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Fragrance Foundation: The Fashion Effect

Logo-loving Millennials are driving a new generation of growth in the designer fragrance category.

Despite a slight market softening, the designer fragrance business is moving ahead, sharpening its fashion resonance with Millennials and building momentum toward a heftier fall launch season.

After weathering a rough December, beset by painful calendar shifts and other setbacks, key manufacturers and retailers are bullish about the second half of the year.

Fragrance franchises are being broadened, even into skin care. The Estée Lauder Cos. Inc. will expand its Tom Ford skin-care line in September, and Coty is also working on a treatment project, particularly for Asia, according to Edgar Huber, president of the Coty Luxury division. Other Coty designer brands — such as Gucci — are diversifying into color, although scent remains dominant.

All of the activity is driven by a renewed sense of fashion currency in the fragrance arena.

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“The [designer] brands are celebrities again,” said John Demsey, executive group president at the Estée Lauder Cos. “Designers and fashion have come back into the forefront of being celebrities unto themselves.”

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At least in terms of buzz, “the Seventies and the Eighties are back,” he added.

Demsey’s enthusiasm is shared at Macy’s, long considered the prestige fragrance retail leader. “We had an exceptional year in fragrances,” said Nata Dvir, senior vice president and general manager of beauty at Macy’s. “We gained market share, pretty consistently throughout the year and definitely in the fourth quarter.”

Dvir agreed with Demsey that designer fragrances share some of fashion’s “badge appeal.”

“There is so much logomania happening right now that the brands are winning because of that, too,” she said. “They’ve done a great job of working with the houses and the designers to make sure that the fragrance is connected to what’s happening in fashion. The designers are really engaged with fragrances.”

That has resulted in scents with global appeal.

“The market for designer fragrances worldwide is very dynamic,” Huber said. “We see very strong development in China, very strong performance in travel retail, some European markets [that] are very dynamic, and the U.S., throughout the year, has been very dynamic, too,” asserted Huber, whose company recently renewed its license with Marc Jacobs.

The enthusiasm is shared at L’Oréal, whose scents by Yves Saint Laurent and Giorgio Armani rank as bestsellers. “We believe strongly in designer brands,” said Xavier Vey, president of L’Oréal Luxe in the U.S.

L’Oréal sent a competitive signal to the industry last year when it acquired the beauty license of Valentino. “The big shift that is happening with these designers is [they are] suddenly becoming the darling of the Millennials,” Vey said, pointing to the popularity of shoes and, by extension, fragrance. “We are the entry of this designer world.”

Kate Oldham, senior vice president and general merchandise manager of beauty and fragrance, agreed, “At Saks, many of our customers experience their first designer purchase in the fragrance area,” she said.

Vey enlarged upon the point. “We strongly believe that there is a big place for fragrance in this market,” he said, “and we are over-investing in making the U.S. a bigger fragrance market.”

Historically, America has had a reputation for being an entry-level market, particularly for accessible-priced cosmetics, like a $20 lipstick. But Vey has seen a marked shift. “There is a place for high-end designer brands — you see the growth of YSL in lipstick,” he said. “We believe there is even more room to come. That’s why we decided to sign Valentino.”

To cement the point, he pointed to the disparity in market share for fragrance in Europe — at roughly 60 percent — and in America, where the comparative share is 23 percent, according to the NPD Group. “There is no reason that the market can’t grow faster on fragrance,” Vey insisted.

L’Oréal’s answer has been to launch and innovate, starting with three YSL fragrances in a row — Black Opium, Mon Paris and the Y men’s scent. “It’s four years of double-digit consecutive growth,” Vey said, declaring that all three introductions were a success.

As for L’Oreal’s other big designer brand, Giorgio Armani’s Acqua di Gio Pour Homme turned in a 23.2 percent increase for 2018, with the launch of the new Absolu iteration, which ended the year ranking 10th, according to L’Oréal. The parent Acqua di Gio finished 2018 in second place.

Retailers are bullish on the category. Nordstrom was said to register a strong sales uptick in designer fragrances in 2018. According to industry sources, the strongest performances came from Chanel, YSL, Dior and Tom Ford. Those brands combined reportedly delivered a double-digit increase, growing faster than the total trend. The store is believed to have scheduled fall launches by YSL, Valentino, Dior, Victor & Rolf.

Nordstrom executives had no comment.

The picture is equally as rosy at Saks. “The fragrance business continues to experience strong growth,” Oldham said. “We’re particularly encouraged to see both designer and artisanal brands performing well.”

After marking the first anniversary of the opening of its second-floor beauty department in the Fifth Avenue flagship, Oldham said, “We’re looking forward to introducing new fragrances [for fall] from many of our top brands: By Kilian, Maison Francis Kurkdjian and Jo Malone’s new holiday collection.”

Fragrance is performing well in Bloomingdale’s revamped flagship beauty floor, as well. “We are feeling very bullish in outlook for fragrances for fall,” said Stacie Borteck, vice president and divisional merchandise manager of beauty and fragrance. “A combination of launches, experiential promotions and luxury growth is a winning strategy for us.”

