Gebr Heinemann reports -67% fall in 2020 revenues; underscores financial independence and long-term commitment to travel retail market – The Moodie Davitt Report


GERMANY. Leading family-owned travel retailer Gebr Heinemann today underlined its long-term commitment to the travel channel and travel retail market as it revealed a -67% year-on-year fall in 2020 turnover  to €1.6 billion. The company said it expected business recovery to begin in the second half of 2021, with further improvement in 2022 as travel markets reopen.

Platform for a new future: Gebr Heinemann Executive Board members (from left) Chief Operating Officer Raoul Spanger, Chief Financial Officer Stephan Ernst, Chief Commercial Officer Dirk Schneider and CEO Max Heinemann

“We firmly believe in the travel market and are setting our organisation up for the restart, ready to come back even stronger than before,” said CEO Max Heinemann. The company said that it had worked on several strategic, operational and financial initiatives to steer the future of the company and the travel retail marketplace, in close cooperation with airports, global brands and suppliers, employees and banks.

Members of the Executive Board took part in an online press conference this morning to outline performance over the past year, and offer their insights about how recovery may take shape. Key themes addressed by senior management were the integration of corporate responsibility into the wider strategy; the evolution of a more streamlined product assortment; investment in digitalisation and negotiations with airport and other partners.

Crucially, Heinemann said that an evolved tender model should be developed, with ‘red lines’ that avoid minimum guarantees in crisis times, and stepped tiers for concession payments based on passenger traffic. The company also underlined its continuing financial independence and family-led control of its future.

Blending the physical and virtual: Gebr Heinemann senior management greet media from around the world at the press conference on Tuesday. From left, Max Heinemann, Dirk Schneider, Raoul Spanger, Claus Heinemann and Jennifer Cords

2020 performance

The €1.6 billion turnover figure compares to €4.8 billion in 2019. Retail turnover fell by -68% to €1.2 billion, with the distribution business down by -57% to €400 million.

With a 63% share of turnover, business at airports was the largest segment by channel. This was followed by the border channel at 21%. By category, liquor, tobacco and confectionery accounted for 55% of group sales, followed by perfumes & cosmetics with 33% and fashion & accessories with 9%. Europe remained the largest region by sales at around 80%, followed by Asia Pacific (10%), Middle East (5%), Africa (4%) and the Americas (1%).

From their Hamburg base, the Heinemann management group takes questions from industry reporters during the virtual event; below, Claus Heinemann captured on screen during the discussions

Corporate responsibility

For the first time, Gebr Heinemann combines its Annual Report and Corporate Responsibility Report

Heinemann management said that the company has embedded corporate responsibility and sustainability more than ever into its wider strategy through the crisis.

Max Heinemann said: “Part of our understanding of creating the future is our commitment to corporate responsibility and responsible travel retail. We are convinced that responsibility in times of crisis and, above all, shaping a sustainable future for Gebr. Heinemann are more important than ever.”

The company today published its first integrated Annual Business & Corporate Responsibility Report, which it said underlined a determination to make progress on its journey towards more responsibility in the travel industry, and to embed corporate responsibility in all business areas.

The company is advancing its sustainable business strategy across all areas. These include, for example, the successive reduction of greenhouse gas emissions at the point of sale and in logistics; the consideration of the principles of the circular economy in its shop design; sourcing a more sustainable product selection; reducing plastic and disposable products, such as single-use bags, bottle protectors and gift wrap; as well as a more sustainable supply chain with high environmental and social standards.

Financial independence “unimpaired”

For the first time in its over 140-year history, Gebr Heinemann noted that it was forced to make “severe cutbacks” in all areas in 2020, cutting costs while maintaining liquidity. After the global closure of nearly all retail sites and the standstill of the distribution business, all sources of income “almost completely dried up”.

The retailer explained that this meant streamlining the product range, negotiations on conditions with landlords and suppliers, and personnel measures. Worldwide, the company was forced to let go of around one-third of its employees – which it described as “a stab in the heart for the family business”.

A snapshot of performance in 2020; below, new or extended retail and supply contracts over the past year; click to enlarge

Chief Financial Officer Stephan Ernst said: “Despite suffering very great losses, we are financially well equipped. We have managed well and have always acted with sufficient care regarding new projects and investments in the past. In addition, we concluded a syndicated loan agreement with our five principal banks in January 2020 just before the onset of the crisis. This provides us with financial security in the long term, while giving the company room to manoeuvre. Our objective is to continue enjoying the high privilege of financial independence and to remain in control of our company’s future.”

