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Amid Price War, Europe Looks Ahead

PARIS — A price war has erupted among French beauty sellers.<br><br>Through Christmas, customers walking into any Sephora here are handed coupons giving them $10.30 discounts on purchases running to $61.60 or more.<br><br>At Parfumeries...

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PARIS — A price war has erupted among French beauty sellers.

Through Christmas, customers walking into any Sephora here are handed coupons giving them $10.30 discounts on purchases running to $61.60 or more.

At Parfumeries Marionnaud, retail prices on all prestige beauty products — save for gift sets — have been slashed by 15 percent through the end of December.

And last week, Douglas launched a weeklong special offer in some of its French doors, with $5.20 deducted from sales of $41 or more. Just to name a few.

All dollar figures are converted from the euro at current exchange rates.

“We’re obliged to do it if [our stores are] located next to a Marionnaud or a Sephora,” said Dominique Dubald, managing director of Douglas France.

Patrick Zyguel, director of competition for Marionnaud, said his firm’s promotion was meant to rival Sephora’s. “We couldn’t be a spectator,” he explained.

But the Marionnaud campaign has been raising eyebrows. Last Friday, French bank BNP Paribas published a research alert that such promotions could impact the perfumery chain’s 2002 net profits by around 13 percent and the bank revised its forecast for Marionnaud stock to $49.30 from $58.50.

“It’s a vicious circle,” said Emanuel Larrondo, head of national marketing at France’s Nocibé, of such promotions that are taking place across Europe and “significantly reduce margins. No one wins in the long term.”

Nevertheless, his perfumery chain started offering a $5.15 discount on purchases over $25.65 in November, and just last week sweetened the pot by knocking $10.30 off those above $51.30.

The notion for promotion isn’t difficult to fathom. Retailers and manufacturers of prestige beauty products are struggling in flat markets. And the good old-fashioned rebate has been proven to work in the short term.

Yet, the specters of impending conflict in Iraq, increasingly cautious and fickle consumers and the saturated fragrance market continue to do damage.

This, of course, makes fortune-telling tough. “If there’s one period difficult to forecast, it’s the first six months of next year,” one executive said.

So, some think the worldwide cosmetics business will maintain the same momentum throughout 2003.

“I don’t think there will be any major change for the French market, which has been slow since the beginning of this year,” said The Estée Lauder Cos. France’s general manager Nicolas Maincent, who added that his firm’s business there is growing at a faster pace.

Others are more bullish. “In general, I think the industry should be better in 2003,” said Gabriele Pungersheg, president of European Designer Fragrances at Unilever Cosmetics International.

Most selective beauty manufacturers here say they expect to end 2002 with sales up by single digits, with the industry’s European and global growth to the order of 1.5 percent to 2 percent.

“The European cosmetics scene in 2002 was a mixed picture,” said Sandhya Raju, vice president at Merrill Lynch in London. “In most markets, sales of cosmetics did pretty well with the exception of Germany, which was challenging.

“Larger companies with the ability to spend through the difficulties and those positioned at the premium end of the mass market performed well, both in Germany and other Western European markets,” she continued.

Through the end of November, a firm like Chanel, for instance, posted European sales up 16 to 17 percent over the same period in 2001, according to Andrea d’Avack, Chanel’s senior vice president of fragrances and cosmetics. “We are quite confident [for next year, but a war in Iraq would have a huge impact on the travel-retail business and local consumers.”

Tracking firm Generation says the short-term impact of a war would be dramatic on travel retail. According to its early yearend estimates, global travel-retail and duty-free sales of fragrances and cosmetics are expected to grow by 5 to 6 percent over 2001.

Globally, Pacific Creation Parfums, which manages Parfums Lolita Lempicka and Parfums Jean-Charles de Castelbajac, expects to ring up double-digit growth next year, said Catherine Dauphin, the firm’s president and managing director. This is due in part to new distribution agents in Germany, the U.K. and Italy, plus a new office in the Mideast, among other changes.

For Beauté Prestige International, the Shiseido-owned license holder of Issey Miyake, Jean Paul Gaultier and Narciso Rodriguez beauty, estimates for 2002 growth over 2001 run in the high-single digits, according to company president Rémy Gomez.

Gilles Weil, vice president in charge of L’Oréal’s luxury products division, believes the European and U.S. environment will remain difficult in the first six months, but elsewhere will be positive, unless local troubles interfere or a war in the Mideast breaks out. “We have a strong program and key launches very early in the year for all brands,” he said, adding that the company is “well-prepared for this period.”

Weil tags Russia as a growth market, with Asia strong on luxury and the young demographic, and Japan looking good. Promising categories include antiage products, “fun” makeup, men’s items and niche brands.

In Germany, Henkel Group says the first half of next year will be pretty much like the last six months of 2002 that were hamstrung by weak European markets and continuing economic problems in Asia and Latin America.

A spokesman for Beiersdorf said the company’s forecast of a 5 percent increase in sales for the first half of 2003 remains unchanged. Strong growth rates in Europe are one factor boosting volume.

As for future growth, Eastern Europe continues to shine as purchasing power there grows. He also pointed to the U.S. as having untapped potential for Beiersdorf, along with certain Asian markets — China remains a theme, but with caution, and then there are countries like Vietnam.

Cosmopolitan Cosmetics, the prestige beauty division of Wella Group AG, is banking on new product offers to help ring up expected double-digit growth next year, according to Werner Hofmann, its senior vice president. Among the items meant to drive sales next year is Ibiza Hippie, the seasonal fragrance due out worldwide in March from recently acquired Escada Beauté.

New products are also on the docket for LVMH Moët Hennessy Louis Vuitton-owned Parfums Givenchy, which will unveil a new makeup line next year and treatment in 2004. The firm will also launch more spas, one in Dubai at the end of January 2003 and another one in Cannes, France, in April 2003.

Company president and chief executive officer Alain Crevet said the brand should close 2002 up 4 percent at constant exchange rates year-on-year.

Inter Parfums SA expects to end 2002 with sales of about $92.3 million and 2003 at $105.7 million, according to its president Philippe Benacin. He said his firm’s biggest launches of next year will be a new Céline scent and two new fragrances from Burberry, alongside a seasonal one for Bazaar.

In the first half of next year, L’Occitane is slated to introduce a new men’s skin care line to replace the initial one that represents 3 to 5 percent of the brand’s sales. The firm’s volume is expected to rise about 20 percent on a same-store basis worldwide, said Emmanuel Osti, L’Occitane’s managing director.

Shiseido, which for 2002 anticipates a 5 to 8 percent increase in Europe year-on-year, will premiere its Body Creator skin care product in European stores in March 2003, according to Shuichi Tanaka, president and chief executive officer of Shiseido Europe. He said that in difficult economic periods, treatment products are especially steady growers and key for building customer loyalty.

Another hot-ticket category for 2003, according to Merrill Lynch’s Raju, is hair care. She noted that Procter & Gamble is revving up to introduce products under its Clairol brand; L’Oréal plans to launch in the U.S. its Fructis line, and Unilever will introduce in the U.S. its Dove hair care line. Raju added that Wella and Henkel will be sustaining activity in the category as well.

Also in the year to come, the putative merger-and-acquisition activity that caused a flurry of speculation in 2002 could lead to results such as Unilever’s divestiture of its remaining prestige beauty division and a new owner for Beiersdorf.

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