Powered by fall’s red-hot launches, the $2.5 billion U.S. fragrance market is turning a corner with the probability of a strong fall in the offing, thanks to a bumper crop of designer fragrances. But after years of steep decline, the market remains mired in problems lurking beneath the newly optimistic surface.
This story first appeared in the May 20, 2011 issue of WWD. Subscribe Today.
This turnaround in the making seems to have been triggered by a shift in thinking of fragrance manufacturers and retailers alike, both of whom are beginning to test the waters of a fundamental change in strategy. Manufacturers are focusing more closely on classics, which are largely driving sales in this consumer atmosphere of recessionary uncertainty. Thus, the frenetic launch pace has cooled and newness is being framed in terms of core brand values, providing offerings with a familiar resonance. “Everyone has gotten sharper in the execution of launches,” says Donald J. Loftus, leader of Procter & Gamble Prestige. He was referring to an apparent scaling back of introductions to produce more impact—a concept championed by P&G—and giving more visual display weeks in the department stores to existing and classic brands. Loftus notes that last year, P&G launched one women’s and one men’s fragrance. “We’ve had years when we’ve launched 18 fragrances,” he says. As a result, there has been a noted uptick in innovation in the market, and “we are much more positive. It is a good signal for Christmas.”
The other pivot point has been at retail. While manufacturers generally agree that a lackluster retail environment is half the industry’s problem, stores, notably Nordstrom and Sephora, are answering the call by putting more emphasis on scent, either by adding selling space or reinvigorating the approach on the fl oor, or by producing a crisper, cleaner and far more imaginative merchandise presentation.
After surveying its customers, Nordstrom has made some strategic adjustments, according to Laurie Black, executive vice president and general merchandise manager of cosmetics. “We were able to grow the fragrance business in a really big way,” she says, ticking off a number of changes, notably the store’s approach to sampling, demonstration and training. Now a customer is handed a fragrance sample as she enters the department and only one scent is sampled at a time. The store instituted a Sample Saturday event in October with a positive result. The fragrance models, or rotators, that vendors usually count on to push sales have been restricted to being on the floor—only for the day of an event, like a trend show or a fragrance festival. Probably the most impactive change is Nordstrom’s decision to train all the sales personnel so that they’re knowledgeable enough to sell all the brands. Referring to the consumer survey, Black says, “Our customer wants to work with a salesperson who knows about all the brands—rather than just a few.” That means all the associates will be Nordstrom employees, and vendor-hired demonstrators will be limited to special events. In what looks like a seismic break with past practice, the policy is expected to be in operation by summer.
Sephora also did a detailed survey of its consumers via its Beauty Insider Web site. “She told us she wants to engage in the category and wants it made less complicated and more exciting,” says Sharon Rothstein, senior vice president of marketing. Sephora amped up its fragrance presentation, beginning in the West Coast stores. Best-sellers are presented and the customer is offered fragrance choices organized by mood. If she wants to feel sexy, there’s Boyfriend by Kate Walsh. “Telling the richest story is very much part of our strategy,” says Rothstein. “We see ourselves as storytellers.”
This budding renaissance began with a relatively small but powerful launch lineup in the fall, led by Bleu de Chanel, which ranks number one in the U.S. men’s market; Gucci Guilty from P&G on the women’s side, and Acqua di Gioia from Giorgio Armani and Ralph Lauren’s Big Pony quartet of men’s scents. Chance Eau Tendre from Chanel, which ranks number 11 year-to-date through March, and Marc by Marc Jacobs’ Daisy Eau So Fresh from Coty have made a sizable impact. Calvin Klein Beauty is said to have done well overseas after stumbling in the U.S.
Fall promises more of the same. Deborah Walters, senior vice president and gmm of cosmetics and fragrances at Saks Fifth Avenue, says, “It’s like a glorious dream. The industry is stepping up with fabulous creativity.” She ticks off a long line of designer launches, many of them Saks exclusives, as well as a full menu of in-store events. “It’s taking it back to the art of fragrance.” Saks also is ramping up its social media campaign and training store personnel to cross sell polymorphous brands like Jimmy Choo in different parts of the store.
