WWD.com/fashion-news/fashion-features/ctfa-scent-market-remains-challenging-737652/
government-trade
government-trade

CTFA: Scent Market Remains Challenging

The challenging fragrance market was the main topic of conversation at this year’s CTFA conference in Boca Raton, Fla.

BOCA RATON, Fla. — The weather might have been sunny at this year’s Cosmetics, Toiletry and Fragrance Association annual meeting, but the mood inside the poolside cabanas and conference rooms was largely overcast.

Despite a conference that drew an impressive lineup of industry heavyweights including Jean-Paul Agon, president and chief executive officer of L’Oréal USA; Andrea Jung, chairman and chief executive officer of Avon and chairman of CTFA; Jack Stahl, president and chief executive officer of Revlon; Werner Hofmann, senior vice president of Cosmopolitan Cosmetics, and Dan Brestle, a group president of the Estée Lauder Cos., “the mood is one of concern and uncertainty,” said Brestle. Brestle, who is also one of the vice chairmen of CTFA, pointed out that no matter what topics are discussed — whether it’s banning ingredients outright or the labeling issue — the conversation always returns to the same question: “When is the business going to get better?”

Jung added that while the mood is “cautiously optimistic,” a looming political agenda means that everyone’s taking a cautious stance.

Brestle said the overriding attitude seems to be that executives are ready to deal with lingering problems — once the yoke of recession is off their backs. And with the country investing so much in security infrastructure right now, the short-term prospects look challenging. “It’s sobering how much better companies are going to have to be to maintain profitability,” he noted.

As for the different categories of business, skin care and color cosmetics are both doing just fine. But fragrance is deeply challenged — and the category’s problems have been building for four or five years. Fixing it is no simple matter: it’s a complicated situation with a number of aspects having to be addressed, said the executives.

For one thing, the launch frequency has been increased to the point that the former lifespan parameters no longer apply, as more fragrances appear more often, flooding the market. Brestle thinks the resultant lack of profitability will naturally thin out the overcrowded field. However, he worries about the more ingrained problems of changing consumer habits. “Fragrance as a final grooming step has been lost,” he said, noting that people no longer automatically apply fragrance as part of their everyday grooming routine. Now it’s used for special social occasions.

What is needed is to restore the giftability of the product, just as one of his brands, Jo Malone, turns the act of purchasing into a ritual. One solution, Brestle suggests, “is to look for different ways to present fragrance as a nice gift.” As for the business of selling the fragrance, he added, “We’ve got to do more to reinvent the point of sale. We can’t drive people into the store with more advertising and gifts. We have to drive them in with service.”

Brestle’s sentiments about reinvention were echoed by nearly every fragrance marketer and supplier at the conference, most of whom bemoaned the accelerated launch pace and the one-off trend as being negative for the fragrance industry.

“Everyone thinks the answer is new, new, new,” said Joseph Horowitz, president and chief executive of Groupe Clarins USA. “We’ve seen the greatest acceleration of newness ever, and it hasn’t helped much. I think the answer is to bring back the romance of the category. In the old days, fragrance was sold with a mystique, with great salespeople. How do we get back to that? We need to focus on training and energizing the sales staffs at the counter.”

“In addition to great fragrances, we need consistency in marketing and good training,” said Jean Hoehn Zimmerman, executive vice president of sales and marketing for Chanel’s beauty business. “Many people have cut back on training and that is a huge mistake. We need more intensive training, not less of it.” Hoehn Zimmerman advocates an industrywide version of the Fragrance Foundation’s certification program. “We need to be training knowledgeable people. We have to make selling fragrance glamorous and desirable again.”

One challenge to training, said several sources, lies in lean in-store staffs. Retailers have scaled back on store staff, and are reluctant to allow beauty selling staff time off the floor for training programs, even when the beauty brand is paying for it — forcing some companies to rely on training sales consultants via videotapes that they watch on their off-hours, if at all.

“There needs to be a change in thinking on that,” said Hoehn Zimmerman. “The training can boost the consultant’s commitment to the brand, and help boost its profitability at the store level. And that benefits everyone in the end.”

