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Prestige Hopes High for Second Half

After two years of falling sales, the U.S. fragrance business may eke out at least a small gain for the second half.

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WWD Fragrance In Depth issue 07/11/2008

After two years of falling sales, the U.S. fragrance business may eke out at least a small gain for the second half — fueled by a staggering number of new global product launches with equally staggering advertising budgets, particularly on the men’s side.

“[The second half] has the potential to be positive,” said Karen Grant, global industry analyst and vice president of beauty at The NPD Group. “There’s so much activity and so much attention — all the big guns are coming out. It might be a positive fall for the first time in two years.”

For 2006 and 2007, the prestige fragrance business finished each year at 1 percent down, with the total men’s and women’s business totalling $2.94 billion for last year. In the two previous years — 2004 and 2005 — volume was ahead by 1 percent for each year.

“We’re cautiously optimistic [for fall],” said Debbie Murtha, senior vice president of cosmetics at the Macy’s Merchandising Group. “There’s definitely more launches than last year and they have an opportunity to build on last year’s success.”

The trend this year has been strengthening, despite a disastrous first quarter in which U.S. department store sales were down 9 percent. Since then, the arrow has been pointing in the right direction. April was up 4 percent, compared to a 1 percent gain last year, and May was ahead by 3 percent, compared to a drop of 6 percent last year, according to NPD. Grant added that Mother’s Day sales were also positive — by a margin of 3 or 4 percent- — despite fewerspring launches. There were less than 90 spring launches this year versus more than 100 last year, Grant noted. She added that some men’s launches from last year — Diesel’s Fuel for Life, Usher He and Dolce & Gabbana’s Light Blue Pour Homme — continued to show strength this year. In addition, the launches of Boss Pure and Ed Hardy broke into the top 20. On the women’s side, the classics carried the season both in France and the U.S., Grant said.

But below the surface, the long-term prospects seem disquieting. Through NPD’s consumer preference Fragrance Track survey, NPD has detected a worrying drop in usage. From 2006 to 2007, the number of women aged 18-24 saying they use fragrance dropped from 88 percent to 85 percent. Teen girls aged 13 to 17 showed a 6 percent drop from 81 percent to 75 percent in the same time period. In what Grant refers to as the “Axe effect,” the number of teen boys using fragrance dropped from 81 percent in 2005 to 63 percent in 2006 and has since dropped to 60 percent.

 

“The future is at risk,” Grant warned. “If we don’t get people involved in the category, we will continue to see deterioration.”

Grant urged the industry to find a way — whether it’s an industry-wide advertising campaign, similar to the dairy lobby’s successful Get Milk effort — to win over the younger generation and dramatically increase frequency of usage. “We’ve got to educate people,” she said, “teach them to fall in love with fragrance. We can’t keep living off the age 25 plus group. We’ve got to get the younger group excited by the category.”

The issue has been made critical by the volatility of the business. Grant noted that average fragrance dies out at retail within 12 months, after peaking in two or three  months, usually after the holidays. This compares with the old era, when fragrances were still doing well after five or six years. Now, fragrances that last that long are considered classics — a term that previously only applied to scents 15 to 20 years old. Grant noted that Dolce & Gabbana Light Blue and Chanel’s Coco Mademoiselle, which both launched in 2001, now fit the “classic” designation.

The market has developed a quicksilver side, stoked by the constant blizzard of newness. These days, more fragrances are launched in one year than were introduced in the Seventies and Eighties combined, said Grant. And unit sales continue to spiral downward, she added, noting  that nine million fewer units were sold in 2007 than in 2003, while dollar sales remained even.

The rebirth of the celebrity fragrance model did spark sales and draw young women to the fragrance counter for two solid years, Grant observed. In 2005, the celebrity fragrance category generated a sales increase of 22 percent overall. But that phenomenon has paled. The heyday of Jennifer Lopez, Britney Spears, Sarah Jessica Parker and Kimora Lee Simmons appeared to lose its luster in 2006, when there was an absence of launches by marquee names and the women’s celebrity-fragrance category dropped 17 percent. The launch of Unforgivable by Sean John single-handedly saved the category by pulling the entire celebrity fragrance business up to a 13 percent gain. That one male fragrance was 30 percent of the entire celebrity business in 2006.

The following year, in 2007, Sean John and Usher combined to produce a 1 percent gain for  men’s celebrity scents. But the women’s category dropped 5 percent, leaving the overall celebrity business with a 3 percent decline for 2007 on total sales of $187 million. This meant that designer fragrances regained the momentum in fragrances.

