there. There is a proliferation of business models combining online and offline, cross-border ecommerce and so on, in China.

“It’s really something which is important for the group as a whole, which we see as a game changer in many dimensions – the way we see travel retail, the way we see retail, the way we see the interaction between digital and physical.”

Lagardère Travel Retail Chairman & CEO Dag Rasmussen

“So there was the willingness [from Lagardère Travel Retail] to do something big in the omnichannel space. We have been in China for a long time and have our own assets. And even though we are also doing our own digital initiatives, including ecommerce, we thought that there was a real opportunity to accelerate that dramatically and do something big with an industry heavyweight such as JD.com. “From JD’s perspective, as a big online retailer, they’re very interested first in duty free, but they’re also interested in physical retail. JD is doing it, Alibaba is doing it, Amazon is doing it. More and more of these internet giants are realising the value of the ability to have more personalised interaction with consumers in a physical setting. “Both sides quickly saw the great potential; it was a convergence of minds, both on our desire to accelerate the digital positioning of our business, and JD’s strong interest in travel retail, and then this fusion of the online and offline experience, and especially leveraging the fact that we have high-profile stores in high-traffic locations.

“On our side, we benefit from really leveraging JD's expertise not only in digital. They are also very capable in terms of logistics and they can offer same-day delivery to a significant part of the Chinese population. So we thought that was also an excellent selling point for our physical stores because you can have the benefit of discovering new products, touching the merchandise before you buy it, being advised by people, with home delivery added. “They have 530 million customers and we have over two million registered customers in China today, so you can see that there is a lot that can be using data, analytics, reaching out to people before they travel. There’s a lot more that can be done. So far we’re just scratching the surface in terms of our [the partnership’s] potential.” Fabre also noted that a major focus for Lagardère Travel Retail since it began operating in China is in travel essentials. “That’s also a strength of JD.com, which started as an everyday consumer goods company, so there is much to gain in terms of convenience, conversion, smart logistics, optimising sales of lower value but essential items that are complicated to move in large quantities. So there is potential upside too to really transform the travel essentials proposition in travel locations. We can extend the range by having an online to offline proposition, with thousands of possibilities for customers within our existing footprint.” Fabre initiated discussions with the new partners in China, with the team back in Paris examining, challenging and ultimately supporting a deal. And although it covers North Asia, it could ultimately have repercussions for Lagardère Travel Retail’s wider business through sharing of knowledge, expertise and networks. Asked whether the “threat of the ecommerce competitor” had been defused by joining forces with one of the major players, Rasmussen said: “I hope so but personally I have never seen ecommerce as a threat to travel retail.”

“In order to be successful, you need a really localised business presence, whether it be [in terms of] teams or operational models. Everything needs to be made in China, for China. “That’s the key to success. So by partnering with these type of prestigious local investors, we’re hoping that will help us become even more localised, and even more relevant to the fast-changing Chinese market.” Beyond the commercial opportunities, Lagardère Travel Retail, JD.com and JIC have expressed a shared commitment to making positive contributions to society through inclusiveness and sustainability – making the partnership even more meaningful. Rasmussen and Fabre commented on the societal contribution that the partners aim to deliver. “Our CSR strategy is called PEPS which stands for Planet, Ethics, People and Social,” said Rasmussen. “And it is really something that we try to integrate in the best possible way into all we do. Here, if we take smart logistics which JD.com specialises in, this will complement the usual physical purchase and will help make business more sustainable, including optimising future emissions.”

“It was a convergence of minds, both on our desire to accelerate the digital positioning of our business, and JD’s strong interest in travel retail.”

Lagardère Travel Retail North Asia CEO Eudes Fabre

Fabre added: “Of course we are a business but we can still contribute to society by investing in airports large and small. That means a consistent level of service across our network, providing more employment, well-paid jobs, training and so on. We are focused of course on the big hubs but also on smaller tertiary locations and rail stations, contributing to the betterment of travel infrastructure and helping improving people’s lives. On top of that, I’m proud that our top management here are Chinese, not foreigners, and that so many of our staff are local, which is important for smaller airports and rail.” Summing up his thoughts on the significance of the JD.com/JIC alliance, Rasmussen concluded: “The fact that [Group Managing Partner] Arnaud Lagardère followed this so closely says a lot about what it means internally. It’s really something which is important for the group as a whole, which we see as a game changer in many dimensions – the way we see travel retail, the way we see retail, the way we see the interaction between digital and physical. We’re all very excited about how we can get value, create value and give value out of this.”