H2 2021 recovery anticipated

In 2020, Heinemann reported a +12% increase in turnover in January and February, before the pandemic hit, but management noted that the impact came across all territories and channels.

Chief Operating Officer Raoul Spanger said: “The 2020 business year was yet further affirmation that we are better off using different channels to balance risks more effectively. As a globally operational business, the pandemic has hit us hard everywhere. But it is this broad regional footprint in almost every form of travel – be it air, sea or land – that is now helping us reboot our global business.

The company is now expecting a gradual pick-up in travel with the 2021 Summer flight schedule. This will be aided by progress in vaccinations and the introduction of ‘travel bubbles’.

Depending on travel restrictions and developments pertaining to the pandemic, some airport shops have already partially or temporarily reopened. Some airports where Gebr. Heinemann is operating are currently only open for local travel. Less affected than those in northern or western Europe, the company said, were airports in Moscow, Istanbul and Kiev. Walk-through shops were also allowed to open in some cases to better control and distribute passenger flows, for example in Frankfurt.

The retailer takes pride in its major opening of 2020, at the new Berlin Brandenburg Airport, though traffic and business levels remain low for now; Sense of Place in design and offer was a key consideration here

Despite fewer travellers and a lack of high-spending shoppers, notably from Asia, there were some encouraging signs, said the company, with average spends rising by +20% to +50% depending on the location, as pent-up demand drove sales higher. Other positives included the opening of the new Berlin Brandenburg Airport and an extension of the contract at Vilnius Airport.

In the Heinemann Duty Free shops at Berlin, the company has installed a strong Sense of Place concept, based on products and influences from the region. Management stressed that this would be a key feature of its operations in future, with all airport stores to reflect their local city or region.

“Our aim is to present ourselves differently at each location. The motivation is to highlight differences that are clearly visible to the customer. Every store must become a ‘just here’ place. It’s no longer about making our brand recognisable by looking the same everywhere, but by looking different everywhere,” said Raoul Spanger.

The launch of Smartseller, a joint venture founded in 2020 with travel catering specialist casualfood, offers regional airports an option by combining retail with F&B. This flexible concept will be deployed in more locations, said the retailer, with stores planned in Munster, Leipzig and Ljubljana.

Smartseller: A partnership combining retail and dining that is tailor-made for regional airports, says Gebr Heinemann

Asia Pacific will also be a region of further focus, said management, following a contract extension in Sydney in early 2020, plus business in Malaysia and Hong Kong and on cruise ships, alongside its distribution arm.

The company is set to open its first downtown duty free store, led by a strong P&C offer, at one of Macau’s new hotel resorts (Lisboeta Hotel), this Autumn, with 780sq m of space.

“The shop will expand Gebr. Heinemann’s presence in Greater China and at the same time give the company a foothold in a very popular destination for Chinese travellers,” said the company.

Border shops recovery; cruise and inflight opportunity

Gebr. Heinemann said it expects the border shop business – as in Summer 2020 – to return to its original level “relatively quickly once the easing of travel restrictions takes effect”. The company’s operations in Bulgaria and Romania performed well, it said, even exceeding sales the previous year. It said a similar picture emerged in the Czech Republic, Slovenia and Croatia despite some closures. However, in Russia, Belarus and Georgia, sales came to a halt due to border closures and lockdowns.

Border bounceback: The company said that strong road traffic across key frontiers in Europe helped sustain its business last year (Osinów Dolny in Poland pictured)

Gebr Heinemann said it continued to build cruise partnerships, securing additional contracts. The company will be operating stores aboard several newly built ships that are planned for later this year and in 2022: the Odyssey of the Seas, the Icon of the Seas and the Wonder of the Seas from Royal Caribbean, the Mardi Gras from Carnival Cruise Line and the Enchanted Princess from Princess Cruises.

Although there remains uncertainty about a return to sailing, the retailer said that interest among the loyal cruise community remains high. Additionally, it noted, in the next 18 to 24 months, fewer ports will be visited and more time will be spent onboard – “a huge positive for onboard retail operations”.

In the ferry business, besides Scandinavian routes, which performed well last Summer, ferry shopping between the UK and France is also expected to recover quickly, with new duty free routes created in the English Channel by Brexit.