One of the bright spots, however, is in fragrances priced over $100. “That’s where we are seeing double-digit growth,” Grant said. She noted that in the dark days of last December, when women’s fragrances under $100 were down 12 percent, the over-$100 group scored gains of more than 20 percent. These brands include the jewelry-based fragrances like Boucheron and Cartier, the fashion houses and classics — like the Chanel stable, Thierry Mugler’s Angel and Guerlain’s Shalimar and Viktor & Rolf’s Flower Bomb.

Grant’s conclusion is that the category has not lost its aspirational lure for many consumers. Quoting the results of Fragrance Track surveys, she reported, “Young women have said that they would wear a  fragrance if it met their needs.”

“Fragrance is a discretionary purchase, and particularly in this economy, we need to give consumers a reason to buy,” agreed Howard Kreitzman, vice president of cosmetics and fragrances for Bloomingdale’s, who added he’s optimistic about his assortment in both the women’s and men’s categories.

“We have already exceeded considerable expectations for Estée Lauder’s Sensuous [women’s fragrance], and feel that the marketing plans we have will help us to sustain that business at very healthy levels,” Kreitzman said, adding that the retailer had a personal appearance Tuesday evening at its 59th Street flagship featuring the brand’s spokesmodels Gwyneth Paltrow, Elizabeth Hurley, Carolyn Murphy and Hilary Rhoda. The appearance reportedly generated more than $45,000 in retail sales in one hour.

John Demsey, group president of the Estée Lauder Cos. Inc., estimated that close to 1,000 people crowded onto the floor at Bloomingdale’s. “Sensuous has been a hit since Day One, and it’s really the first scent launch we’ve had since Pleasures which has had a halo effect over the whole brand,” he said. “Beautiful is maintaining, Pleasures is holding up — everything is going very well. The concept of sensuality and beauty at every age is striking a nerve. If you have the right product, regardless of the economy, it will sell. And I think if there are three or four solid launches this fall, it will be great for the overall fragrance business.”

Bloomingdale’s Kreitzman added, “We also have very high expectations for Lancôme’s new Magnifique, Ralph Lauren’s Notorious, Vera Wang Look, Gwen Stefani’s Harajuku Lovers [scent quintet with Coty] and Gaultier’s MaDame.” David Yurman’s eponymous new scent is also high on Kreitzman’s list: “We have a very well developed David Yurman jewelry business, and we believe the new scent will resonate with those customers and draw new ones,” he said. Bloomingdale’s will also unveil Lilly Pulitzer’s fragrance trio and Annick Goutal’s new scents this fall, he said.

On the men’s side, Kreitzman said he has high hopes for Cartier’s Roadster, Gucci by Gucci Pour Homme, Porsche Design, Zirh Icon and D&G The One for Men.

Murtha at Macy’s pointed out that Estée Lauder’s Sensuous and Lancôme’s Magnifique women’s scents will add strong animation to the category, while the launches on the fragrance bars form two powerful columns since they reside in rival camps — the celebrities versus the designers. She ticked off a long list of names led by Gwen Stefani’s Harajuku Lovers, followed by Jessica Simpson’s Fancy, Secret Obsession by Calvin Klein, Fairy Dust by Paris Hilton, Beckham Signature for Her and for Him, Inspire by Christina Aguilera, Prada’s Infusion d’Iris, Ralph Lauren’s Notorious and MaDame by Jean-Paul Gaultier, which Murtha described as a Macy’s exclusive launch with an August ship date. Chanel will introduce Eau Premiere.

Macy’s will also introduce Gucci by Gucci Pour Homme, Emporio Armani Diamonds for Men, Tommy Hilfiger, Dior Homme Sport, Givenchy Pi Neo, Deseo for Him by Jennifer Lopez, Prada Infusion d’Homme, the new Versace men’s fragrance, a new major fragrance by Sean John, a Rocawear scent, UR Usher for men and women, Lauren’s Polo Modern Reserve, Mariah Carey Luscious Pink, Juicy Couture’s Viva La Juicy, an Emporio Armani Diamonds Intense women’s scent, Daisy Intense from Marc Jacobs, Dolce & Gabbana The One White Gold, Absolutely Irresistible Givenchy and Burberry Brit Sheer.

