NEW YORK — After a tough two-year stretch of business, the worst mightbe over — as beauty vendors in the prestige and mass markets are betting on a continued yet modest turnaround in the first half of 2004.
After dealing with SARS, the U.S./Iraq conflict and rough weather in the first half of 2003, vendors said in July that they were beginning to see a glimmer of hope for the second half of this year — which has been borne out over the past several months by many of the major players. Even the year’s most challenging category — fragrance — seems, in many vendors’ eyes, to be stabilizing its downslide.
In fact, the psychology of the world cosmetics market is brightening somewhat, giving some comfort to Fred Langhammer, chief executive officer of Estée Lauder Cos. The company reported a 4.9 percent net profit gain on an 8.8 percent sales increase for the latest quarter ended Sept. 30, and Langhammer admitted “feeling good” about the slightly bettering global situation, although he described parts of the scene as a “mixed bag.”
Eastern Europe is performing well, while parts of Western Europe, like Germany, remain sluggish. But Langhammer noted that “sell-through is better than sell-in.” And the U.K. and the southern belt of Europe continue to do well and the travel retail business is on the rebound. The fragrance market still is lackluster, but what Langhammer described as the strong success of the Lauder division’s Beyond Paradise women’s scent and Aramis Life men’s fragrance brightens the picture dramatically. Also MAC Cosmetics continues to be a locomotive of growth and Bobbi Brown Essentials and Aveda continue to gain ground.
Langhammer also noted that the Lauder division’s holiday blockbuster is “moving well.” He pointed out that despite all the hand-wringing over the demise of department stores, there is evidence that the prestige cosmetics market is growing at a stronger clip than the mass category.
Edgar Huber, president of the Luxury Products Division of L’Oréal USA, expects the first half to be far more hospitable than the same period last year, when the company was preoccupied by the invasion of Iraq as the recession continued to deepen, the East and West Coasts were concerned about SARS and the Northeast was buffeted by severe winter weather. Traffic in the stores was so slight that L’Oréal was forced to postpone the spring launch of Giorgio Armani’s Sensi.“Mechanically” speaking, Huber noted, “the market has to be better.” With the coast relatively clear, L’Oréal plans to step up its launch schedule by unleashing two fragrances — Attraction by Lancôme in February and Amour Amour from Cacharel in January — as the opening salvo of a full season of color cosmetics and skin care introductions. L’Oréal does not break out projections, but industry sources have reported Biotherm running 25 percent ahead and clocking 30 percent gains, meaning that the overall luxury division could turn in increases in the high single digits next year.
Huber noted that the industry faces two key challenges. One is the need to convert general department store traffic into cosmetics department sales. The week after Thanksgiving, he observed, sales at some department stores were up by 5 percent, but the cosmetics division didn’t reach that level. The other challenge is to make the cosmetics department of a store as exciting and enticing as the apparel and accessory areas. “To attract customers and allow them to be inspired and to dream,” he said, noting that at least two stores, Macy’s East and West, are attempting to find new ways to attract consumers, rather than relying on short-term promotion.
“The fourth quarter for us has been picking up significant steam day by day,” said Arie Kopelman, president and chief operating officer of Chanel Inc. “We will end up with a strong double-digit increase across the board for our U.S. business. My own belief is that the momentum will continue next year for a lot of reasons. The economy obviously is strengthening, and I think there’s a mind-set among consumers that as long as there’s a light at the end of the tunnel, they want to enjoy themselves. As long as things are looking good at this moment in time, most consumers are going to want to have a good time and let a few dollars out of the wallet.”
Kopelman is bullish about next year’s prospects — “barring any unforeseen major world events,” he said, “it seems like the positives are outweighing the negatives as far as retail prospects during the first half of next year. We’re very optimistic about all of our businesses — we’ve seen tremendous momentum in both fashion and beauty.”Kopelman is even optimistic about most manufacturers’ current Achilles’ heel, fragrance. “We all know that fragrance hasn’t been great for most people, but it seems to be stabilizing,” he said.
“We are excited about the future of Unilever Cosmetics International and are implementing many changes to ensure that we remain at the forefront of the constantly changing prestige fragrance business,” said Kevin Boyce, president and ceo, Unilever Cosmetics International. “Our focus throughout 2004 is to bring innovation to the marketplace that resonates with the consumer. On the Calvin Klein side, we are especially excited about [Phillips Van Heusen’s] vision for the brand and the synergies their future plans bring to our business. Together, with PVH, we at UCI are committed to creating excitement and growth through new initiatives while continuing to strengthen our existing business.”