The spring business has been fueled by a combination of luxury fragrance brands and niche collections, with designer labels holding “steady,” according to Borteck, who ticked off a long list of projects from Tom Ford, Jo Malone, Creed, Maison Francis Kurkdjian, By Kilian, YSL, Gucci,  Creed, Dolce & Gabbana and Hermetica as standouts.

Bloomingdale’s, which said it had a strong holiday through December, also has an ongoing exclusive with Givenchy’s L’Interdit, the Couture Edition and a Narciso Rodriguez exclusive is set for fall.

In fact, this fall looks to be heavier on launches than last year.

For the most part, the launch scene of 2018 was dominated by flankers. The relatively few new pillar fragrances included Chloé Nomade and Dior Joy, which generated an estimated $16 million to $19 million in its launch season, according to industry sources. Dior had no comment.

Larissa Jensen, executive director and beauty industry analyst of NPD Group, reported that the top male and female launches for the year were Armani’s Acqua di Gio Absolu  Homme and  Chanel’s Coco Mademoiselle Intense.

“They are flankers and that’s what’s driving the market,” she said, noting that the non-flanker category of pillars was flat. Flankers were up 20 percent, although those fragrances only command a 26 percent market share.

“Flankers bring new interest into a brand and also have a halo effect on the original,” Jensen said.

Dvir agreed, pointing out that the launch of so much newness is being more spread out than in years past, “or cadenced,” as she put it.

“They are all not coming out at the same time,” Dvir said. “In 2017, Chanel had Gabrielle. In 2018, Dior had Joy.”

The staggered timetable gave the customer who loves designer a reason to buy multiple designers over the last few years — the newness acted as a magnet pulling customers into the stores. “Then we were able to convert her to buy the thing that is the mainstay of the brand,” Dvir said.

Enthusiasm for designer scents is certainly not lacking at Estée Lauder, where Demsey noted, “we are seeing a renewed interest” in Lauder brands like Tom Ford, who will receive the Fragrance Foundation’s Hall of Fame award on Wednesday evening.

“We’re having the best fragrance year in Tom Ford ever,” Demsey said, noting Ford has been in the fragrance market for 13 years.

Recent wins include the designer’s controversial F–king Fabulous, which was meant as a $400,000 backstage teaser at the fashion shows and instead mushroomed to more than $35 million in sales, according to industry estimates.

“That was the beginning of the catalyst that took the fragrance business to a whole other level,” Demsey said. Fabulous, launched in 2017, won a Fragrance Foundation award for best women’s luxury fragrance, and was followed by the  fall 2018 launch of Lost Cherry, which now is up for the same award.

At Coty, Huber mused about his list of power players. “The well-established brands are really doing a good job, he said, ticking off Gucci, Calvin Klein, Burberry and Marc Jacobs Daisy Love.

He views the industry’s efforts to integrate fashion and beauty as a major step. “Many of the designer brands have made a lot of effort from a fashion point of view to be relevant again by being very strong in social media and the interactive space, which drives all product categories, because they are so much more relevant for these consumers.”

That work reinforces Coty’s integrated marketing approach. “The work we do to sell on e-commerce from Instagram and social media helps to invigorate the market,  because we also are now in line with what these customers are looking for when they are shopping,” Huber said.

As an example of innovation, Huber pointed to Gucci’s beauty Instagram. “It is very interactive and allows us to interact with consumers in a way that brings them into the brand, so they buy the product.”

Another factor that has brought about the resurgence of designer brands was a realization of the category’s importance by the department stores, which is where 41 percent of fragrance buyers shop, the most frequently used channel.

Vey pointed out Macy’s, whose share of the prestige fragrance business has fluctuated from 48 percent to 55 percent, and Dillard’s, as two retailers in particular that have helped drive sales.

“They understood that fragrance was a key market and they needed to go back to the roots of growing this market,” Vey said.

That means more space, more visual weeks and, above all, restoring the sense of experience in fragrance shopping. Vey mentioned initiatives like engraving machines for monogramming Atelier Cologne products, personalizing packaging with quaint touches for Maison Margiela to bring back memories and sensations, and plenty of in-store pop-up displays.

Bloomingdale’s is one of the stores making frequent use of pop-ups, while Macy’s and Sephora have been pioneering different aspects of digital animation to interest consumers in fragrances found within different olfactive families.

“We really invested in our stores in 2018,” Dvir said. “We had the right amount of staffing, which then allowed us to execute great events.

“We’ve always had big branded moments in our aisles,” she continued. “This year, we really pushed the brands and partnered with them to come up with more Instagrammable moments in our aisles.”

Tiffany, for example, had a bright blue robot, while Viktor & Rolf’s display of a tree with bottles as ornaments was “best in class,” Dvir said.

The growth isn’t limited to department stores, though. “We had a great year,” said Brooke Banwart, Sephora’s vice president and divisional merchandise manager for fragrance, noting designer, artisanal and luxury brands all performed well.

“We see stronger lifestyle and aesthetic and storytelling,” Banwart continued. “The brands are figuring out how to express themselves in ways that are appealing to today’s consumer. That’s what’s driving our improved results.”

