By Arriana McLymore, Helen Reid and Tassilo Hummel
NEW YORK/LONDON/PARIS, April 15 (Reuters) - 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 Middle East 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 the Middle East 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 the Middle East, excluding Turkey, decreased from their peak of 65% on March 3 to 13% 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% 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% 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% off overall Kering sales in March, or 1% 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% 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.
(Reporting by Arriana McLymore in New York City, Helen Reid in London and Tassilo Hummel in Paris; Additional reporting Doyinsola Oladipa, Elisa Anzolin and Dominique Patton; Editing by Sayantani Ghosh and Christopher Cushing)
