Get inventive or be gone.
Fueled by social media, the prestige beauty market has entered a new era — one that calls for more product newness, innovation and customer engagement, via events or pop-up shops.
Those are among the chief lessons emerging from the just-finished holiday season, which rebounded strongly from the weak showing of 2016, during which fragrance sales dropped 2 percent in the all-important month of December. Last month’s comparable number was a plus 6 percent for fragrance sales, according to The NPD Group Inc. This turned out to be one of the better holidays, similar to 2015. Total prestige beauty sales for November and December of 2017 moved 9 percent ahead, with December alone chalking up an 8 percent gain for total beauty.
Makeup sales rose 6 percent in December, the same as fragrance, and skin care shot ahead of the previously leading makeup category with a 14 percent jump, confirming a trend that had been developing all year.
Since December generally generates 40 percent of the annual sales volume for the fragrance industry, the dismal 2016 performance may have been an alarm bell, according to Kissura Craft, the fragrance analyst for NPD. “Christmas 2016 kind of woke them up and told them no, there’s more. You have to do more.” By one measure, it worked. New business from fall fragrance launches was up by 18 percent, according to NPD.
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Larissa Jensen, NPD’s beauty industry analyst, noted that beauty is actually the only industry of all of those the company covers — including fashion — that showed growth each week for the first seven weeks of the holiday season. “Beauty is putting the tinsel on the tree, ” she said.
Industry executives were not so lighthearted six months ago, however. There was plenty of pessimism in New York offices as executives fretted over a drop in foot traffic in malls and their department store anchors — by an estimated 7 to 10 percent and even as much as 20 percent down — firing up hyperbole about the death of the mall. Seasoned sales executives talked about walking floors in Midwestern malls that were uninhabited.
Another sign of trouble was the proliferation of price promotion throughout the department store world, according to numerous market observers, who described them as ranging from outright discounts to inclusion in friends and family programs to stores matching the prices of competitors.
“This may be the new normal,” speculated NPD’s Craft, who echoed sentiments of other industry executives. It’s an obvious concern as Valentine’s Day approaches.
Business began perking up as the fourth quarter approached and the market realized what was at stake. Beauty companies started staging shopper events and continued to dabble in customer recruitment, like pop-up shops, while loading up launches of products, strengthening their pillars.
As an example of one campaign to shore up business, Estée Lauder Cos. Inc. put together a battery of traffic builders, consisting of store appearances by top influencers, including MAC’s collaboration with superinfluencer Patrick Starrr. Clinique, La Mer and Bobbi Brown were among other brands that participated.
As the mood on cosmetics floors turned from desultory in the spring to vibrant in December, some subtle shifts in strategy and consumer buying habits emerged.
Here are some insights:
BREAKING OUT THE PLASTIC
Judging from the sales estimates, there was plenty of traffic as Christmas approached. “The consumer was euphoric; they were out shopping in a huge, huge way,” declared Marla Malcolm Beck, chief executive officer of Bluemercury, which is owned by Macy’s Inc. While noting that the shopping mood may have been buoyed by the surging stock market, low unemployment and tax cuts, Beck added, “We had clients that were just excited to shop.”
That head of consumer steam has been building for the past few years, according to Wendy Liebmann, ceo of WSL Strategic Retail. In December, she issued a study titled “Shopping Boom Time,” based on a national survey of 2,000 people. It indicated that the consumer had shed her reluctant stance of 2016 and was ready to spend again. Liebmann noted, “We are beginning to see an openness to spending time and spending money.” The new attitude of shoppers is “I”ll buy what I need wherever I see it,” she noted, adding the traditional shopping trip structure has changed, with consumers no longer stocking up.
A total of 21 percent of survey participants ranked beauty in second place, below food, when asked what they would spend more money on. The favorite buying venues were online; specialty chains, primarily Ulta Beauty, and big-box retailers.
AT A CROSSROADS
The holidays are no longer exclusively focused on fragrance. Xavier Vey, president and chief operating officer of L’Oréal USA’s Luxe Division, said “we see that holiday selling is a multiple story. Skin care was strong all year, but came out very strongly in the month of December. Kiehl’s doubled its growth [for the month],” he said. The brand apparently got a boost from a Disney tie-in, with packaging decorated with images of Mickey Mouse.
