Appeared In
Special Issue
Beauty Inc issue 12/09/2011

Considering the bearishness of the financial headlines, prestige beauty’s strong sales gains this year have seemed almost fantastical. As a holiday gift, the industry hopes that dream will become next year’s reality.

This story first appeared in the December 9, 2011 issue of WWD.  Subscribe Today.


Carsten Fischer, corporate senior executive officer responsible for international business at Shiseido, ticked off the number of natural disasters and political upheavals that rocked 2011. Yet the business is generally good, not only in the U.S. but around the world, with a few sharp exceptions. “I’m a little cautious,” he says, then adds with a grin, “but bring it on.”


The obvious worry is another recession. A popular notion now making the rounds is that if the Dow Jones Industrial Average plunges below 10,000, the truly affluent consumer, who has fueled the luxury renaissance and the prestige market in the U.S., will lock away her credit cards. Two years ago, that shopper fled when the DJ average plummeted below 6,500 into the abyss of the 2009 recession (in late November, the number stood at 11,608). “It could be psychologically huge,” acknowledges Carol Hamilton, president of the Luxury Products Division of L’Oréal USA. She, like others, is “pretty confident” about next year’s prospects. While perhaps not as buoyant as this year, the luxury market could chalk up sales increases of 5 to 7 percent or better in 2012, she says. Carrie M. Mellage, director of consumer products at Kline & Co., says of the stock market, “It’s now fluctuating, but still healthy.”


But before the new year can come, there are the holidays, and Thia Breen, president of North America at Estée Lauder Cos. Inc., is ready. “We are seeing strong business across all the brands and all the categories.” Talking about the consumer, Breen concedes that “she could pull back, but that is not what we are seeing.” Neither has the drumbeat of forboding news given the retailers cold feet. “We would have seen it in the way they ordered goods,” Breen points out. “We are set for an outstanding holiday season.” Karen Grant, vice president and senior global industry analyst at the NPD Group, agrees: “As an industry, we are well poised to have a very strong Christmas.”


One factor that gives Hamilton added cheer is that the affluent customer is using both the Internet and department store beauty advisers to embrace higher priced innovative skin care. She is researching products online, then going into a department store and getting confirmation of what she has learned by chatting with a BA. The two experiences work together, Hamilton says, giving the consumer a sense of security in buying higher priced products. This, in turn, can embolden her to dig more deeply into the research , and perhaps step up her buying, either online or in the store.


Cedric Prouvé, group president of international for The Estée Lauder Cos. Inc., sees good momentum in every region. The company is beating the local markets and chalking up a strong business in travel retail to boot. In Europe, Prouvé sees “definitely a softening” in some areas, but says that in France, Germany, the Nordic nations and Benelux, Lauder is doing well and that “the U.K. is doing remarkably well.” Russia and most of Asia are also strong. Latin America is Lauder’s fastest growing region, with Brazil, Mexico and Argentina showing strength, although the latter market is struggling with high inflation. Australia has the problem of a strong currency and high prices and the flooding in Bangkok has knocked out the retail scene.


Both Lauder and Shiseido report that Japan is recovering from the March earthquake and tsunami, with both companies reporting flat conditions— which means the market is performing well against tough comparisons. Fischer acknowledges that the mood in Germany is cautious and his view of the world is similar to Prouvé’s. “Some people want to have a break for Christmas with a small pick-me-up,” Fischer notes. “We have lost a lot of affluent customers,” he continues, then adds, “people are more selective, but they don’t want a dark, gray life.”

At a recent Fragrance Foundation presentation, Kline & Co.’s Mellage laid out best-case and worst-case scenarios for the fragrance market going forward. U.S. sales could top a new peak of $6 billion in 2014, compared with $5.5 billion this year, which is still below the $5.9 billion high of 2007. The holidays are an unknown factor, but for 2012, Mellage is leaning more toward best case, than worst, forecasting growth in the 5 to 7 percent range for the total fragrance market in 2012, including mass, which has been plodding along at 2 percent growth this year. The total beauty market in the U.S. grew at 3.5 percent for an annual total of $56 billion, and Mellage expects next year’s total to ring in at 3 to 4 percent also.

“The luxury customer is feeling more comfortable, Mellage notes. “She’s tired of saving. She wants to buy some indulgence.” Another factor is the record number of foreign tourists. “They are label conscience, buying luxury items and going into department stores in droves,” she says.

As of the end of October, fragrance sales in U.S. department stores were running 10 percent ahead for the year, compared to a razor-thin 1 percent for all of 2010, and total beauty was also 10 percent ahead, according to NPD’s Grant. While doubting that 10 percent figure will hold for fragrance through the end of the year, since 30 percent of the business is done in December, Grant notes, “I would anticipate strong single digits.” She points to strength in different facets of the business—designer, celebrity and niche. “It is a well- rounded market this year,” Grant observes.

However, the fragrance market is still climbing out of the trough of the recession, “We never had such strong increases,” Grant says. “It is still catching up to where it was. There’s still an upside to be had.”