“We are riding a wave of strong launches,” says Karen Grant, vice president and global beauty industry analyst of The NPD Group. For the entire fragrance category in the prestige market, March showed a 6 percent gain. That’s a heartening figure, given that February was up 5 percent, compared with a 3 percent drop for the same month in 2010. February’s increase broke down into a 5 percent rise for women’s scents and a 7 percent gain for men’s. That follows a 7 percent gain in January. For 2010, the category gain was a meager 1 percent, although that was considered an achievement considering the 10 percent plunge in 2009.
This clearly is a new year. “Each month, the numbers keep being positive,” Grant says. “At the rate we are going, we should be able to surpass the 2008 [prerecession] level.”
Better yet, there is a pleasant surprise inside the glowing package. A key statistic shows a sharp upsurge in the sales of “juices,” or the pure fragrance stockkeeping units, not the ancillary body products or the value-driven gift sets. The dollar volume of women’s juices was up 9 percent for February, while gift sets were down 6 percent. The increase was more dramatic on the men’s side, where sales of juices were up 16 percent and gift sets were down 13 percent. “What’s encouraging is that the fundamentals are coming back,” says Grant. “The consumer is coming in for the true fragrance experience, as opposed to coming in for a deal.
“I think this will be a healthy year for fragrance,” she continues. “Last year was fl at. The momentum is picking up with each month.”
The optimism isn’t limited to the prestige market. Fragrance sales in the mass market are up by 1.6 percent for 2011 year to date, with a 2.4 percent boost in women’s, while men’s remained basically flat at a plus 0.2 percent, according to the Symphony IRI Group. This is an improvement over last year, when women’s fragrances were down 1 percent and men’s slid by 2 percent. Victoria Gustafson, vice president of Strategic Insights and Beauty Vertical at IRI, says “the category that has been declining for the last four years stabilized in 2010 and is actually doing well year to date versus last year. Units are down, but per-unit price increases [are] keeping the category afloat.”
The fragrance category at mass is driven by celebrity scents. Women’s brands scored a 10.8 percent increase for the first four months of this year, while men’s moved ahead by 3.2 percent. Three women’s celebrity brands— Beyoncé Heat from Beyoncé Knowles, Halle Berry Reveal and Mariah Carey’s Lollipop Bling—generated a combined $2.8 million in sales growth in the first four months of this year, Gustafson notes. The stars in men’s celebrity were [Tim] McGraw Silver and Usher. In men’s and women’s, the lifestyle and designer categories were either down or barely ahead.
Elizabeth Arden maintains its own tracking system, which allows the company to further segment the category. Joel Ronkin, executive vice president and general manager of Arden, sees an improvement in the prestige market and the prestige priced fragrances distributed in mass channels. Of the latter, he reports a 2 percent increase in sales of department store fragrances sold in drugstore chains and a 5 percent increase for prestige brands in big-box retailers.
This rosy outlook is a sharp departure from past experience. Grant says that with the exception of the booming celebrity category, the prestige fragrance market has been dwindling since 2001. “We have had a decade of decline,” she says. Another source indicates that the prestige fragrance business declined 13 percent in dollar volume in the last five years and dropped 26 percent in unit sales.
Ava Huang, senior vice president of U.S. marketing at Coty Prestige, says there’s been a dramatic downturn in the amount of dollar volume generated by fragrance introductions from 2006 to 2010. In women’s, there was a 28 percent drop in launch volume and a 43 percent drop in men’s. This deep erosion occurred despite steady price increases of 2 to 3 percent between 2008 and 2010.
This year, however, the business is being driven by strong designer scents, she says. Coty launched Daisy Eau So Fresh, a fruitier, bubblier version of the Marc by Marc Jacobs scent, in February, and it now ranks in the top five, outselling the original Daisy. Quoting NPD figures, Huang says Eau So Fresh had a 2.3 percent share for March and the original had a 1 percent. Taken together, they ranked number three behind Coco Mademoiselle and Chance. While all these marketing theories are interesting, Huang says in the end it boils down to putting forward a solid project with a compelling story. But the missing piece is retail. She advocates improved training of sales personnel in the stores to make the retail environment more aspirational.
