By and  on September 9, 1994

BERLIN -- The staring contest between traditional German cosmetics retailers and a handful of aggressive foreign discount chains has ended.

The Germans blinked.

Throughout southern Germany, perfumeries and department stores are slashing prices on leading fragrances, makeup and skin care products by 25 percent and more to match the deals being offered by Swiss discount chains, most notably Zurich-based Import AG.

Although the price war is currently concentrated in large southern cities, including Munich, Nuremberg and Stuttgart, German retailers and manufacturers fear that it will quickly spread to the rest of the country as more discounters arrive.

Alrodo, one of Switzerland's key discount retailers, is expected to announce next week that it will open stores throughout Germany, putting additional pressure on local outlets.

While cosmetics discounting has become prevalent in most large European cities, the German market had been spared until last year, when foreign discounters began to arrive.

The competition began in earnest just after Easter this year when the Muller perfumery chain, based in Ulm, cut prices in its Nuremberg units to match those offered by Import AG.

A selection of German department stores followed suit, and then in July, Douglas, Germany's largest perfumery chain with 360 stores, slashed prices at its Nuremberg and Munich outlets.

A Douglas spokeswoman emphasized that the chain had not instigated the process, saying, "We will not begin the price cuts in any city or in any situation. We are only reacting, and in principle, don't believe in discounting."

Thorsten Schwuchov, divisional manager for Douglas in Nuremberg, said prices have been lowered on women's and men's fragrances, as well as on some skin care items, at 12 Douglas outlets in Munich and Nuremberg.

Although the discounts are most frequently offered on larger sizes, "no item and no brand has been ruled out," Schwuchov said.

Beauty manufacturers are privately worried that the price wars will force smaller players out of business and upset the distribution system.

They are keeping quiet on the issue, though, because they don't want to violate strict German laws that prohibit them from influencing retail prices.

Some retailers reported even new blockbuster products like Lancôme's Bienfait Total were included in the price cuts, which have been advertised in local newspapers and with window signs.At the 300-store Aurel-Gruppe in Wiesbaden, managing director Gunter Kamissek said he was cutting prices reluctantly, and said he feared the long-term economic consequences.

With slow-selling products, "you can afford to give a 50 percent discount and still not lose," Kamissek said. But, he added, the current trend toward discounting on regular merchandise "is between 20 and 30 percent -- which is dangerously large."

On the other hand, he said, "Nobody notices a 5 percent discount."

Kamissek said the price wars were not just a defensive reaction; traditional retailers have used discounters "as an excuse to cut prices."

They soon might have more excuses than they bargained for.

Silvio Denz, president of Interparfums AG, Alrodo's parent, has scheduled a news conference in Zurich Sept. 13 to announce that he will expand the Alrodo chain, which has 33 doors in Switzerland, throughout Germany this year.

Denz, whose company has already started doing a mail order cosmetics business in Germany by distributing millions of catalogs, declined to reveal how many stores he would open.

"In Switzerland, we discounters control 60 percent of the fragrance business, but in Germany discounters have only 5 to 10 percent," he said, clearly excited about the possibilities.

Kamissek agreed there were vast opportunities in Germany for discount retailers.

"I don't see any emergency brake unless the industry stops delivering [to discounters]," he said. "And they can't afford to do that."

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