EVIAN, France — Is the fragrance industry in crisis?

It all depends on who you ask, according to participants in a town hall–style meeting at the WWD Beauty CEO Summit here.

According to Patrick Firmenich, chief executive officer of Firmenich S.A., "If you look at the industry over the last 10 years, we have experienced a growth of about 5 percent on average. It’s in the last year that we’ve started to see a worldwide decline of about 3 percent, a decline that has been stronger in the U.S. But from where we sit as fragrance suppliers, the category has grown and can still grow much more."

One hypothesis put forward was that the fragrance industry itself is not in crisis —?it is the prestige distribution that until now has driven that business that is in trouble.

Errol Stafford, president, fragrances worldwide for Givaudan, believes that the consumer identifies with prestige fragrances, but what turns her away is the intimidating experience of shopping in a department store, he said. Consumers are "channel-zapping," he believes, looking for the service, experience and product they want.

"We suspect that there is not a major problem in fragrance consumption in our category, it’s just that two things are happening," agreed Camille McDonald, president and chief executive officer of Parfums Givenchy, American Designer Fragrances and Guerlain. "Consumers are changing where they’re buying it, and they’re changing the way in which they’re buying it, in terms of bath and body and home fragrances."

Mark Crames, ceo of Freedom Marketing Group, chalks the talk of a crisis up to "an American myopia of the fact that we have trouble doing business and making money in department stores," he said. "We sort of ignore the growth that we’ve seen in specialty retailing. It’s huge; it’s just in a different place than most of us are used to competing. There’s a whole lot of designer fragrance that isn’t sold in department stores. I don’t know that we have a crisis; maybe we’re just focusing in the wrong place."

Crames believes that the industry needs better measurement of where fragrances are sold, adding that NPD and IRI each target a segment of the business but not the business overall. "If we did that, I think we’d see unit growth. Everyone talks about declines, but I think it’s because we’re not capturing it properly."McDonald noted that vertical retailers and bath and body chains began taking business away from department store fragrance departments about 10 years ago. And even today, they are the beneficiaries of all the adjustments that department stores and vendors made in order to address the initial loss of market share, she contends. Among the trends that contributed to losing that share in the first place: constant promotion that in the end collapsed like a soufflé, said McDonald, as well as the move of specialty retailers into malls, attracting post-baby boomers who were never completely comfortable shopping in department stores. "Department stores have a major and consistent loss of volume and traffic and a consumer base," she said.

Another manufacturer, who would not speak for attribution, believes that the paradigm has changed — that the consumer’s perception of value, as well as where consumers will shop for fragrance, has shifted over the last decade. "This industry isn’t in crisis," the manufacturer contended, saying that the "arbitrary distinction between mass and class" have led to problems in the industry. "The consumer is buying across channels and is looking for accessibility for their products. The consumer has made [her] decision." That decision is to buy fragrances in such doors as Wal-Mart and Target in the U.S., according to the supplier. "What we have to do as an industry is use these channels in a complementary way. The department store channel creates the excitement, but that’s not where the consumer is shopping."

As the excitement wanes, contends the supplier, the brands should move into broader base of distribution such as drug stores and mass marketers that capture greater traffic. This plays out in this supplier’s business, which counts classics like L’Air du Temps, Opium, Eternity, Cool Water and Shalimar among its top sellers.

"The consumer is determining brand strategy — it’s already done," the supplier said, adding that the consumer wants the flexibility to buy the same brand — not a spin-off brand — in more channels. "The value proposition is different at mass — you’re not offering the gifting and promotional or the same sizes, but the customer sees their brand in Kohl’s or Wal-Mart, sees it’s a good value, doesn’t want all of the promotional, and puts it in their cart. But when they want a gift set for Christmas, they’ll go into department stores."Lyn Kirby, president and chief executive officer of Ulta Salon Cosmetics & Fragrance, added, "My recommendation would be to recognize that with cosmetics, fragrances and skin care, not everyone wants the department store experience. The alternative experiences that are being offered are providing very positive growth. It is an incremental sales opportunity for the brands."

So the paradigm is shifting. What’s a retailer —?or a supplier — to do?

