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Celebrity Fragrance 3.0

With Hollywood stars losing their luster in department stores, Pete Born ponders the future of the once bright category.

Party fatigue is setting in for the celebrity fragrance scene.

Nine years ago, Bernd Beetz, chief executive officer of Coty Inc., had the enviable task of appearing onstage with Jennifer Lopez to unveil the introduction of her first fragrance, Glow. That simple act added a new pillar to Coty’s business and hurled an adrenaline jolt into the heart of the fragrance market. It energized an industry that had begun to suffer from a relevance deficit, as young adults stampeded to spend their gift dollars on iPods and designer bags. With an age target of 15- to 25-year-olds, Lopez brought the answer—first-year sales of $80 million.

That success triggered a rush by fragrance manufacturers to sign up every celeb with even the slightest name recognition. But a Darwinian process has begun to grip the market, separating one grade of celebrity from another. Not every star can still expect to make it big. “Only the biggest superstars will be hugely successful in terms of market share and longevity,” one fragrance marketer sniffs. (Sorry, Snooki.)

Judging from the grumblings of retailers (who are backed up by the latest sales figures), it’s time to change the music to something more up-tempo—bigger stars and fragrance ideas with broader shoulders. Every executive from department stores to big-box retailers say they are getting more selective in picking which celebrity scents to launch.

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No wonder. For 2010, celebrity scents hit a 14 percent decline in the prestige market, according to The NPD Group. Women’s celeb scents eked out a 1 percent increase, but men’s nose-dived by 48 percent, due to a lack of powerful launches. Admittedly, the category comprises only a small percentage of department store sales. The “locomotive,” as one expert puts it, is the mass market—in particular, the promised land, known as the Wal-Mart planogram, where celebrity scents once could expect to live happily for five years. Now it’s closer to three, say some experts.

A blockbuster like Beyoncé Heat by Beyoncé Knowles scored twice, exploding first in department stores in February 2010, before dropping to 21 by June. (Its first flanker, Beyoncé Heat Rush, launching this month, is expected to boost department store sales again.) Meanwhile, the original scent was a solid number one on the top 10 list of mass women’s launches—all of which were celebrity scents—compiled by the Symphony IRI Group, which doesn’t include figures from Wal-Mart. But even with all the star power, sales of women’s celebrity scents were up only 1 percent and men’s were down 2 percent, according to IRI.

Celebrity has become the name of the game in mass, commanding the lion’s share of launch revenue. Victoria Gustafson, vice president of beauty vertical at IRI, analyzed the introductory results of launches over $300,000 for the last three years. In 2008, seven women’s celebrity scents generated $10.7 million in sales, representing 72 percent of dollars produced by all the launches that year. By 2010, 12 launches produced $24.7 million in sales for a whopping 89 percent of launch dollars.

One mass retailer complains, “The industry ended up doing too many deals with celebrities. There are too many flankers and not enough advertising.” Another big-box retailer asserts that celebrity brands must evolve into a more sustainable day-in, day-out proposition. She praises Halle Berry for getting behind and promoting her brand, producing consistent results. Virtually everyone points to the staying power of Elizabeth Taylor’s White Diamonds, the 1991 grandmother of celebrity scents that still ranks number one on IRI’s list of women’s brands.

The success of White Diamonds exemplifies the coupling of a wildly popular star with great product execution. Karen Grant, vice president and global industry analyst at NPD, draws a parallel with the success of Jessica Simpson’s shoe business. “The styling is wonderful, they’re current and they’re comfortable,” she says of the shoes. “You don’t care that it’s Jessica Simpson. You just say these are great shoes.

“If you want to do it in fragrance, take that same logic and say what can we do to make this a great fragrance—amazing packaging, something novel, something olfactively that’s going to excite,” she continues. “The celebrity association is less the driver and it is more of a vehicle to get exposure and elevate.”

Even though retailers generally say they’re getting more sceptical about launch propositions, they haven’t lost their appetite for the big prospects, like next year’s Lady Gaga introduction from Coty, which is also planning a big new Beyoncé launch in the fall. Anticipation is building for the Justin Bieber women’s launch in the summer and Elizabeth Arden’s Taylor Swift scent in the fall.

Unfazed by the static over the sales gyrations, Coty’s Beetz says he doesn’t pay attention to the ups and downs of the market. What matters, he says, is to focus on the right “pockets of relevance to the consumers,” formed by the most viable celebrities. If he can market to that pocket of relevance, his business will thrive, he says, noting that his Playboy, Beyoncé and Halle Berry businesses are all on fire.

Elizabeth Arden, another pioneer in the revival of the celebrity category, is still a big believer in star power, especially with the Swift launch on the horizon. E. Scott Beattie, president, chairman and ceo of Arden, acknowledges that the category is overpopulated and going through a normal maturation and consolidation process, but he asserts the brands of substance will rise to the top.

Beattie maintains that analysts are sorely mistaken in focusing on the U.S., which does only 16 percent of the global fragrance business and has flat sales to boot. In comparison, the global business has been showing a 6 percent gain on a compounded basis for the last five years. “American celebrities travel well around the world,” he says.

It is axiomatic in the business to look for stars with international appeal—like David and Victoria Beckham. The more units manufactured, the lower the cost of goods, the more money available for advertising and promoting and the more brand awareness. The threshold to long-lived success is breaking through the $50 million net sales barrier, according to one manufacturer.

But getting there is tougher than ever. Says David Wolfe, creative director of trend forecasting firm The Doneger Group: “The consumer is getting kind of numb. The celebrity fragrance business is probably more successful than celebrity fashion, but both are at the saturation point.”