With inflight retail hard hit last year, Heinemann said that its Inflight & Catering sales division used the crisis to design a new home delivery project for its airline customers. It means the web shop of the airline or of the onboard retailer can act as the front-end interface for the customer, while Heinemann will fulfil the order.

Other digital solutions are also in planning, both internally and externally. The company has created HeiCloud (‘Heinemann Cloud’), a web-based communication platform to automate and streamline order processes between Gebr Heinemann and its distribution customers – as well as, in the medium term, with the company’s own retail sites.

“The development of this platform reaffirms the company’s firm belief in the distribution business and the potential of this sales area. Additionally, Gebr Heinemann is further developing its role as a holistic distribution partner by supporting customers in their expansion with purchasing, retail, marketing and logistics expertise.”

Towards a “more efficient assortment”

As noted above, the company reassessed its ranges in light of the pandemic, identifying a strong core offer that will be the focus in the short term.

Chief Commercial Officer Dirk Schneider said: “Two key aspects are important to us for our assortment: the extraordinary and regionality, both which will help us to create wow effects and achieve the best possible sense of place. In the future, Gebr Heinemann will stand out even more as the curator that always arranges and presents new, exciting ranges to inspire travellers.”

The streamlining of the assortment will continue, said Dirk Schneider (right), adding that differentiation and exclusivity remain vital; also pictured at the press conference today are (from left) Raoul Spanger, Max Heinemann and Claus Heinemann

The streamlined range will ensure fast and flexible fulfilment of demand, even during volatile periods, said Heinemann.

Schneider added: “Travel retail will continue to be one of the highest-quality platforms for brands, strengthening their image and providing them with excellent visibility. However, this marketplace has to be developed in order to impress with a distinctive profile in the new reality of travel.” To curate an assortment for travellers with a clear distinction versus the online and domestic markets, Gebr Heinemann said that its category strategies will embrace changing consumer demand.

It said: “The desire for responsible consumption and a sustainable, healthy lifestyle is growing within society and an increasing number of consumers are making their purchasing decisions on this basis.” In beauty, this is reflected in an extended ‘clean beauty’ offer, with a range of high-performance products that benefit both the body and the environment. In liquor, tobacco and confectionery, healthy snacking will become a key element. Travel retail exclusives will remain “extremely important” for the travel market, as will price advantages, it added.

Supply chain management

Efficient supply chain management and closer partnerships with suppliers and partners facilitated the restart, with the company saying it used the crisis to “critically examine structures along goods distribution chains and press ahead with advancements in forecasting, inventory management and warehouse processes”. The result is an increase in efficiency, in product availability and costs, as well as increasing digitalisation of processes, said the retailer.

Smart data will be key for the future, it added. Schneider said: “It is not about quantity, but about the use of data. This presents us as a retailer with a huge opportunity to become a more comprehensive and trusted travel companion throughout the customer journey. We are currently pursuing some big opportunities for the excitement of our customers.”

The company is moving forward with digital shopper-centric services, such as an enhanced Heinemann & Me Loyalty Programme. The retailer said: “The goal of the loyalty programme is to ensure that members have particularly positive experiences and are surprised by what Gebr Heinemann has to offer – with regard not only to products but also to inspiration, services and individual interaction.”

Shaping a new travel retail market

Gebr Heinemann management said the company is “setting the course to shape a different travel retail market and to define its role in this new market. At the centre of all its efforts is the drive to create new, future-proof models of marketplace collaboration and to build an even more magical shopping experience.”

With this in mind, the company said it is working on building the bridge between its physical and online presence to create a “seamless, efficient and rewarding customer journey”. While the brick-and-mortar business will remain a necessity, it also aims to become “an omnipresent digital travel companion”.

The company therefore said it will invest further in new technologies as well as the physical marketplace. With its subsidiary GHARAGE, launched in March 2020, Heinemann is working on several projects to diversify its retail and service offering to meet the omnichannel needs of younger and new target groups in particular.

One example is the current testing of KOALA, a digital payment provider, allowing customers to scan and pay for items with their smartphone and leave the shop via a fast lane. In addition, the innovation hub GHARAGE is currently identifying and establishing promising “new business models, new brands and memorable experiences that build a bridge to the company’s core business”.

Max Heinemann said: “We are reshaping the travel retail ecosystem with the aid of increasingly sophisticated technology. It’s about the entire offer – the big picture of how we engage with travellers and how we see the balance between offline and online, physical and digital. We are looking to the future and we are well prepared for it. The Group, the family shareholders and all employees are fully committed to the future of travel retail. Gebr Heinemann has a long and successful history ahead of it.”

