From DFS to
Avolta, duty-free stores selling premium perfumes and spirits to
big spenders are feeling the pinch as conflict in the Middle
East shuts airports and curbs travel to the region, a setback
likely to become more acute as the war drags on.
The disruption now in its sixth week exposes a vulnerability
for luxury and beauty groups that have relied on airport
shopping and Gulf hubs – among their highest-margin channels –
to offset weaker demand in China and Europe, making even
short-term airport closure a potential drag on quarterly profit.
Analysts have said a prolonged slump in West Asia air
traffic could compound pressure on a travel-retail industry
still recovering from the COVID-19 pandemic, squeezing
underperforming businesses such as LVMH’s DFS and
weighing on prestige beauty and luxury firms including Estee
Lauder, Puig and L’Oreal.
International flights to and from West Asia plummeted
in the first half of March. While some airlines in the United
Arab Emirates are slowly restarting, flights remain well below
normal levels.
Flight cancellations from West Asia, excluding Turkey,
decreased from their peak of 65 per cent on March 3 to 13 per cent on March 27,
showed data from Cirium, but the number of flights scheduled has
also fallen.
DFS “is costing two (percentage) points of growth” for its
selective retailing division, which includes beauty brand
Sephora, LVMH Chief Financial Officer Cecile Cabanis told
analysts this week.
The conflict shaved at least 1 per cent off group sales in the
latest quarter due to lower spending in the Gulf region, LVMH
said.
“What we see today is still that demand is very much down,”
Cabanis said.
Drone strikes shutter gulf hubs
Companies that operate in the $74 billion travel-retail
industry have been shifting inventories and temporarily closing
airport stores in the region. Normalcy for luxury airport shops
may take time, analysts said.
Dubai International Airport, whose retail outlets include
L’Oreal’s Aesop, Kering’s Gucci and Estee’s Jo Malone,
is operating a reduced number of terminals after a drone attack
forced the hub to temporarily close. Kuwait International
Airport has been shut due to repeated drone strikes, halting
sales for airport outlets owned by Avolta and Boots
.
Avolta, which earns 3 per cent of revenue from the Middle East, is
moving inventory from locations with slower sales to those with
more foot traffic, CFO Yves Gerster told Reuters. Still, partly
shuttered airports in some instances were leading to strong
sales of food and other items for stranded travelers, for
instance at Dubai airport, Gerster said.
Kering CFO Armelle Poulou told Reuters after the company’s
first-quarter earnings report that travel retail was slightly
down compared with last year, and that “performance with local
customers has been more resilient than tourism-related demand.”
The conflict shaved 3 per cent off overall Kering sales in March, or
1 per cent for the quarter, with a similar effect at Gucci in
particular, Poulou said.
Investors will keenly watch out for Estee’s quarterly
results on May 1, as the firm explores a $40 billion acquisition
of Spanish competitor Puig, which derives a tenth of sales from
travel retail. That makes it one of the more exposed beauty
companies to swings in airport shopping and international
travel, analysts said.
L’Oreal, whose travel-retail business in Asia accounted for
less than 4 per cent of the company’s $44 billion in 2025 sales, is
scheduled to report quarterly results on April 22. The company
does not provide total travel-retail sales, although analysts
said Asia accounts for the largest share.
Estee Lauder and L’Oreal declined to comment. Puig was not
immediately available for comment.