At Bloomingdale’s, fragrance still dominated, especially in December, but the store had a strong holiday in “high-end skin care,” according to Stacie Borteck, divisional merchandise manager of cosmetics and fragrances. She was referring to performances by La Mer, Sisley and La Prairie. Those brands also starred at Nordstrom, according to Gemma Lionello, executive vice president and general merchandise of accessories and beauty.
Beck at Bluemercury agreed. ”Skin care was off the charts. Millennials are starting to really care, as they move into their 30s. They’re very good planners; they are preemptive,” she said.
Cos Bar also did well with skin-care masks, including the KNC Beauty lip mask, La Mer products in general, Sisley Black Rose Oil, La Prairie’s Caviar eye product — although the immediate sell-out in the Aspen, Colo., store was Tom Ford’s controversial F–king Fabulous fragrance, according to David Olsen, ceo of Cos Bar.
Skin care also is making deep inroads on the web, as e-commerce continues to flourish. One Click Retail reports that derma skin care (high-priced antiage products) enjoyed 77 percent sales growth during the season and the boom developed early. Sales were up by 51 percent in November versus 38 percent in December.
Vey had previously criticized the industry for showing “not enough newness, not enough innovation…especially in makeup and moreover, in fragrance.”
His response was to step on the gas for holiday, with “more modernity, more innovation, more in-store theater, more pop-ups and media.” In addition to newness and innovation, the market also needs strong product pillars that are supported and sustained, Vey added.
Instead of heeding the market pessimism and pulling back, Vey and L’Oréal took a more optimistic stance and accelerated the launch schedule. For the third year in a row, YSL launched a fragrance, with a men’s scent, called Y, which ranked number one among new men’s fragrances for the first seven weeks of the holiday and in the top three overall. Similarly, L’Oréal launched scents against three Giorgio Armani pillars: Acqua Di Gio last year, Armani Code this year and a new Emporio Armani scent for men and women, Stronger With You.
One of the lessons learned this holiday, Vey said, is that “classics, when rightfully nurtured, are still driving strong growth.”
An example was the launch of a flanker, La Vie Est Belle L’Éclat, which ended up driving “strong growth” for Lancôme’s signature scent, La Vie Est Belle, apparently as a result of putting muscle behind the mother scent. That way cannibalization was minimized and the overall brand grew, NPD’s Craft observed.
Probably L’Oréal’s biggest launch of the season was Naked Heat, an attempt by Urban Decay to shore up a “difficult” palette market. “It’s the biggest launch of palettes we have ever done,” Vey declared, declining to disclose a sales figure. According to calculations by industry experts, the sales volume of Naked Heat may have soared as high as $45 million in the U.S. alone.
For the year, L’Oréal’s It Cosmetics reportedly chalked up an annual sales gain of 30 percent, according to industry sources. The brand’s new product story for the fall season amounted to 52 stockkeeping units.
Vey underscored that the Atelier Cologne and Maison Martin Margiela fragrance brands scored 40 percent and 60 percent sales gains, respectively, in December as L’Oréal drove to deepen its penetration of the mushrooming market for artisanal, niche fragrance collections.
BREAKING THE MOLD
Pop-up stores can certainly be viewed as buckets of extra cash. The 1,100-square-foot YSL shop that L’Oréal USA opened at Broadway and Broome Street in Manhattan’s SoHo on Oct. 27 ranked number one in the brand’s chain of 500 doors and the adjoining Armani Box store hit number two in its distribution, according to industry sources. Both closed on Dec. 31.
But in the eyes of Alexandre Choueiri, who oversees both brands as president of IDC in the Luxe Division of L’Oréal USA, the halo of buzz cast over the two brands was at least as important. He pointed out that the packs of customers who were lounging about snapping pictures of products and each other provided a wealth of Instagrammable moments.
Within three days after the Armani store opened on Nov. 3, the brand registered 100 million impressions on Instagram, according to the company. In the first weeks, both stores tallied more than a half-a-billion impressions. And word spread way beyond downtown Manhattan. A number of influencers from L.A. attended the Armani opening and posted messages to their multimillions of followers, leveraging a local party into a national event.
“The good publicity the stores make is tremendous because it is authentic, it’s not creating a traditional ad, it’s about creating a positive buzz,” said Choueiri. “It’s consumers selling the brand to other consumers.”
There also was an assist from a row of engravers who were customizing products for customers. It was common for a shopper to buy multiple lipsticks so they could carve a series of words into the cases to form a phrase or sentence out of the combination. It also was a boon on the Internet where customers would write personalized messages such as, “I want to marry you,” Vey said.