One explanation for the long decline is a falloff in usage. The fragrance supplier Firmenich commissioned an in-depth study of the U.S. fragrance market, which was previewed at the WWD CEO Beauty Summit in May 2010. It shows that the size of the U.S. fragrance market shrank by half-a-billion dollars from 2000 to 2009. In 2000, there were 400 fragrance launches and 70 million units of fragrance were sold at an average price of $43 a bottle, producing a market volume of $3 billion. Nine years later, there were 800 launches generating sales of only 42 million units with an average price of $60 a bottle. As a result, the market shrank in 2009 to $2.5 billion.
Firmenich dissected the market by looking at different consumer groups. There were heavy fragrance users of four days a week or more, non-heavy users of three days a week or less, and lapsed users of one year, two to five years and more than five years. Then there’s the group who never used fragrance. The study found that the average age when people stopped using fragrance is 26. One disquieting finding was that 33 percent of 18- to 24-year-olds, known as Millennials, have never worn fragrance. Debra Butler, vice president of creative marketing at Firmenich, says one conclusion that can be drawn from the study is that the industry has been catering to the wrong group, the heavy users. That faction accounts for only 33 percent of the market. The non-heavy consumers represent 45 percent and the lapsed users another 13 percent. Together, those two categories combine for 58 percent.
By focusing on the most frequent users, the industry has tended to emphasize heavy and strong scents based on thoughts of seduction. Butler maintains that a more modern way of thinking is needed and should be applied to the non-heavy user. This group is looking for lighter scents of higher quality—which is why fragrances priced above $75 constitute the fastest-growing category—and are easier to wear on a daily basis. She notes that if the industry is only selling seduction, it will lose the age group when maturity sets in, with the advent of marriage and family. If the non-heavy user could be coaxed into applying fragrance once more a week—from three times to four—“we could make a very large wave,” she says.
Christophe de Villeplée, vice president of global fine perfumery and hygiene beauty at International Flavors and Fragrances, disagrees with the notion that young people are tuned out. “I don’t think the young generation is less interested,” he says, pointing to the phenomenal success of Unilever’s Axe and Lauren’s Big Pony. “I think the offer is less interesting for them.”
He adds that the brands have done a good job in rekindling consumer interest by promoting classics, but de Villeplée joined others in saying that “we need to rework the retail environment.”
Veronique Gabai-Pinsky, global brand president of Aramis and Designer Fragrances at the Estée Lauder Cos. Inc., agrees that the industry has to deal with fundamental problems. “On the surface, we are starting to see a glimpse of growth again, but that hides a different kind of reality,” she says. One of her suggestions: “Finding new ways to talk about the beauty of brands.” In essence, marketers need to reach out to the loyal customers of their classic brands by offering newness that relates to the qualities the consumer already appreciates about the brand. For instance, Lauder markets a lighter version of DKNY’s Be Delicious in the form of an eau de toilette that was promoted with an ad mimicking a comic book, created by a pop artist. “We need to continually back classics with new introductions, only if the newness is relevant to the consumer,” says Gabai-Pinsky.
Kathy Widmen, chief marketing offi cer of Elizabeth Arden, points out that in the women’s top 10 ranking last year, only one brand was new. She notes that it is important to balance the constant need for newness against the power of loyalty that the classics engender. “We focus on our pillar fragrances,” Widmen says, noting that Arden relaunched its Red Door fragrance with a 20 percent increase in growth. Arden hopes its upcoming launch of the first Taylor Swift fragrance in the fall will furnish another pillar.
Marc Rey is the president of International Designer Collections at L’Oréal USA. His recipe for revival: “Leverage our designers” to “maintain and grow the apparition and the dream” that is the fragrance world, “never compromise on the juice,” create imaginative promotions that run to the heart of the brand, resist launching product for the sake of sales momentum, invest in your old brands and “stay relevant for consumers.” He says that Big Pony drew young people into department stores and amounted to the biggest men’s launch of last fall in the number of units sold, behind Chanel’s Bleu in dollars.
For its part, Chanel has more reason than ever to celebrate. “We never had such a good business,” says Christine Dagousset, executive vice president of fragrance and beauté in the U.S. Coco Mademoiselle is number one in women’s for the year to date through March, followed by Chance at number two and No.5 at five—all this in addition to Bleu at number one in men’s. However, Dagousset notes that, “If we take Chanel out, the market is declining. We have to go back to the core values of the dream and the quality of the experience,” she says. “Right now it’s all about quality for the money,” she adds. “We really have to go back to what fragrance was created for—the dream and seduction.”