And existing business continues to do well, Boyce emphasized. “The Vera Wang women’s fragrance continues to be a star,” he said. “In the first half of 2004, we will build upon the success of the Vera Wang fragrance with the launch of its partner: Vera Wang for Men. Vera Wang is a stellar ambassador for the brand who has made record-breaking personal appearances to support the business. Her most recent personal appearance in Saks Fifth Avenue in Troy, Mich., produced a one-day sales total of $50,000 — the biggest personal appearance in the history of the Saks Fifth Avenue chain. As well, Cerruti will launch an exciting new men’s brand, CerrutiSI, in the first half of 2004. This new initiative, following the recent innovations on Cerruti, will serve to increase the consumer appeal of the Cerruti brand.”
Heidi Manheimer, president of U.S. operations for Shiseido, is also feeling positive about the first half. “Our comp-store business is up 11 percent year to date, and we have no reason to believe that that growth won’t continue,” said Manheimer. “We’ve seen great growth this year. Body Creator [the brand’s anti-cellulite product, introduced in the U.S. earlier this year] is already exceeding its projections by more than 50 percent, and our Future Solution [an antiwrinkle cream] is among the top three of our stockkeeping units. We’ve doubled our share in prestige treatment, and our business overall is continuing to increase — we’re up 9 percent at the May Co., 9 percent at Federated,up 18 percent at Marshall Field’s and up 32 percent at Sephora. We’re also excited because we’re also seeing significant increases in existing products, as well as new products.”Manheimer noted that the company’s slate of spring launcheswill “keep the momentum going well into 2004.” Color cosmetics, especially lipstick, offer a particular opportunity for the brand during the first half of 2004, she added.
Scott Beattie, chairman and ceo of Elizabeth Arden, is also optimistic about first-half 2004 prospects, as well as business for the upcoming holidays. “I think Christmas is shaping up to be good,” he said. “Particularly over the past two or three months, our department store business has been improving in both performance and traffic, paralleling the improvements that are affecting the department stores themselves. Skin care, across the board, is a particular bright spot —?our Plump Perfect and Overnight Success introductions are doing very well both in the U.S. and globally. We’ve just launched a new fragrance, Red Door Revealed, which is doing very well. In the first half of 2004, we will launch a number of new color products with Catherine’s [spokesmodel Catherine Zeta-Jones] images, which I think will help with our color business. We’ll also continue to develop our skin care business.
“The key thing through Christmas, assuming retail is positive, is how the outlook looks post-Christmas,” said Beattie. “That will really set the tone for the first half. If things continue to be strong economically, as is predicted, I think that energy will spill over into the first half of the year.”
Pamela Baxter, formerly president of the specialty group worldwide at Estée Lauder, will begin her new duties on Jan. 5 at LVMH Moët Hennessy Louis Vuitton as president of the Perfumes & Cosmetics Group for the U.S.
Baxter expects to return to a world where the consumer “shops high and low.” People are spending money on the luxury end — in specialty stores, designer boutiques or high-end jewelry outlets — “buying what is important to them for the sake of their image and lifestyle.” Or they are shopping for basics. “It is difficult for anybody in between to get any attention,” Baxter pointed out, adding that it is important to pursue product development and innovation in packaging and product formula. “My challenge is to tie the fashion piece back to cosmetics and fragrances,” especially for the Christian Dior and Givenchy brands, she said. As an example, John Galliano T-shirts with “J’adore” written in rhinestones is a hot seller.Also at LVMH, Camille McDonald, president of Guerlain and Givenchy in the U.S., conceded that all the macroeconomic indicators are pointing to “avery strong recovery.” But the good news has not gotten to the fragrance bar. And while there are signs of healthin the cosmetics and skin care sections of department stores, “it’s not affecting the fragrance bar yet.”
McDonald estimates that fragrance bar sales are generally running 10 percent behind, a staggering deficit considering that the number includes new fragrance entries. She suggests that the situation will not brighten until at least three issues are addressed. There needs to be more promotional investment in the classics, particularly in light of the fact that right now, Chanel is flying and Shalimar is doing well, as the two most senior brands on the bar. McDonald said she understands retailers’ preoccupation with newness, considering that has been the source of growth. But without existing business, the fragrance category will not grow and will eventually dry up, she argues.