Building on a rich history: Gebr Heinemann headquarters in Hamburg

What they said: Views from the Board

Max Heinemann on managing crisis: “This is the toughest year that we have ever experienced. But this is a time where responsibility, whether social or corporate, should be written in bold letters. If you want to co-create the future of travel retail, as we intend to do, you need to commit to our general corporate social responsibility principles.

“What did we do in 2020? One, we tried to understand the crisis and its impact. Two, we tried to manage the crisis rather than being managed by the crisis. Three, how do we use the crisis?

“We had to be extremely resolute, and cope with tough changes. We had to pull the lever on safeguarding liquidity, cross-cutting numerous negotiations, and we had to put all of our employees into short-term work schemes in areas and regions where that was possible. We switched into mobile working from one day in the middle of March, we experienced job cuts across various locations globally. and were communicating basically only via digital.

“But despite these challenges, we moved much closer together. This is basically our biggest strength, that our success is built on how close we are working together and how we collaborate. So that came to fruition in the past 15 months. Our people’s wellbeing is key. Our biggest challenge was to ensure our employees were safe, meeting the challenges personally and professionally.

“Our answer to all of that was transparent communication. And I can say communication was something that we got really strong at, having everyone onboard and making sure that everybody understands at what stage we are in this crisis and how we intend to manage it, and what are the decisions that we are possibly having to make. In 2018, we started a restructuring process, putting the sales channels together and organising our company in on a regional basis. We then had a timeframe of around three to five years to take it to the next level but the crisis accelerated that process.”

Claus Heinemann on resilience and people: “In our 142-year history we have experienced two world wars, 9/11, the battle to save duty free, and many other crises. This one has been special as it affected our channels worldwide, and all product categories. I’m doing this with my cousin Gunnar for 42 years. I said to him, ‘it was easy being best friends when we had success but how would it be when we had losses and tough times?’ I can tell you that Gunnar is still my best friend.

“It’s not only our relationship, it’s the strong relationship within the whole family. Our company now represents ten shareholders, four senior and six young ones. All of them have a lot of understanding about this crisis. And for a family company it is extremely important to give this message to all our stakeholders, whether it’s the banks, the landlords, the customers, but especially to our employees. And it helps the board very much when they know that also the family members are behind them.

“We did an employee attitude survey and I was surprised at the high level of motivation and loyalty of those who stayed with us. To motivate the people is so important. We have restructured and I am my cousin are now non-executive board members – but we will become stronger once business starts again.

“The positive thing is that the company is solidly financed and we do not have greedy shareholders. We were always shy in distributing dividends and this helps us very much now. It also helps that we made a syndicated loan agreement with our five principal banks. So there remains trust in us and they too believe in our future.”

Raoul Spanger on Heinemann’s contractual ‘red lines’: “What is the red line for Heinemann in the future? Fixed guarantees should be avoided in all contracts. There should be no guarantees at all in major crisis situations like a pandemic, when turnover falls to the bottom. A period of crisis should be added to contract duration to safeguard investments [by the retailer]. So if you have just invested a huge amount of money, one or two years should be added automatically to the contract.

“The concession fee model is the most difficult one. It should be based on the agreed business plan and should be stepped in tiers. That means you have a clear agreement: if you have only 70% of the business plan turnover, the concession fee is X percent lower, if it’s only 40% Y% lower, if it’s even less Z% lower.

“On the other hand, in good times, we have also seen traffic boosted in good times too. So that should also be positive for the airport. So, maybe you have five new airlines from Asia and the turnover jumps, them the tiered model should also be positive for the airport. This is what we are discussing and proposing individually, but also in a wider sense, because we believe the industry standard has to adapt after this crisis. We cannot go on as we have done in the past.”

Family spirit: Communicating consistently and often across all levels of the company has been a vital tool to maintain morale; pictured are Claus, Gunnar and Max Heinemann

Raoul Spanger on Cannes 2021: “Heinemann has a clear position on TFWA in Cannes. We will be there with a senior team, a smaller team adapted to the event. The event will be smaller and that is OK. Some companies will invest, some will not come. But it is high time that we restart the personal dialogue, and Cannes will be a starting point for this and for 2022.”

More coverage to follow, with a full report to appear across our platforms in coming days.

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