Demsey also pointed to the youth of the new clientele as a principle growth factor. “If you look at the tracking of the ranking of brand names and at the purchase behavior of women between 15 and 25, you see a lot more young customers buying luxe products these days. You never saw that before,” he said.

Jensen at NPD cited statistics from a study on fragrance usage that showed Gen Z with the highest usage at 87 percent; followed by Millennials with 80 percent, Gen X at 78 percent, and Baby Boomers at 72 percent.

The designer revival is not limited to the U.S. Europe, the Middle East, Russia, Hong Kong, China, South Korea and Japan are all having a renaissance in the category. According to Euromonitor International, the global premium fragrance market has grown 27.8 percent from $24.9 billion in 2013 to $30.5 billion in 2018.

According to some studies, the dynamism of the designer category can vary with price-point. According to one industry source, the sales growth of the entire designer category in North America and Europe from March 2018 to March 2019 was 1.8 percent. For the premium-plus subcategory, the growth rate was 4.2 percent in the same period. For the top-priced class of designer fragrances, generally the niche collections with prices stretching up to $250 and $350 a bottle, gains hit 11 percent.

But there are indications of a cooling prestige beauty market in the U.S.. For total beauty — including makeup and skin care as well as fragrance — sales were ahead by only 1 percent for the period between January through March, compared to 7 percent for the same time last year, according to NPD.

In 2018, prestige fragrances cruised through 2018 with steady 8 percent year-to-date gains until running into the December buzz saw.

But this year started on a different footing. For the first quarter of 2019, NPD reported a 3 percent increase in sales of designer scents, compared with an 8 percent jump last year.

“It is slowing down, but still growing,” said Jensen, who declined to give a forecast for fall, given the unpredictability of the market.

In terms of market share, designer fragrances commanded 73 percent of the fragrance market this year, compared with 74 percent in the same period last year.

Historically, designer scent sales comprise roughly 75 percent of what is now a $4.3 billion U.S. prestige scent market, serving as a weathervane for the direction and strength of sales trends.

In addition to Tom Ford and Marc Jacobs, other major players in the designer category that had a good year are Chanel, Dior, Giorgio Armani, YSL and Dolce & Gabbana, according to Jensen.

NPD identified the top five fragrance parent brands by sales for the 12 months ended in January 2019 as Chanel’s Coco Mademoiselle and Chance; Giorgio Armani’s Acqua di Gio Pour Homme; Chanel’s Bleu de Chanel, and Dior’s Sauvage.

In terms of dollar sales, the designer segment dwarfs its latest challenger, the influx of multiple scent artisanal brands, which increased 15 percent in the first quarter on a comparably tiny 7 percent market share base. That compares with a 12 percent sales increase for 2018 in the same time period, with the same amount of share.

This latest challenge came from a growing field of artisanal collections of scents — such as By Kilian, Le Labo and Frederic Malle — all now owned by Lauder, and Atelier Cologne, owned by L’Oréal.

The expected competition between the artisanal interlopers, touting creative use of ingredients, and the designer brands, armed with large advertising budgets, seems to have settled into a symbiotic alliance between the two rather than a battle for share.

“In some respects, they work quite nicely together,” Demsey said. “If anything, the artisanal marketplace actually brought people back to the category. Everybody started focusing back into the fundamentals of what drives the business — the juice, olfactive creativity, packaging, service. It’s been a good thing for the industry.”

Demsey also noted that the collection approach “allows brands to take olfactive risks. When Tom Ford created Private Blend, for example, “we could do things that Tom loved, but weren’t necessarily slam dunk commercial successes,” Demsey said.

Oldham said customers are showing more sophistication in choosing between designer and artisanal fragrances. They are interested in the story and the intention behind a fragrance,” she said. “Some brands, like Tom Ford, play in both categories really well. Their Signature collection has a wider appeal, while Private Blend focuses on rare materials and craftsmanship.”

NPD’s Jensen pointed out that Millennials are more into fragrance wardrobing than having a signature scent. “They prefer to have multiple scents that they can choose from, based on their mood,” she said.

There also is another fragrance format coming over the horizon — clean fragrances. This nascent category, rooted in a barely measurable market share of “less than 1 percent,” posted a 20 percent sales gain for the first quarter, compared with last year’s deficit of minus 2 percent, according to NPD.

An example of such a brand is Henry Rose, a five-scent unisex collection launched by Michelle Pfeiffer with the claim of being “100 percent transparent” in rooting out harmful ingredients.

“We need to do some more clean and natural brands,” Borteck said, when asked how to attract younger customers. “The other thing is a combination of sustainability and brand messaging. Le Labo is a great brand that shows bottles being filled and messaging that appeals to a Millennial customer.

Clearly, the fragrance business is undergoing an expansion of thought.

“Our clients want fragrances that are authentic and customized to their personality and lifestyle,” Banwart said. “There is a lot of dialog around that now. It is about having more of range that includes both, designer, luxury as well the artisanal and giving them a range to choose.”