The second playing field that needs to be leveled is the price-promotion environment across the department store sector. Fragrance and cosmetics is the only department that historically has not advertised price reductions, “and we’re getting hammered.” McDonald suggests changing the wording on fragrance gift sets to bring cosmetics into closer sync with the apparel and accessory departments, which are slashing prices this time of year. Instead of saying a price represents a certain “value,” the packaging should come out and declare that a certain percentage of “savings” is being offered. Finally, McDonald asserts that vendors and retailers have to solve the problem of staffing and training at the fragrance bar. Between what vendors spend on freelance rotators to stalk the aisles and what the stores invest in counter help, “we should have a stronger quality of selling,” McDonald said. There has to be a reallocation of investment and she tends to think that it should tilt toward higher quality, better trained permanent employees behind the fragrance bar. That could improve the shopping experience for consumers, McDonald suggested, pointing out that specialty stores have succeeded in doing exactly that.
While Art Spiro, president of Liz Claiborne Cosmetics, believes things most likely won’t change dramatically, he is “cautiously optimistic” the tide could eventually turn. Looking at the fragrance business as a whole during the first half, he said: “I wouldn’t project that everything will turn around in one day.” He added, however, “I think there will be a slight increase.”Claiborne’s approach in the first half will be two-pronged, featuring the rollout of a new fragrance masterbrand — Curve Crush, which has already begun selling in some of the vendor’s 2,200 U.S. department and specialty store doors — as well as a change in the company’s promotional tack. “There are issues we have to deal with as a total industry,” Spiro continued, “from store traffic to nonfragrance items on sale competing with fragrances.”
While Claiborne will maintain national print and television advertising efforts, Spiro noted, it has slated a music promotion for Curve Crush and a movie tie-in for its Spark masterbrand, which launched this fall. He also anticipates a first-half Curve promotion to include radio-based events and contests through an association with a major record label. For Spark, Spiro is eyeing a partner outside the fragrance industry for a big screen promotion. “We’re trying to reach the customer in a different way and to add entertainment,” said Spiro. “The product has to be relevant, of course, but customers are looking for more excitement [both] in the way the product is presented [and] in their shopping experience.”
“While nothing is guaranteed, we’re pretty optimistic,” said Don Loftus, president and chief executive officer of Cosmopolitan Cosmetics U.S. Inc. He pointed to two first-half initiatives for Cosmopolitan: the launch of a seasonal women’s scent, called Island Kiss, and enhanced promotional efforts surrounding Mother’s Day, Father’s Day and Valentine’s Day. “One thing we’re going to do is target our co-op efforts during gift-giving periods,” he remarked, adding that the fragrance industry as a whole could experience sales volume that’s flat to slightly up.
With Island Kiss, Cosmopolitan is continuing a seasonal fragrance franchise that garnered $30 million in the U.S. with last year’s entrant, Ibiza Hippie. The “best anticipated” of the seasonals yet, Loftus contended, Island Kiss, which will trickle into U.S. distribution later this month in advance of a March rollout, is expected to help Cosmopolitan “start the spring season strongly. Every year [the seasonal business] grows,” said Loftus, “because retailers put more support behind it and we’ve pumped up advertising and promotion behind it.”Island Kiss will be the recipient of stepped up Mother’s Day efforts, Loftus noted, including television spots and a gift-with-purchase program featuring a watch. Also, a significant first-half focus will be on Tony & Tina Vibrational Remedy Fragrance, which Cosmopolitan will launch on Dec. 26, said Loftus.
Cosmopolitan is also launching flanker fragrances, including an alcohol-free Gucci Envy Sun Mist in March and Ellen Tracy Imagine Shimmer in May. The company is also putting a new spin on Anna Sui’s Dolly Girl fragrance with an entry called Ooh La Love, which is slated to launch in Bloomingdale’s in May and features a different doll’s head design, a tweaked juice and retooled packaging. Cosmopolitan will also introduce a women’s scent from Charles Jordan, called The Parfum, in April.
“I don’t see anything on the immediate horizon that gives me hope for substantial change,” said Brad Horowitz, senior vice president of marketing for Clarins Fragrance Group. Industrywide, though, “I would expect that, with an improving economy, the business will begin to flatten out.”