Don Loftus, president and chief executive officer of Cosmopolitan Cosmetics, agreed, noting that fixing the training issue “is a big part of fixing the fragrance problem.”

“Fifteen years ago, fragrance counter manager was a prestigious position,” said Loftus. “We need to make it that way again.” Paul Austin, vice president, fine fragrances, for Quest International, agreed: “Fragrance is no longer as aspirational as it once was, and fixing that will go a long way.”

Loftus also noted that retailers need to give more space and attention to the fragrance bar if it is to succeed going forward. Generating excitement via specialized distribution is another technique Loftus is employing. This year, Cosmopolitan Cosmetics is doing a number of exclusives with retailers, such as Ghost Deep Night with Nordstrom and Anna Sui’s Dolly Girl with Bloomingdale’s. The chosen door gets the scent first for a set period of time, then it is rolled out to broader distribution later. “We nearly always open specialty store doors first, then expand to upscale department stores,” Loftus noted. “It’s a strategy that continues to work for us.”

Also key are Cosmopolitan Cosmetics’ designer fragrances and their positioning: “Fashion houses such as Burberry and Gucci are very image-conscious, and that works in our favor,” said Loftus. The company does 75 percent of its fragrance business in designer-related scents from Escada, Ellen Tracy, Gucci and Burberry.

That’s a strategy that Adrian Ellis, co-owner and partner at Riviera Concepts, also embraces: “Even though times are tough, millionaires still have money,” he said. “The rich are still rich, so we’re going where they are.” For Ellis, that translates to designer fragrances like the just-released Lulu Guinness scent and the upcoming Nanette Lepore scent, expected to be released early next year. “We’re selling fragrances where the designers are selling their clothes — we’re going places where the big guys aren’t going,” Ellis added. “We may not do a $50 million fragrance, but we successfully do a niche.”

In fact, realistic expectations are another key to conquering the current challenges, added several executives. “A lot more scents don’t make it than do make it,” Loftus said. “It’s a mistake to expect a new fragrance to be Obsession on the first day. And not every brand is going to be a $30 million brand.”

“Since people want an immediate success, they’re not giving the brands the time that they need to develop, and the fragrances are dying quicker and quicker,” said Veronique Gabai, vice president, fine fragrances North America for Symrise. As reported, Symrise is the new company born from the merger of fragrance suppliers Haarmann & Reimer, Dragoco and several others.

“Many people want an [Thierry Mugler] Angel overnight,” agreed Demi Thoman, president, fragrances North America, for Quest. “That doesn’t happen in most cases. Fragrances have to be given time to build. People forget that Angel had a slow build, but it has endured. And what will be successful will be those scents that have a memorability, a signature. Too many people are doing one-offs, variations, and one-season scents. They may be a success for one season, but they are fillers.”

Several sources believe that one-offs and their resultant clutter at the counter can actually confuse the consumer. “What has made the industry great over the years is that people aren’t afraid to take chances,” said Tim Schaeffner, who is president, fragrances of Symrise. “While you may get a fragrance that polarizes the industry, you also get a fragrance that evokes strong emotions. And that’s what we need.”

Thinking long term is particularly critical given that “the issues of difficulty in the markets have been on the table —and unfolding — for some years,” said Patrick Firmenich, chief executive officer of Firmenich S.A. How can they be fixed? “There needs to be a joint effort between the fragrance supplier and the fragrance marketer, as well as distribution solutions,” he said. “Everyone needs to contribute in their own area. We also need to develop fragrances that last, for the long term. While the development of flankers is an interesting strategy, it is geared to the short term. Right now the industry is looking to the medium to the short term but it’s important to remember the long term.”

Also, said Firmenich, “The industry isn’t growing evenly. Asia and China are growing very fast, and there are some segments in the U.S. fragrance market that are showing strong growth. For the most part, they are channels where you control your own distribution, such as Bath & Body Works and Victoria’s Secret Beauty.”