Choueiri noted, “We can’t rest on our laurels because the brands that are winning in the U.S. are brands that have different business models, keep reinventing themselves and are a bit unexpected. We have to challenge ourselves and not rest.”
Meanwhile, Clarins USA was experimenting with three pop-up formats in various parts of the country: A freestanding shop opened in August in downtown Seattle for 30 days; in October, another unit opened on the second floor of a Nordstrom in Santa Anita, Calif., and another was installed in a new wing of the Aventura Mall in Florida. Opened in November, it will run until March.
The Seattle store did no selling. It was designed to acquaint shoppers with the Clarins experience. A total of 1,800 people signed up for the Club Clarins fidelity program during the 30 days the store was open. That equals the 1,800 people who joined through the entire 1,200 door distribution in the same period, according to industry sources.
Danyelle Boilard-Paul, executive vice president and general manager of Clarins Groupe USA, declared, “Customers love to immerse themselves in the DNA of the brand; it’s all about the experience.”
On another note, the August launch of the latest version of Double Serum has driven a 37 percent increase in the brand’s sales for fall and it is expected to generate a 4 percent to 6 percent gain over retail projections for Clarins for December, according to Boilard-Paul.
The strongest performance at Bloomingdale’s came from fragrance, according to Borteck. “There was a really good balance between launches and established luxury resources as well as these emerging niche brands,” she said, also ticking off luxury color cosmetics and high-end skin care.
Among the fragrance hits were Tiffany, Bloomingale’s strongest women’s launch in four years; Aventus for Her from Creed; Chanel’s Gabrielle; YSL’s Y men’s scent; Gucci Bloom; Hermès Twilly; Acqua di Parma, and Clive Christian. The luxury end was held up with Tom Ford and Jo Malone. The Ford beauty brand was also a driver in luxury color, along with Armani Beauty and Chanel. Some emerging brands were Tobi Tobin, House of Sillage and the French-based Montale.
Beauty is viewed as a “trip driver” at Nordstrom with its Beauty Trend Shows that can draw as many as 500 spectators and its Beauty Trend Weeks, in which brands take part with events, clinics and master classes.
Not surprisingly, the chain focuses on limited distribution, fashion-oriented names like Charlotte Tilbury, Tom Ford and YSL, according Nordstrom’s Lionello. The chain also did well with the naturals, like Aveda, Herbivore and Sunday Riley. This is in addition to luxury skin care. Lionello added, “Niche fragrance collections continue to perform well with brands like Le Labo, Atelier Cologne and Diptyque.”
Gift sets were ubiquitous this, popping up in all the major product categories. Sephora was no exception. Artemis Patrick, chief merchandising officer for the specialty store chain, said, “The strongest sales came from exclusive gifts with fragrance samplers and makeup palettes, as well as core categories like foundation, lip moisturizer, masks and hair styling tools.”
She added that fragrance continues to drive traffic at Sephora, thanks to exclusives like Von D Saint & Sinner and luxury brands, such as Jo Malone and Tom Ford.
Classic brands — Dior, Gucci and Chanel — remain a strong force.
Meanwhile in the mass market, among the highlights at Wal-Mart Stores Inc. was a continued acceleration of growth of sales in bath products — bubble baths, bath salts and some bath bombs, according to Jody Pinson, the company’s vice president of merchandising of beauty. “We also see masks, the [South] Korean skin masks. It’s just a part of being very relaxed and doing some things in comfort in your own home.”
Like Macy’s, Wal-Mart does a large fragrance business, primarily in November and December. But Pinson has been noticing a change in tastes. “The customer is shifting from the prestige and celebrity scents to more of the lifestyle and body sprays,” she said, citing Bod Man as an example. “We saw that trend several years ago and that’s continuing.”
She also noted that ”some of the artisanal brands are starting to rise to the top.” Pinson characterized this new breed as “a lighter fragrance but it’s not exactly a body spray so it fits into the in-between life styles.”
Macy’s, a perennial force in fragrance, did well with targeted values. “Our most popular items were gift sets and samplers,” said Nata Dvir, the retailer’s general business manager for beauty. “A new in-store only item, a $12 spray that was free after rebate, drove customer traffic.”
The popular items in the beauty department were exclusive brush sets, masks and palettes at $15 and under, she noted, adding that “lip promotions and sets also worked well.”
In general, packaging was more important than ever, according to Dvir, who added that the “brands that communicated contents best in terms of size and value performed well — especially if they had fun, new ways to showcase their product.”