Heinemann: How the duty-free retailer gets through the pandemic

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He last flew last autumn - Max Heinemann was traveling in Germany with his family of five.

For a year now, the entrepreneur has been spending most of his time in the family company's office building in Hamburg's Hafencity.

Traveling would be the most natural thing in the world for Heinemann, especially during his ten years in Singapore for the company he was on the road a lot.

The 38-year-old is the CEO of the duty-free dealer of the same name at airports, on cruise ships and at certain national borders.

No dealer is bigger in Europe, there are only a few worldwide.

But for the past 15 months, sales have more than halved, and some of the stores are closed, as is the case at the largest location in Sydney.

Hardly anyone else knows as directly as junior boss Heinemann what the pandemic can do with a business that has been dynamic for years.

"We have been trying to manage day-to-day business as well as possible since last March," says Heinemann in an interview that he is holding in a small sales exhibition at the company headquarters.

"Determination and unity" is what he calls the strengths of the family company.

After the outbreak of the pandemic, the trading company Heinemann was immediately affected by the worldwide closings and lockdowns with 600 of its own shops.

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At the moment, the duty-free retailer, like the entire travel industry, is completely dependent on the decisions of politics, especially when it comes to restarting.

"This goes hand in hand with a certain powerlessness," says Heinemann cautiously.

Max Heinemann is the fifth generation to run the family company founded in 1879

Source: Wolfgang Stahr

As of April, half of the shops were closed.

He criticizes, for example, the internationally different risk assessments and procedures for test and quarantine regulations.

In Germany, the manager would like politics to adopt a different tone when it comes to mobility.

"If travel is demonized, it will be difficult for us even after the pandemic," he says.

In the 2020 financial year, Heinemann claims to have lost 70 percent of sales in Germany, while the global decline was 65 percent.

Spirits, cosmetics, cigarettes and even sweets remained on the shelves.

Textiles or electronics in the brand shops are usually only stored because there are no customers.

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The hope now lies in the rest of the year.

"Even if we came under massive pressure again in the first three months, our goal is to achieve half of the sales of 2019 again in the current year," says Heinemann.

At that time the turnover was 4.8 billion euros, no turnover is mentioned for 2020.

Many airport shops at around 200 locations have remained open over the past few months.

Sometimes this is necessary so that passengers can even get to the gate.

For Heinemann, this means that the low sales do not even cover personnel costs.

The situation is currently changing almost daily.

“There is only a complete standstill at very few locations,” says Heinemann.

The company depends 70 percent on the turnover of the airport business.

Heinemann has agreed other rental conditions with some airport operators.

The differences are huge.

While airport business is only getting off to a minor start in Germany or Australia, it is already picking up again in Israel, New Zealand and Singapore.

Everywhere there, Heinemann is represented in large areas.

Timid opening at German locations

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"At the German locations, the opening of the flight market is proceeding cautiously, in other countries such as Turkey or Ukraine there is already more travel activity," says Heinemann.

Around eleven percent of sales come from the home market.

He accuses the government of lacking a clear strategy for testing for Sars-CoV-2 and also for vaccinations.

However, it is precisely these steps that are crucial.

While the large cruise ships on which Heinemann supplies or operates shops are stuck in the ports of the USA, business on the passenger ferries in Scandinavia is starting up again.

Around ten percent of sales come from the cruise industry and passenger ferries.

The approximately 200 duty-free shops at national borders are also already in operation.

Heinemann is represented in countries such as the Czech Republic, Austria, Romania, Bulgaria and Georgia.

In contrast, the business for the military and the diplomatic service only makes up a small share of sales.

For example, the Bundeswehr is mainly supplied with its foreign missions or the Vatican.

All of this also has far-reaching consequences for employment.

Last year, a good two thirds of the workforce in Germany were on short-time work, currently it is around half.

In addition, there was an extensive workforce reduction of around a third to around 2000 employees in Germany.

"We are already converting some of our shops"

Dismissals were avoided through a so-called volunteer program.

The reduction was similar worldwide; before the pandemic, around 5,000 employees were working abroad.

It particularly affected Sydney, Heinemann's largest airport location next to Istanbul.

Australia prohibits almost all international flight connections.

Now it should stay with the number of employees.

"We no longer assume that there will be further personnel measures," says Heinemann.

In addition to short-time work, Heinemann has not yet used any other state aid.

"We did not use loans from the KfW banking group," says Heinemann.

In the past, the family business “managed extremely conservatively” and used the profits for security and investments.

However, Heinemann claims to be examining further aid programs from the state in order to be able to get back part of the lost sales.

A possible amount is not mentioned.

Discussions about this, for example with the Hamburg state government, are simply said.

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After the pandemic, the world of travel will be different.

“We are already converting some of our shops.

Customers want more space when shopping, ”says Heinemann.

The time of narrow sales gondolas or built-in shop elements is over.

Business had been in decline for five years

But even before the crisis, not everything was going well in the business.

"For five years now, sales in Europe have been falling, if you calculate sales per passenger," says Jost Lammers, President of the umbrella association of European airports, ACI Europe.

Buying behavior has changed, and the price argument in duty-free shops is no longer decisive, especially for younger customers.

“After the pandemic, there will be no going back to normal for retailers.

Serious changes and new concepts are required, ”says Lammers, who is chief executive officer of Munich Airport.

Great efforts are required to get back on the road to success.

Assortment structures and forms of presentation would have to change.

"Customers expect an emotional approach, there has to be a leap in evolution in retail at the airport," says Lammers.

This also includes shopping, where goods are purchased at the airport but not physically taken away.

Instead, they are sent to the home address.

“This is transforming the airport into a virtual platform for retailers,” says Lammers.

“The retail sector has come under pressure, but it will remain a very important component of the entire airport business in the long term,” says Lammers.

Germany is no exception.

All airports in Europe needed income from duty-free shops, for example, as an important source of income.

The goods are actually cheaper when traveling to other EU countries due to the elimination of customs duties and taxes.

This does not apply within the European Union.

There the duty-free dealers work with price advantages over size - for example with one-liter spirits bottles.

The manufacturers also make certain offers exclusively for airport or cruise sales.

For the British, this means that after Brexit they can now shop in Europe duty-free.

Amsterdam, Vilnius and Berlin are considered airports with a high proportion of British passengers.

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In Europe, the Swiss group Dofry, in which the Chinese online retailer Alibaba has a stake, and Lagardère Travel Retail from France are important competitors of Heinemann.

Several corporations from Asia such as China Duty Free, Shilla Duty Free from South Korea, Lotte Duty Free from Singapore, DFS Group from Hong Kong or Duty Free King Power from Thailand are pushing into the business.

"There will probably be further consolidation in the travel retail business," says Heinemann.

What is meant is the retail business with travelers.

Asian investors are likely to be the starting point.

From Singapore, the Hamburg-based company is active in Australia, Indonesia, Malaysia and Hong Kong.

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