Focusing on consumer desires is also key. “We began our Consumer Edge program two years ago, which focuses on consumers and what they need from fragrances,” said Nicolas Mirzayantz, vice president of global business development for International Flavors and Fragrances. “It’s important to look at fragrances in all consumer beauty products, whether it is an eau de toilette or a shampoo.” In fact, Mirzayantz believes so strongly in hair’s potential that IFF has recently opened a four-chair salon in its New York headquarters.

Also, for freestanding scents in particular, “we’re working much earlier with the brands we partner with to maximize the brand interpretation, which optimizes the results from the beginning,” said Mirzayantz. “Bringing the perfumers into the process earlier is especially helpful in terms of helping them focus their vision.

“We need to bring creativity and interesting concepts back to the fragrance industry,” said Marc Rosen, president of Marc Rosen Associates. Speaking of all of the one-offs flooding the market, Rosen said, “there are too many incremental fragrances right now.” As far as growth, Rosen believes the greatest area of opportunity right now is in a mix of fragrance and skin care. “There are fragrance opportunities in skin care,” he said. “Brands that are offering fragranced ancillaries, particularly those with skin care benefits, should see growth.”

In the end, it comes down to finding solutions, not placing blame, say many. “Everyone’s pointing fingers at each other —?it’s the retailer, the marketer, whoever,” said Michel Mane, president of Mane USA. “What it comes down to is we all need to work together.”

E. Scott Beattie, chairman and chief executive officer of Elizabeth Arden, believes that developing additional channels of distribution can help solve the problem. While sales in traditional department stores are challenging —”The amount of discounting in department stores is challenging, and gifts with purchase aren’t compensating for discounting in other arenas,” Beattie said —?other markets, such as discounters, can help bridge the losses. Beattie’s company, which operates in both department store and discount channels, recently won Wal-Mart’s Supplier Award of Excellence for the fourth quarter in the cosmetics, skin care, fragrance and bath-and-body category.

“Accelerating other channels of distribution can definitely help,” agreed Errol Stafford, president, fragrances worldwide for Givaudan, who acknowledged that there are some “roadblocks” with department store distribution. “There is growth out there — take Elizabeth Arden and Wal-Mart, for instance. We just have to find it.”

Linda Marshall, president of Elysee Scientific Cosmetics, who sells her products through Home Shopping Network, salons and doctors’ offices, sees opportunities in alternative channels of distribution, particularly channels like HSN. “The home shopping area is one that will continue to grow, particularly as the U.S. population ages,” said Marshall.

John Galantic, president, Coty Beauty U.S., is bullish on new distribution as well, a principle that’s being put into place with the brand’s new Celine Dion scent. The scent is being positioned as a moderate-priced department store fragrance and is entering doors such as J.C. Penney and Ulta this month. “The U.S. fragrance market is struggling and needs new ideas to drive growth,” said Galantic. “At Coty, in order to create new exciting lifestyle brands, we are going beyond the fashion license and into the booming culture of celebrity. Our new Celine Dion parfum is another step in creating a new lifestyle brand which captivates and entertains consumers. A brand like Celine Dion parfum, with its prestige values, transcends the old trade channel barriers, as evidenced by our distribution in mid-tier department stores like J.C. Penney, as well as our presence in Sephora and Ulta.”

Jung, whose teen brand, Mark, is set to launch during the third quarter of this year, agreed that “unique thinking” can lead to success. “We’re feeling good about our product pipeline,” she said. “And we’re looking for another strong year. Latin America has stabilized, and the currencies there are working more in our favor. Russia, China and Eastern Europe are strong.” The brand’s BeComing line, originally in mid-tier retail doors such as J.C. Penney, is being repositioned as an exclusive line to be sold by top-producing Avon representatives, she noted. “While we’re changing the BeComing strategy, I still believe that retail is a strong opportunity for a leading beauty company,” she said. “Overall, I consider BeComing one of the greatest learning experiences I’ve had since becoming ceo. Our shareholders didn’t lose from it, but we learned a lot from it. At the end of the day, we didn’t have the right partnerships, but it’s a great brand.”