Horowitz remains upbeat because — in light of industry trends — Clarins Fragrance Group “continues to gain market share and grow” at the fragrance bar, he contended. “We bring a steady stream of newness,” said Horowitz, “while supporting core, existing brands.” This strategy, a philosophy he dubbed “managed newness,” will receive major emphasis during the first half — as will bolstered service levels at the fragrance bar with Clarins’ own sales associates.
Part of the first-half newness stream Horowitz touched on is Boss Intense, a women’s fragrance from Hugo Boss scheduled to launch Dec. 26. Additional plans call for distribution of both the Lacoste Pour Femme and Hugo Boss Baldessarini fragrances to be expanded in the U.S., according to Horowitz.
Robin Burns, president and chief executive officer of The Limited’s Intimate Beauty Corp. and its Aura Science and Victoria’s Secret Beauty divisions, noted she is “extremely positive for spring 2004. I think momentum has a lot of effect on business and we’re going to be coming out of this fall with 12 percent growth. We’re having a tremendous season and the momentum from the fall will continue, so we’re expecting very high single-digit growth for spring.”Burns noted that the brand’s “transaction volume is up 10 percent versus last year and what they’ve been responding to is newness and innovation.” She expects this to continue. “I feel good about our strategy for spring; it’s focused on a lot of newness and innovation,” which will include new product introductions such as its new women’s fragrance, Very Sexy for Her 2, So Sexy hair care as well as new product line extensions in fragrance and color and in the shimmer category. Burns added that Aura Science skin care and color will roll out to 120 Victoria’s Secret stores for spring, and that the color business is up 35 percent.
It was a painful year for mass market cosmetics. Color sales fell for the first time in several years, with retail volume down about 1.1 percent as of early December. A weak economy, lack of new product introductions and troubles at Kmart were some reasons cited to explain the falloff.
There continues to be a shadow on the mass market, as Kmart struggles to find its footing. Longs also has experienced financial problems and Eckerd’s parent, J.C. Penney, is considering selling the drugstore chain.
Still, manufacturers clearly are gearing up for a positive 2004. Numerous product launches and line makeovers are being readied, including Maybelline’s reintroduction as Maybelline New York. Cover Girl, Max Factor and L’Oréal are all preparing major foundation launches, hoping to stem losses in the segment. And Revlon is pledging a breakthrough ad campaign that is slated to debut in March.
Looking forward, manufacturers believe sales could pick up 2 to 3 percent in the first half of the year.
“It is always hard to predict what the market will do, however, I can tell you that P&G Cosmetics will continue the path we’ve been on for the past three years — providing women with a steadystream of innovation leading to a steady stream of growth,” said Marc Pritchard, president of global cosmetics at P&G. “Specifically, we will continue to work closely with our retail partners to drive Cover Girl and Max Factor’s growth through multiple innovations in multiple segments, particularly face and lip.”Avon Products Inc. reported this week it expects its U.S. sales to grow in the low- to mid-single digits while international growth should be in the double digits in 2004. Andrea Jung, chairman and ceo of Avon, said Thursday that spurring Avon’s sales will be its Anew Clinical division, which markets dermatologist-like skin care products. “Our skin care in the U.S. is up 30 percent in the fourth quarter,” noted Jung.
She said there is also an increased focus on its Avon Beyond Color line with new products offering skin care benefits, including a lipstick with retinol and a lash-fortifying mascara. The company’s new Cellu-Sculpt body product has also done extremely well, and the franchise will be extended with new items in 2004.
Stephanie Klein Peponis, executive vice president, Revlon, said, “The indices suggest that 2004 will be stronger. However, if you look at the past few years of the category, it is still one of the consistently strongest and last year was an abnormality. We think we’ll see a pop...it does appear women are looking for a treat.”
“At Revlon, we continue to drive excitement and growth through terrific new products and the continued evolution of our communication of the Revlon brand. We will complete initiatives such as rolling out our carded eye program. We have some great promotional plans behind Havana Nights and we’ll continue to tie in to entertainment and to use our great stable of spokesmodels.”
She said the holiday has had a bit of a challenging start as a result of the weather, but she hopes the season will be similar to back-to-school when shoppers got out and showed they wanted to spend.
