A surprise pandemic for border stores at one of the world’s largest travel retailers

It’s easy to forget that the duty-free channel isn’t just about airports, and the pandemic has highlighted that. In Asia, offshore sales in central Hainan have exploded, attracting the attention of players like Alibaba and China’s department store groups, while stores at Hong Kong International and Singapore Changi airports were deserted.

At global travel retailer Gebr. Germany-based Heinemann has unfolded a similar story, this time in duty-free border stores. The business hardly receives any attention in normal times, but it recovered during the pandemic by doubling its share of the company’s sales from 12% in 2019 to 21% last year. Airports fell from their dominant share of 78% in 2019 to 63%.

It is true that the pie is now much smaller, as Heinemann’s controlled turnover fell by 67% from 4.8 billion euros in 2019 to 1.6 billion euros in 2020. But the border benefit has caused a significant change that It may not be as temporary if the international airport traffic does not increase. this year. And it is a segment in which European rivals such as Dufry (with a total turnover of 2.4 billion euros in 2020, a decrease of 71%) and Lagardère (a decrease of 60% to 1.7 billion euros) do not play significantly. .

Border stores were always the number two channel after airports for Heinemann and the company expects them to return to their 2019 sales level relatively quickly.

Exceed previous year’s border sales

Heinemann’s border business is primarily concentrated in Eastern Europe, where generally less restrictive Covid-19 regulations allowed stores at various borders to thrive, particularly in the summer of 2020.

In a report, the company says: “When international travel came to a halt, shopping at border crossings became increasingly important. The company’s operations in Bulgaria and Romania performed very well during this period, partially exceeding the previous year’s sales. ”

It was a similar situation in the Czech Republic, Slovenia and Croatia, despite company closures that lasted for several weeks. But it was not the case further east. In Russia, Belarus and Georgia, both retail and distribution businesses came to a near halt as a result of rigorous shutdowns.

In a Zoom call with the reporter this week, COO Raoul Spanger admitted that the channel mix helped the company last year. “2020 was one more statement that we are better using different channels to balance risks more effectively,” he said. “Our first acceleration started in June and July 2020 and it was the border business.

“We had heavy traffic and these stores helped support regular households with daily staples. In fact, they bought more than in 2019. The border business helped us get out of the disastrous billing situation in April and May ”. There was a similar trend in ferries, as previously predicted.

Greater efficiency for a fresh start

Heinemann is now preparing for the restart of air travel and the subsequent gradual improvement in retail sales that it believes will happen starting in July. “Our goal this year is 50% of 2019 turnover, with a full recovery in 2023,” said Spanger.

During this rebuild, which includes a substantial new in-store presence at Berlin Brandenburg Airport, the company plans to implement more efficiencies. These include top-selected product assortments (but reduced by 30%), stock buffers for popular products, and data-driven and buyer-centric tools.

Also launching this summer is HeiCloud, Heinemann’s in-house developed automated cloud-based platform for ordering and communicating with its distribution customers and, in the medium term, with the company’s own retail sites. The investment here, and the company’s stated intention to “develop its role as a comprehensive distribution partner”, is a reaffirmation of Heinemann’s wholesale / distribution business, which is the foundation of the 142-year-old family business.

In 2013, the wholesale business accounted for 25% of the turnover, but in line with the general trend of the duty-free trade towards a greater retail and consumer presence, that proportion fell to only 17% in 2019.

A strategic wholesale return?

Thanks to the pandemic, Heinemann’s distribution backbone returned with a stock rally to 22%. That was because among the company’s two main segments, retail had the largest drop at 68% to € 1.2 billion, while distribution fell by 57% to € 400 million. While the company did not comment on plans to further rebalance the business in favor of distribution, this could be the necessary starting point to ensure stability.

For the first time, the company is also promoting sustainable practices in all areas of the business. “We are convinced that responsibility in times of crisis and shaping a sustainable future are more important than ever,” said CEO Max Heinemann.

Efforts include, for example, successive reductions in greenhouse gas emissions at the point of sale and in logistics; apply circular economy principles in store design; a more sustainable selection of products; and reduction of plastic and disposable products.

Dirk Schneider, Heinemann’s new commercial director, said: There is a clear expectation from customers. The question is how do we implement sustainability so that travelers have the feeling that we care about people, the planet and the products. The purchase is taking a clear direction towards sustainable packaging and fair production. ”

A good example of the latter is Tony’s Chocolonely, a brand Heinemann has championed for a while, culminating in its first independent airport store recently opened in Amsterdam Schiphol.

Food service expansion

Unlike its European competitors, Heinemann has not ventured directly into foodservice. That changed last year with the launch of Smartseller, a joint venture with Frankfurt-based travel catering specialist Casualfood.

The move allows both partners to present small and regional airports with a convenience and food retail offering from a single source. “So far we have not had the opportunity to implement it, but now we will start with Munster and Leipzig airports (in Germany) and Ljubljana airport (in Slovenia),” Spanger said.

Other key strategies and operational changes that could drive sales include:

  • Regional context– move away from a uniform and branded appearance to present stores differently in each location. “Every store should become a ‘here only’ place,” Spanger said. “It is no longer about making our brand recognizable by looking the same everywhere, but different Everywhere.”
  • Duty Free Asian Center—A new retail concession at one of Macau’s new hotel complexes will open in August / September, expanding Heinemann’s presence in Greater China and giving it a foothold in a destination popular with Chinese travelers, who are steadily increasing again .
  • New subsidiary Gharage—At the beginning of the pandemic, Heinemann quietly launched this digitally biased innovation hub. Led by former Mutabor Design Creative Director Lennard Niemann, it will identify promising new business models “that build a bridge to the company’s core business.” Heinemann CEO Max Heinemann commented: “Digital natives – Generation Z and Y – shop differently and we need to penetrate these customers to a much greater extent. The future revolves around markets and we need to broaden our perspectives to ideas that outperform us outside of our industry. “

Financially, despite the revenue collapse last year, Heinemann claims to be in a strong position with its independence intact. The company entered into a syndicated loan agreement with its five major banks in January 2020, just before the start of the crisis, which gave it some leeway.

“Despite the heavy blow of the pandemic, our belief in travel retail is completely unshakeable and we intend to play a very active and co-creative role in advancing this industry. We were in an industry that was comfortable in the sense that it always went one way. The pandemic left us grounded (and) we are ready to return even stronger than before, ”said Max Heinemann.

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