“The fragrance business has been difficult,” said Jon Pollack, executive vice president and general merchandise manager at Belk Inc. Compared to this time last year, “it’s been down single digits. But,” he added, “it’s not dissimilar to what we’re experiencing throughout cosmetics and the total store business. Cosmetics and fragrance price points [are] luxury price points and with the amount of discounting and sale activity [taking place] in the rest of the store, that has an impact on high unit retail [prices in beauty].”

Pollack also attributed slowness in fragrance to less launch activity this spring as compared to last spring and last fall. “Newness and activity helps the whole category and this spring has been very quiet.” In the past several years, the fragrance business “has been basically flat,” said Pollack.

Still, there are bright spots, Pollack noted, including the recent Father’s Day and Mother’s Day selling periods. “We’ve been excited about our Armani, Ralph Lauren and Dolce & Gabbana businesses [in both men’s and women’s],” said Pollack, who added, “On the niche side, Ed Hardy has been a very pleasant surprise.”

Pollack noted that final plans for the second half of the year are coming together “rather late” due to difficulty in the fragrance business during the last holiday season. “A lot of reassessing had to go on,” he said. “We had to reapproach it from a vendor and a retailer perspective. We’re spending a lot more time and energy on visual presentation and point-of-sale excitement.”

Pollack said he is looking forward to including Estée Lauder’s Sensuous this month, Ralph Lauren’s Notorious next month and Lancôme’s Magnifique in September. He added that he is looking for single-digit increases in the fragrance business for the Christmas season but tempered his optimism by noting that he is bracing for a “very difficult” third quarter. “It’s a tale of two quarters,” he said. “We are being very conservative around the third quarter, but I am optimistic about the fourth quarter and feel good about our strategies for December.”

At Sephora, “newness is where we are focused, but we have [customers] who are faithful to mainstays at Sephora [like] Dolce & Gabbana, Stella McCartney and Chanel,” said Allison Slater, the chain’s vice president of retail marketing. “Some of our bestsellers remain these designer brands.”

Other top performers include Daisy Marc Jacobs, Burberry’s The Beat and Bulgari’s Aqua Pour Homme Marine, noted Slater, who added that she is looking forward to upcoming launches at Sephora like Juicy Couture’s Viva La Juicy, Stefani’s Harajuku Lovers and Burberry Brit Sheer.

“And there are a lot of men’s launches,” said Slater, naming Dolce & Gabbana’s The One for Men, Roadster by Cartier, Gucci by Gucci and Guerlain Homme.

In the past several years, Sephora’s fragrance business has been “strong,” said Slater. Driving the business, she said, is customer loyalty as well as different sizes and types of fragrances, namely smaller spray bottles and roll-on scents, which allow customers to buy in to multiple brands at a lower cost.

Slater said the retailer is “bullish” for the fragrance business during the second half and is “optimistic” for the holiday selling period. She noted that Sephora will bring back its fragrance sampler set for holiday, which includes 10 sample-size scents and a voucher that can be redeemed for a full-size version of one of the fragrances in the set.

“Our fragrance business tends to be more niche oriented and specialized,” said Ed Burstell, senior vice president and general merchandise manager for beauty, jewelry and accessories at Bergdorf Goodman. “At the end of the day, the celebrity fragrance genre doesn’t really resonate with our customer. She comes here to discover something new.”

 “Our fragrance business has been good, but we have a different type of scent business [than most other retailers],” added Pat Saxby, vice president and divisional merchandise manager for cosmetics and fragrances at Bergdorf Goodman. “There’s a lot out there, especially this year, but most of it we won’t do. Our customer wants a luxe niche product, something she can’t necessarily find easily elsewhere — so we have a highly edited selection of the highest-quality scents we can find.”

Saxby said that front-runners for fall include Prada’s Infusion d’Homme, Karl Lagerfeld’s new scent (which will be unveiled in Paris on July 18), Tom Ford’s upcoming White Patchouli and new offerings from Boucheron, Van Cleef & Arpels, Creed and By Kilian. “Also, Tom Ford’s Private Blend lineup consistently does very, very well for us.”

Looking to later in the season, Kreitzman said he’s concerned about the way the calendar falls between Thanksgiving and Christmas. “There is one less shopping week between the two holidays this year, and that keeps me up at night,” he said. “At Bloomingdale’s, our business tends to be earlier rather than later, but my concern is that the shorter time means fewer shopping trips — and our customer is often buying one for herself, along with one for somebody else.”

 

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