THE GOING IS SLOW IN FRENCH, GERMAN COSMETICS MARKETS

Byline: Sarah Raper, Paris, and Melissa Drier, Berlin

PARIS--Europe's two largest cosmetics markets have released their 1994 sales tallies, and the results show a marked slowdown in growth.
Beauty industry associations in France and Germany said the drop affected both the mass and class markets, foreshadowing similarly dreary outcomes this year.
The French domestic market grew 3.7 percent, its slowest pace in more than 10 years, according to French customs figures. Inflation has been running at the unusually low rate of 1.6 percent in France and 3.1 percent for all of Western Europe, according to the European Union. Therefore, the 1994 sales figures represent virtually all real growth.
In Germany, sales stagnated or dropped about 2 percent in the western part of the country, while retailers in the eastern region managed to eke out gains of about 4 percent.
In Paris, Michel Mosser, president of the Fédération des Industries de la Parfumerie, the French trade group, said, "The outlook for this year is lackluster, and we're expecting only modest growth. I think 1995 will look a lot like 1994."
"If retailers reach 1994 sales at the end of 1995, they'll have done well," said Reinhard D. Wolf, president of the German Association of Perfumeries, based in Recklinghausen, Germany. "And if they do more, they're lucky devils. Our principal hope for an upturn is in late 1995 to 1996."
One bright spot for France--exports increased at a faster pace than they did the prior year--was tempered by a barely visible increase in shipments to the country's two biggest foreign markets, Germany and the U.S.
After years of expansion, growth in exports to Germany stalled at a mere 2 percent, while it was only 1 percent for the U.S.
Mosser said the dismal German economy explained the poor export figures to that nation. He attributed the slowdown in U.S. consumption primarily to strong competition from local companies and to inventory cutbacks by major U.S. department stores.
In the Far East, China is proving to be a disappointment. Import duties there were raised last month to 150 percent after having been as low as 50 percent in recent years. The federation has been working with member companies to build recognition of French brands and help get them into Chinese stores, but China ranked only 75th among France's export customers.
Korea, on the other hand, appears to be booming. Exports to that country increased by 72 percent last year, the federation said.
Elsewhere, exports were up 18 percent to the U.K., 21 percent to Spain and 33 percent to Taiwan.
In addition, exports to Argentina increased by 42 percent and by 53 percent to Brazil.
Dollar figures were not broken out for the individual markets.
Overall, exports rose 9.4 percent to $5.04 billion (26.2 billion francs) at current exchange rates, while the domestic market grew 3.7 percent to $5.7 billion (29.8 billion francs).
The figures exclude revenues by foreign subsidiaries of French companies and royalties. For example, Procter & Gamble France is counted as a French company under this system, and L'Oreal's Cosmair subsidiary in the U.S. is considered a foreign company.
The federation estimates that to get a true picture of French production at home and abroad, the total figure of exports would have to be increased by 15 percent.
Mosser said domestic growth dropped in the fourth quarter as consumer purchasing power fell, due to higher unemployment. Also, uncertainty about the economy together with higher interest rates encouraged people to save. That could be good for sales when consumers eventually break into their piggy banks, but Mosser said manufacturers do not anticipate that will happen this year.
Sales were up 4 percent in the French "selective," or prestige, market, basically perfumeries and department stores. Within that segment, fragrance sales were up 6 percent, while skin care rose less than 4 percent.
Mass-market sales were also up 4 percent, which represented a slowdown from 1993, when they rose 6.2 percent.
In Germany, the beauty market has reached a "period of consolidation after 40 years of continuous growth,"according to Werner Hariegel, managing director of the German Association of Perfumeries. He said the beauty industry for the first time is feeling the effects of a recession.
"Ten or 20 years ago, our customers weren't affected by the overall economy," Hariegel said. "Not any more."
And with lackluster sales, he said, the rising costs of personnel and real estate will put further strain on retailers.
A year ago, the association predicted that 300 perfumeries would eventually close, due to the market being oversaturated. In Frankfurt, at the Premiere Fair for perfumeries, drugstores and hair salons, the association confirmed that about 100 doors would have closed by the first of 1995. The association predicted that this "meltdown" will continue for the next two years, leaving 2,700 to 2,800 doors in Germany by the end of 1996.
But the downsizing is not a question of a "spectacular collapse in our industry, but rather a normal meltdown process when the market is oversaturated," Hariegel said,
Even in the eastern Germany, where manufacturers made tremendous gains after reunification, the market is beginning to show signs of overcapacity.
"The amount of business the industry thought it could do there was overrated," Hariegel said.
Men's scents and skin care products were on a par with 1993, heralding the end of a growth cycle.
"We can say that the times of men having to catch up are over, even though there are considerable reserves in the men's cosmetic market, especially in care products," Hariegel said.
Discounting remains a heated issue for the German market, but Hariegel dismissed the impact of price cutters.
"So-called perfumery discounters will, now as before, play no important role [in the German market]," he said. "They don't have much to offer with their gray market labels."
Hariegel stressed that the future of German perfumeries lies in providing consumers with service and sophisticated treatment products that require demonstration. Those are not attainable under the economics of a discount retail setup, he added.

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