“The economy is a challenge, but our basic business is strong,” said Heidi Manheimer, president for U.S. operations of Shiseido Cosmetics (America) Ltd. “The only plus to this economy is that all of our partners are really looking to strengthen their partnerships in every sense of the word — so we have confidence that we’ll all get through this together. We’re planning to focus on continuing expansion of our basic business and to continue getting the strength of the Shiseido name out there. Skin care still represents a great area of opportunity.”

In general, mass marketers — both those invested in fragrance and those that are not — were considerably more upbeat than their prestige market counterparts. As well, several — including Agon — spent part of their time doing store checks in the Boca Raton area.

Stahl noted that “our brands are responsive. Our products are affordable — the price points allow a wide range of women to afford them, which is a positive in any economy but particularly one like our current one.” In addition, said Stahl, a number of new products with both the Revlon and Almay names are planned, adding to the freshness in-store. Foundation and nail products under Revlon’s ColorStay banner are hitting the market now, he said, and more additions are planned. As well, Almay is adding a new touchpad technology for foundation that is “unique in mass,” said Stahl. “We feel good about where we are,” he said.

Marc Pritchard, vice president, global cosmetics and personal care at Procter & Gamble, noted that P&G’s beauty business is “doing very well — in fact, we saw double-digit growth in the last sales quarter,” he said. In part, that success is due to P&G’s broad-based beauty strategy, he said: “We have a great diversity of beauty — from makeup to deodorant,” he said. P&G’s fine fragrance unit “is on fire,” said Pritchard, noting that the brand’s Hugo Boss business is doing “extremely well,” as are new scents from LaCoste and Jean Patou that in the U.S. are distributed for the firm by Clarins.

Classic color brands Cover Girl and Max Factor continue to do very well also, Pritchard said. “Realizing that we live in the land of endless launch, we continually revamp and freshen existing products,” he said. For instance, Cover Girl’s Outlast lip color is gaining a new version, Outlast Pearls, while the brand will also restage its eye shadows, “because we haven’t redone those in awhile.” It’s a strategy Pritchard carries to each of the firm’s brands: Max Factor’s Lipfinity long-wearing lip color is gaining a Luster version, and Olay, “which continues to grow,” gains a new serum, among other items.

William McMenemy, executive vice president of marketing at Del Labs, was also bullish on business. “We’ve grown a credible share of the business,” he said, adding that the firm’s sales and profits continue to be on an upward swing. Marketshare in core categories is outpacing the industry —”Marketshare for the Sally Hansen nail business is up 25 percent, and nail color has seen a 27 percent marketshare increase,” he said. Implement business is up 16 percent, and the Sally Hansen brand is now entering the color cosmetics business with Sally Hansen Healing Beauty, he said. “We’re optimistic, but we do realize it’s a difficult economy,” said McMenemy. “It’s the kind of environment where we’ve got to have aggressive plans in place. But our plans are as aggressive as they were when the economy was good.” In fact, plans are in place for several new lines, he said.

“Our packaged goods business is booming,” said Howard Bernick, president and chief executive officer of Alberto Culver. “We’ve quadrupled our St. Ives business since we acquired it seven years ago, and overall we have seen 11 record years for the company. The economy may be bad, but people don’t stop washing their hair.” But Bernick’s not one to rest on his laurels: “The margins still have room for improvement,” he said.

The economy did have a negative effect on the attendance at the conference, which was said to be about 620, compared with 2002’s figure of 730. These numbers are down from a high of just under 1,000 in 1999. Still, those that were there were enthusiastic about the evolving business program at the show, noted Edward Kavanaugh, president of CTFA. In the past, speakers often included people from the government sector. Speakers this year addressed such topics as selling in China, surviving negative publicity and making brands must-haves. The changeover to more business-oriented topics was kicked off last year with keynote speaker Leonard Lauder, chairman of the Estée Lauder Cos. “Our business program and speakers are very relevant to the attendees, and we’ve gotten very positive feedback on them,” noted Kavanaugh. A revamped business program was one of Jung’s goals when she took over as CTFA chair several years ago.