The American beauty multinational reported in its fiscal 2023 first quarter (Q1) results that global travel retail net sales decreased by double digits, as a result of the ongoing travel restrictions in China that led to reduced travel, particularly to Hainan Island.
Hainan is a major holiday destination in China. Over the past couple of years, the island boomed has beauty pivoted to save the weakened travel retail market during the COVID-19 pandemic.
Lately, however, the tourist-dependant island has been curtailed by China’s strict COVID-19 movement restrictions. According to Estée Lauder, traffic on the island is now minus 70%.
“Our global travel retail business declined as the ongoing COVID restrictions in China curtailed travel to Hainan. Stores there were closed for most of the quarter and traffic has been slow to return resulting in lower shipments as we support stricter inventory management with certain retailers,” said Estée Lauder Companies executive vice president and CFO Tracey Thomas Travis.
Speaking during the firm’s Q1 earnings conference, Travis said the firm was not expecting a full recovery by the fourth quarter (Q4) of its fiscal year.
“In terms of Hainan, no, we don't anticipate that Hainan will be fully back to normal in Q4. Much improved, but not fully back to normal. And so, we are now looking at fiscal 2024 for traffic to recover. And again, it's a guesstimate at this point in time.”
Travis added that Hainan’s recovery has been more sluggish than expected so far but reaffirmed the firm’s commitment to the travel retail mecca.
She highlighted exciting developments in Hainan, including the new Haikou International Duty-Free City by China Duty Free Group (CDFG), where it unveiled brands including Estée Lauder and La Mer.
“So, the recovery obviously has been slower than I think all of us have anticipated, but we do know that there is a commitment by the retailers in Hainan and certainly the area in general to get back to fantastic growth. They just opened a new mall, so it is still an exciting travel destination, and we look forward to the recovery.”
The decline of Hainan had an impact across the firm’s business in the three months ended September 30.
Skin care net sales reflected the prolonged restrictions and declined by 11%. Colour cosmetics net sales decreased by 6%, hindering the progression of the “make-up renaissance”.
Conversely, travel retail net sales grew in Europe, the Middle East and Africa and The Americas as professional and personal travel resumed.
Travis said the company expects organic sales for the second quarter to fall 11% to 9%, “primarily reflecting the continued risk of disruption in Hainan”.
Overall, the company’s net sales decreased by 11% on a reported basis to USD3.93bn while operating income declined 29% to USD668m.