In the past, the response was to increase newness?"that replaced promotion and gave department stores more of a point of difference to stores like Bath & Body Works," McDonald said. That escalated until it comprised over 30 percent of the fragrance category, meaning 20 to 50 new launches each year, she said.

Newness, however, can be a vicious circle, McDonald noted. "It’s got the total focus of the retailer real estate, inventory dollars and any spending that they do. It is also the only leverage I have with them. If I don’t have a launch to talk about for the season, it doesn’t matter how much business I have with them otherwise — I’m really not on the negotiating table. In order to pay for all these launches, we steal investment from core brands, the core brands go down, and there’s more volume lost. And adding insult to injury, everyone’s cited the statistics on how new launches don’t work. The statistics that I have indicate that only 7 to 9 percent of all the launches are still in the top 20 three years later." That adds to even more volume loss, she pointed out. "We spent on the newness," she said, "but the newness didn’t last. We stole it from the old brands, which then declined. So we’ve got a double whammy: a volume loss adding to the initial volume loss the newness was meant to replace."

And the cost of newness then causes major oil houses to "bland out" their offerings, she contends, because they can’t afford to take a chance —?so everything looks and smells alike. Classics get lost because of the constant newness push, and consumers get turned off due to the lack of familiarity, she added.There are better solutions, believes Beth Pritchard, president and chief executive officer of Bath & Body Works.

"We need to entertain the customer," Pritchard said. "As we go forward, she is looking for health and well-being. We have to give her an experience where she laughs, she lingers and she learns. If we do that, we will sell more fragrance, body lotion or other items."

McDonald’s suggestions are that the vendors and manufacturers get together and put a quota on newness. "Let’s say that only 15 percent of their business that season should come from newness." That would translate to a certain number of launches, which would require retailers to choose fewer of these new brands. "That would also force me to better market classic brands."

Firmenich believes that the industry needs better market segmentation. Basically, he said, it’s impossible to be all things to all people —?and attempting to target ages 7 to 77 with one fragrance is backfiring. Reducing the number of launches needs to happen, as does reducing the number of me-too products. "We need to be more unique," he said.

And while he believes that suppliers should experiment more, Firmenich contends that that will require a collaboration between the oil house and the fragrance company — as without knowing the fragrance’s name, bottle or advertising, it is difficult for an oil house to come up with a fragrance that works.

Stafford agreed. "When we’re involved in a briefing process, the target is very often unclear, expands over time, and the position changes — we have very little input or idea as to what the packaging or advertising will be," he said. "If you’re talking to a creative perfumer or group of marketers trying to be as in tune with your needs and the needs of your consumers as you are, you’re losing an awful lot by not sharing this information with the supply team."

Other oil house executives heartily agreed. Said Roger Schmid, president worldwide, perfumery and cosmetics, for Dragoco: "A lot of fragrances are maybe not successful because we are not given the time to finish them."Nicolas Mirzayantz, vice president, global business development, fine fragrance and toiletries for International Flavors and Fragrances, added, "Development time has been shrinking to about three months, and we see more time given to testing than to the development of the fragrance itself."

In addition to rushing to market, Timra Carlson, vice president of NPD BeautyTrends, said that companies’ desire to play it safe and achieve high rankings for new scents may also be slowing down innovation in the fragrance industry.

McDonald agreed, adding that she believes that is for financial reasons first and foremost. "Everybody’s shooting for top 10 because the patience factor financially isn’t there on either the retailer side or the vendor side," added McDonald. "People don’t take chances because they’re trying to hit that number-10 slot very quickly."

Australian retailer Jo Horgan, owner of Mecca Cosmetica, thinks that suppliers need to think outside the box, much like what makeup artist brands did with another mature category, cosmetics. "Yes, it takes patience to go down that track," she said. "But specialty retailers are dying for something different, and we’re not getting it."

Marc Pritchard, vice president, global cosmetics and personal care for Procter & Gamble, suggested that retailers work with manufacturers to open experimental stores, and try new things with formats and entertainment experiences. "We’ve had a lot of success with this at mass," he noted.

All in all, however, panelists and audience members agreed, the fragrance market is not the same market that it was 10 years ago —?and in order to be successful going forward, it is critical to realize that and to be proactive, rather than reactive, in dealing with that fact.

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