A surprise victory in the event of a pandemic for the border stores of one of the largest tour operators in the world
It’s easy to forget that the duty-free channel isn’t just about airports – and the pandemic has made that clear. In Asia, offshore sales in downtown Hainan exploded, attracting the attention of players like Alibaba and the Chinese department store groups, while stores at Hong Kong International and Singapore Changi airports were deserted.
At the global tour operator Gebr. Heinemann, based in Germany, a similar story unfolded, this time in border duty free shops. The company attracts almost no attention under normal circumstances, but it made its mark during the pandemic by doubling its share of the company’s sales from 12% in 2019 to 21% last year. Airports have grown from their dominant share of 78% in 2019 to 63%.
Granted, 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 advantage has caused a significant change that may not be so temporary if international airport traffic does not resume. this year. And this is a segment in which European competitors like Dufry (with total turnover of 2.4 billion euros in 2020, down 71%) and Lagardère (down 60% to 1.7 billion euros) do not play a significant role.
Border stores have always been the second channel after airports for Heinemann and the company expects them to return to their 2019 sales level fairly quickly.
Exceeding previous year’s frontier sales
Heinemann’s border business is mostly concentrated in Eastern Europe where the generally less restrictive Covid-19 regulations have allowed stores to thrive on multiple borders, particularly in the summer of 2020.
In a report, the company says, “When international travel stopped, shopping at border crossings became increasingly important. The company’s operations in Bulgaria and Romania performed very well during this period, partially exceeding sales in the previous year.
The situation was similar in the Czech Republic, Slovenia and Croatia, despite business closures that lasted for several weeks. But this was not the case further east. In Russia, Belarus and Georgia, retail and distribution activities have almost completely come to a halt following severe shutdowns.
In a Zoom call with a reporter this week, COO Raoul Spanger admitted that the channel mix helped the company last year. “2020 was a new assertion that we had better use different channels to balance risks more effectively,” he said. “Our first ramp-up started in June and July 2020 and it was the border activity.
“We had a lot of traffic and these stores helped support ordinary households with the daily necessities. In fact, they bought more than in 2019. Cross-border trade helped us out of the dire turnover situation in April and May. There was a similar trend on ferries, as previously expected.
More efficiency for a new start
Heinemann is now gearing up for the reboot in air travel and the subsequent gradual improvement in retail sales which he says will occur from July. “Our goal this year is 50% of 2019 revenue, with a full recovery in 2023,” Spanger said.
During this reconstruction, which includes a substantial new store footprint at Berlin Brandenburg Airport, the company plans to build more efficiency. These include better organized (but reduced by 30%) product assortments, stock buffers for popular products, and customer-centric and data-driven tools.
HeiCloud will also launch this summer, the automated cloud platform developed in-house by Heinemann to order and communicate with its distributor customers and, in the medium term, with the company’s own retail locations. The investment here – and the company’s stated intention to “develop its role as a holistic distribution partner” – is a reaffirmation of Heinemann’s distribution / wholesale business, which is the foundation of the family business. 142 years old.
In 2013, wholesaling accounted for 25% of turnover, but in line with the general duty-free trend to strengthen its presence with retailers and consumers, this share fell to just 17% in 2019.
A wholesale strategic comeback?
Thanks to the pandemic, Heinemann’s distribution backbone has made a comeback with equities rebounding to 22%. Indeed, among the two main segments of the company, the retail trade saw the largest decrease with 68% to 1.2 billion euros while the distribution decreased by 57% to 0.4 billion euros. euros. While the company has not commented on plans to further rebalance the business in favor of distribution, this may well be the basis it will take in the future to ensure stability.
For the first time, the company is also advancing sustainable practices in all areas of the business. “We believe that being responsible in times of crisis and building a sustainable future is more important than ever,” said CEO Max Heinemann.
The efforts relate, for example, to successive reductions in greenhouse gas emissions at the point of sale and in logistics; apply the principles of the circular economy in store design; a more sustainable selection of products; and reduction of plastic and disposable products.
Dirk Schneider, new sales manager at Heinemann, said: There is a clear expectation from customers. The question is, how do we implement sustainability so that travelers feel that we care about people, the planet and the products? Purchasing is clearly oriented towards sustainable packaging and fair production.
A good example of the latter is Tony’s Chocolonely, a brand that Heinemann has championed for some time, culminating with its first freestanding airport store recently opened at Amsterdam Schiphol.
Expansion of the restoration
Unlike its European competitors, Heinemann did not directly venture into the restaurant business. That changed last year with the launch of Smartseller, a joint venture with Frankfurt-based travel catering specialist Casualfood.
This operation allows the two partners to present to small and regional airports a proximity and catering offer from a single supplier. “So far we have had no chance to deploy it, but we will now start with the airports in Munster and Leipzig (in Germany) and the airport in Ljubljana (in Slovenia),” Spanger said.
Other key strategic and operational changes that could drive sales include:
- Regional context– move away from a uniform and branded look to present stores differently in each location. “Every store has to become a ‘right here’ place,” said Spanger. “It is no longer a question of making our brand recognizable by being the same everywhere, but by looking different all over.”
- Asian city center duty free—A new commercial concession at one of Macau’s new hotel complexes will open in August / September, expanding Heinemann’s presence in Greater China and giving him a foothold in a popular destination for rising Chinese travelers in power.
- New Gharage subsidiary—At the start of the pandemic, Heinemann discreetly launched this digital-oriented innovation hub. Led by the former Creative Director of Mutabor Design, Lennard Niemann, it will identify promising new business models “that bridge the gap to the core business of the company”. Heinemann CEO Max Heinemann commented: “Digital natives, Gen Z and Gen Y, buy differently and we need to penetrate those customers to a much greater extent. The future is about the markets and we need to broaden our perspectives to ideas beyond our industry.
Financially, despite the collapse in income last year, Heinemann claims to be in a good position with his independence intact. The company entered into a syndicated credit agreement with its five main banks in January 2020 just before the onset of the crisis, giving it some leeway.
“Despite the hard blow of the pandemic, our belief in retail is totally unbroken and we intend to play a very active and co-creative role in moving this industry forward. We were in an industry that was a bit comfortable in that it was always going in one direction. The pandemic has anchored us (and) we are ready to come back even stronger than before, ”said Max Heinemann.