“We are looking for a positive first half of 2004 because retailers seem to be less cautious and willing to try new things. We are very optimistic about our Snapple lip products launch, which will build our business because it brings us into new doors,” said Steph Fogelson, president of Lotta Luv.
William McMenemy, executive vice president of Del Laboratories, expects total market sales “to be slightly up next year.” For Del’s brands, he said, “We are optimistic. We think that we will continue to gain market share in our core categories. But we are not looking at a banner year. We are looking at a difficult, but good year.”For mass fragrance, which has long been a difficult category, even the influx of prestige brands hasn’t been able to keep the category afloat this year with sales down about 11 percent through the fall.
But Eric Thoreux, president of Coty Beauty Americas, is feeling sunnier about next year. “We feel optimistic for the first half of 2004 as we foresee coming out of Christmas clearly ahead of last year, and we hope to continue a strong momentum behind our growth engines.” Thoreux said highlights include Celine Dion, which just hit a 9.1 marketshare for the month of October; Rimmel color with a new breakthrough mascara and new nail polish technology; Adidas toiletries, which has made inroads in the female segment, and the introduction of Stetson Untamed, which appeals to a younger audience.
Isaac Cohen, ceo of Dana Classic Perfumes, said, “There are signs of a revival in fragrance and that’s good news. There’s so much potential in classic scents at mass. As a supplier, we feel we have to do more to help retailers create the right environment for the business, and that is one of our biggest goals. Retailers are coming to us and asking how they can do more fragrance business.”
The $5 billion hair care category can expect a rebound to historic levels next year, given the economic recovery.
Driven in part by a focus on big brands from the industry’s top three manufacturers, Unilever, L’Oréal and Procter & Gamble, brands such as Suave, Dove, Pantene, Clairol Herbal Essences, Garnier Fructis and L’Oréal Vive will receive the brunt of attention in the first half of 2004, according to Andrew Gross, brand development and marketing vice president, Unilever hair care.
For the most recent 52-week period, sales of hair care products were on the slide, with shampoo sales falling 1.6 percent, conditioner sales slipping 1.5 percent and hair spray sales falling 6 percent, according to Information Resources, Inc. The only segment posting gains, according to IRI data, is the styling segment, with 0.2 percent growth.
Clear-cut hair trends, such as big, voluminous hair, look to keep sales of styling products in a positive light and present an opportunity for brand extensions and marketing. Therefore, products delivering these results, such as Dove Foam Conditioner and certain Pantene sku’s, will likely be front and center.Other trends, such as professional styling products, value items and ethnic-positioned products will be a focus. Gross said the company’s Suave’s Professionals line will meet demand for professional- caliber products, while Hispanic marketing programs are planned for both Suave and Dove. Don Kauffold, Unilever’s customer marketing director, hair, added that innovative, new products will continue to provide opportunity for consumers and retailers.Alberto-Culver’s Alberto VO5 Nourishing Oasis is one of the most anticipated launches in the first half of next year, as well as John Frieda’s Brilliant Brunette, a 13-item hair care and styling line that looks to complement the company’s 1998 hair care success, Sheer Blonde.
The men’s hair care market is also a prime growth opportunity in 2004: No fewer than three men’s lines are hitting shelves during the first six months of the year. L’Oréal Vive is planning men’s variances, as is Continental Consumer Products, under the M Professional brand. Idelle Labs, a newly formed company by Helen of Troy, is out to capture the men’s market, too. Vitalis, a decades-old hair treatment brand, is expanding into an eight-item hair care line, to include three shampoos, two conditioners, a pump hair spray, an aerosol hair spray and a gel mousse.
The bath category is also expected to emerge from its slump. Stephanie Hayano, vice president, cosmetics and toiletries, Cos Cos, said 2003 was certainly a year in which retailers consolidated slow-moving brands. Yardley, in turn, benefited as space became more available from cuts on Sarah Michaels and private label products. Sales decrease in the bath category has also slowed, according to Hayano. “Last year at this time the category was down 6 percent. Now it’s down 3 percent” to $3.4 billion.
For 2004, more newness is coming into the category, such as items with a point of difference, that is expected to drive sales.Brands like Dove, Suave and St. Ives are ones to watch, Hayano said, as well as Yardley’s Secret Cottage and Apothecary. “There is a whole new generation of consumers that have been exposed to specialty shopping. They know they can have skin care benefits with their bath products and that’s what they are now looking for in mass.”
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