Heinemann’s Limitless Horizons

By: Peter Marshall

As promised, here’s our executive summary of Heinemann’s 2018 performance. More detail on the appointment of Max Heinemann as the company’s first CEO in 140 years and the new corporate structure has already been well provided by the other trade media. We covered the company’s culture and values and Gunnar Heinemann’s outline of the company’s corporate social responsibility initiatives in our blog last month. So our focus this time around is more on the top line results, followed by commentary and analysis.

1. Group sales turnover:-

4.6 billion euros. + 11.4% on 2017.

2. Retail sales:-

3.6 billion euros, up 14.5%. Top 3 airports: Istanbul, Oslo and Tel Aviv.

3. Wholesale:-

Sluggish, but still showed +0.2% growth.

4. Total External Sales split by channel:-

Airports: 80%
Border Stores: 12%
Cruise lines & Ferries: 3%
Airlines and Catering: 2%
Other: 3%

5. Total External Sales by Region:-

Europe: 75%. Asia & Asia Pacific: 19%. Rest of World: 6%

6. Total External Sales by Categories:-

P & C: 34%. LTC: 56%. Fashion & Accessories: 8%. Others: 2%

7. Shop Openings:-

21 across Romania, Bulgaria, Russia, Lithuania, Ukraine, Germany, Turkey, China/Hong Kong, Australia, Denmark and Netherlands.
Plus 5 extended concessions in Russia.

8. New Supply Contracts:-

14 across Greenland, Democratic Republic of Congo, Togo, Benin, Ethiopia, Mali, Chad, Tunisia, Libya, Cyprus, Mauritius,
Kazakhstan, Republic of Moldova and Ireland.

Renewed supply contracts at: Croatia, Guernsey, Norway, Denmark, Faroe Islands and Finland.

Extended supply contracts: Russia, Republic of Moldova and Republic of Abkhazia

9. Tender Wins:-

Airports: Aeroporto Internazionale di Catania (2nd Terminal), Gold Coast Airport

Cruise Lines:

USA: 3 shops on Carnival Liberty, Ecstasy and Fantasy respectively, totalling 1220 sq m.

Germany: 2 shops on AIDAluna, AIDAmira, totalling 485 sq m (opening 2019). Shop on MS Amera – 80 sq m (opening 2019)

Australia: Shop on Carnival Spirit, 390 sq m.

Plus 3 shops on Royal Caribbean Cruise Line. One on 5th Oasis Class ship, opening 2021; one on 1st Icon Class ship, opening
2022; and one on 5th Quantum Class ship, opening next year.

COMMENT

According to Claus Heinemann’s opening remarks at the annual media conference held last month at Heinemann’s Hamburg head office, 2018 was a ”solid and healthy” year and the expectations for 2019 are high.

Key to Heinemann’s ongoing success as a leading TR operator lies stability, sustained through long term contracts. Yet they, like other players, have to contend with fluctuating geopolitical developments, currency fluctuations, Brexit (!) etc – it’s the very unpredictability of factors like these that can impact business.

2018, as you can see from the above, was a good year. Although Europe still represents 75% of the company’s income, there are clear signs of healthy growth from the Asia Pacific region as well as the development of Heinemann’s cruise line business. Perhaps only 3% of turnover now, it’s clearly a business sector that is being targeted and Heinemann want to add more ships to their retail portfolio this year. It may be just speculation, but an acquisition of a port-based duty free operator may also offer some synergy for them.

2018 was also a year that saw the company’s investments pay off. This was particularly true of their JV in Tel Aviv with James Richardson. With turnover of US $429 m – ahead of budget – Tel Aviv now ranks third in turnover in Heinemann’s airport portfolio.

Another JV in Russia with IDF at Sheremetyevo Airport saw a 25.4% increase – and this despite the relative weakness of the rouble. Equally, Ukraine enjoyed a 20%+ increase in turnover. Sydney was up by a further 10.2% to AUS$ 428m and Oslo steady at 4.5% growth. Copenhagen’s new shop is performing to expectations. Hong Kong’s 8 Sweet Dreams shops are also developing well. The JV in Malaysia on the border crossing with Thailand delivered solid results. Even the one dip of 5.5% in Frankfurt has largely been reversed this year.

But, of course, the largest single investment – something in the region of 100 m+ euros – was reserved for Istanbul’s new airport. Raoul Spanger, COO, stated that, as of April 6th this year, 80% of all Heinemann/Unifree’s shops are now open, with the balance of specialty and luxury shops scheduled to open by July 1st. With a total of 53,000 sq m of retail space, this is the largest duty free area in the world. Having travelled through the airport twice, the size and scale of the operation, access and overall product range is very good indeed. Unifree’s use of digital outside their main duty free stores is a real magnet and, in spite of the size, getting around the vast space is quite easy and product visibility is good. The wall and ceiling designs are particularly impressive. There is a clear invitation to enter and spend.

I liked the clustering of some of the luxury and specialty stores, too. There are, importantly, some new, high end additions, including a magnificent Louis Vuitton store, Gucci, Dior and Prada. ATU Duty Free are also responsible for 20 shops, including Hermes, Ferragamo and Bulgari. They also have an excellent new watch store, covering a wide range of brands. Overall, the retail mix at the airport is correctly balanced and, according to Raoul, the early sales figures are promising.

When the retail offering is all complete, we hope to provide you with a definitive video that encapsulates this extraordinary airport, together with interviews with all the leading players.

2018 also saw Heinemann enjoy considerable success winning new tenders within the cruise line business. This market is showing consistent growth and it makes profound sense for Heinemann to target it based on their global presence and the obvious synergies with their distribution network.

Moving onto inflight, it’s interesting to note that Heinemann are continuing to invest in this sector when a number of airlines (KLM, TAP and Qatar Airways being the latest this year) have decided to exit. Arguably, Heinemann can now grow market share in a declining market. According to Raoul, ”there will no longer be one business model for inflight and new prototypes need to be realised”. He is right. But given Heinemann’s mission to serve customers wherever they are, it makes sense currently to cover all markets and moving targets.

Aligned to this thinking, according to Kay Spanger, Heinemann’s new priority is one of true commercial effectiveness. In mapping out his strategy as CCO, it is becoming clear that there is a need for the company to be more selective in a more dynamic marketplace, to set a ‘new tone’ for their business partnerships. ”Support comes with support”, he said. Interestingly, he also stated that pricing is not necessarily the most important criteria, though clearly still important. What he wants to see is more creativity, something from suppliers that surprises and inspires. A good thing – for both the retailer and their customers!

So, change is afoot at Heinemann. As ever, it’s more evolution with them, not revolution. But there is a clear and identifiable shift in their thinking and we look forward to covering their retail stories as the company seamlessly moves into its fifth generation.