Lagardère Travel Retail accelerates its global expansion drive

Editor’s Introduction: With managed sales of €4.5 billion (including food & beverage) in 2017, Lagardère Travel Retail is firmly established as one of the top five travel retailers in the world today.

It is now a fully-focused, pure play travel retailer, having sold its remaining distribution activities, and parent Lagardère Group recently doubled down on travel retail as a core part of its strategy.

Managing Partner Arnaud Lagardère has called travel retail “the growth engine of the group”. Alongside Lagardère Publishing, the travel retail arm is now one of the “priority pillars” and a central focus of group investment.

With that backing the company has also played its part in industry consolidation in recent years. In 2015 it swooped to acquire US North American travel retailer and restaurateur Paradies, and in August this year, it built on this position by striking a deal for airport restaurateur Hojeij Branded Foods (HBF), subject to final approvals.

The new combined North American entity becomes the third-largest player in travel retail and dining in North American airports, with annual sales of more than US$1.2 billion (US$350 million from food & beverage).

The drive for growth is mirrored in other regions too. The roll-out of the company’s next generation Aelia Duty Free stores is nearing completion in Europe; it is building on gains across travel essentials, F&B and duty free – its three key business platforms – in China and the wider Asia Pacific region; and is seeking to grow in the Middle East too.

Shortly before TFWA World Exhibition in Cannes, we spoke to Chairman and CEO Dag Rasmussen and Chief Business Officer Ambroise Fondeur about the key projects and developments, and about Lagardère Travel Retail’s wider business vision.

Dag Rasmussen: We will continue to grow through a combination of tenders, acquisitions and partnerships. That will depend upon the opportunities and how we identify the best way to grow. We have the support of our shareholders for acquisitions but we also need to find good projects.

Ambroise Fondeur: We have a global approach across the three business lines and we don’t prioritise one over the other. We want to grow each where it makes sense. We need to be strategic with our focus only on travel retail, but we also need to be opportunistic. Because we operate in a concessions business, we are not master of the timing of the opportunities that come along.

Recently it’s true that more opportunities have come along in food service, but that is because of what the market has offered. We also have invested in duty free through tenders in Switzerland (Geneva), Saudi Arabia and others. We remain agile.

Ambroise Fondeur: In Abu Dhabi, the latest news from the airport is that the Midfield Terminal is scheduled to open towards the end of 2019. We are gearing up our plans for that timing. [Lagardère will run the core duty free categories of liquor & tobacco, confectionery and fine foods in partnership with Abu Dhabi Capital Group – Ed].

In Saudi Arabia we completed the renovation of our store at Dammam Airport last year and over the summer we completed work on our two stores at Riyadh Airport. We are looking at the tender for Jeddah’s new terminal though it’s not clear what will happen next.

The Middle East is very interesting for us and a focus of investment. We have set up a new office in Dubai, and in coming months we will open a new supply chain out of Dubai, to serve Saudi Arabia and later Abu Dhabi.

Ambroise Fondeur: The Duty Zero by cdf stores we run in joint venture with China Duty Free Group have delivered a very satisfactory performance so far, and are being rounded out by the opening of the Hennessy boutique [on the eve of Cannes – Ed].

In China we have been very active across domestic airports, in luxury and in food service. Our latest openings were two Dean & DeLuca coffee outlets at Hong Kong International. We are opening more stores across domestic airports in China in coming months.

Ambroise Fondeur: We completed the main departures walk-through in Auckland in December and updated arrivals in recent months. We are renovating travel essentials with Relay and adding new local concepts to the line-up there too.

It’s a dual-operator model of course and for that reason this market remains difficult. Having two operators can confuse consumers and doesn’t allow the full potential to be maximised, we feel.

Ambroise Fondeur: Managing the evolution of the category dynamics is a priority for us, as traveller profiles and needs change. We need to have flexibility to adapt the offer in the stores to what the shopper requires.

In terms of the highest-growth categories, I would highlight those driven by convenience and impulse. We have a successful impulse programme across our stores, which we will be accelerating in the coming months. That runs across categories, from beauty masks to smaller size liquor packs to snacks. These are items that resonate with travellers.

In the more traditional categories, we see skincare, alcohol and food performing well. Skincare is aided by strong growth among Chinese but also by new segments, notably the drive for healthy, natural products. Perfumes and fashion are still growing but are more mature and are not seeing the growth rates they did previously.

The categories that are struggling this year are tobacco and make-up. Tobacco unfortunately appears to be in mid- to long-term decline, though it will be interesting to see how new technology and ‘heat, not burn’ solutions can offset this.

In make-up, a star of the past two to three years, it has become more difficult. We’ll see what happens there after a period of strong growth.

Ambroise Fondeur: We would like to see more differentiation. All the brands realise the value of travel retail as the most attractive niche within retailing. But they need to go further and really differentiate what they do in travel retail versus what they do elsewhere. We are fully ready to work with them on innovation, but it means real differentiation, not just packaging adjustments. It’s a priority for us in coming years.

The other priority is to lift the experience in-store. The growth areas in retail today are travel retail and e-commerce, and where we win is in the physical customer experience. That means working with brands to improve the experience, including through better staff interaction.

On personalisation, the big challenge is how to adapt this to a fast transaction environment like travel retail. Yes, personalisation is key but we haven’t seen fully convincing solutions, so it’s up to us and the brands to try to find these.

Dag Rasmussen: The retail and food layout is critical in determining commercial success at an airport. We recommend that our airport partners engage with us so we can discuss the optimum layout together. It’s not easy.

Each airport is different, and the flow of travellers is different. Too often we as retailers discover the retail layout only when tenders are issued, which is sub-optimal. We encourage landlords to talk to us in advance about how to optimise their retail and food activities.

Ambroise Fondeur: We see digital as an enabler for facilitation and for experiences in-store, so it’s not about digital per se. Digital is a way to create new services like click & collect, to reserve products or to see what’s available at the airport.

It can empower staff to serve the travellers with content. Here, brands can help us by providing content that encourages interest among potential shoppers. In addition digital can help us improve our payment solutions, which can be a pain point for travellers.

The other area is data, in which we are not yet expert enough. All parties are still too shy in sharing data. We see most value in greater collaboration between airports and retailers on this, and we at Lagardère Travel Retail are fully open to sharing. We can mix our own data with theirs to better understand the traveller and how they behave, and in the end facilitate their shopping experience. This in turn can optimise value creation in our shops.

Dag Rasmussen: Airports need to ask themselves whether fixed percentage rates are the best solution to incentivise retailers? What about shifting to percentage of gross margin generated? How can they incentivise travel retailers to reallocate square metres to the most productive and growth-driven categories, instead of waiting for the end of their contract?

So the question is how can we maximise value by focusing more on commercial strategies rather than focusing simply on rent?

We will need to re-invent the Trinity model if we want to keep the necessary agility to help us adapt to evolving consumers, to accelerate time to market and to permanently refresh the offer.