There’s a fresh breeze blowing over the beauty landscape. It’s a new sense of luxury, summed up by a new buzzword that many have trouble pronouncing but few marketers can seem to avoid: Premiumization.
This story first appeared in the April 29, 2016 issue of WWD. Subscribe Today.
It is a ubiquitous term that has been applied to trading up in every category from value-priced personal and hair care to fragrances priced in the hundreds of dollars. During a recent CEW forum, Tamara Rogers, executive vice president of U.S. personal care for Unilever, cited Suave Gold as an example, which brings salon benefits into the widely popular, moderately priced Suave brand.
What has gained the most attention is the advent of pricey designer and artisanal scents, which have grown into a new class of luxury as the market seemed to edge away from commercial, big-box fragrances as too marketing-driven with masstige promotional tactics that smacked of commoditization, although the designer category remains strong. Some discriminating consumers opted for the higher quality of a more authentic breed of product.
“We are on the cusp of something that can be very big, ” says Nicolas Mirzayantz, group president of fragrances at International Flavors & Fragrances, adding that some fragrance brands have succeeded in “redefining luxury.”
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“We have seen a space where share of mind, heart and pocket for fragrances have really increased,” adds Dionisio Ferenc, vice president of global fine fragrance. Remarking that fragrance was once seen as a giftable item that people would spend $60, $80, $100 for, he says, “Now there are people willing to pay $200, $300, $500. Niche is no longer niche. I think perhaps it is a new reality.”
A spotlight has been cast onto these brands when Estée Lauder swooped up three notable names—Frédéric Malle, Le Labo and By Kilian—in a dramatic move to upgrade its fragrance portfolio. These acquisitions were made on the top of Lauder’s building the Tom Ford and Jo Malone brands to relative giants with retail sales volumes in excess of $500 million each, according to industry sources.
“All the growth is coming out of the upper tier of the marketplace,” says John Demsey, executive group president of the Estée Lauder Cos. Inc. “It’s a phenomenon that is turning out to be global.”
He then shed some light on Lauder’s behind-the-scenes strategy. “Clearly, we believe in it because we wouldn’t have made the acquisitions that we’ve made. Our moves also shape the market.” Demsey then sketched a deep and broad potential. “We see this as transformative to the fragrance business as makeup artists were to the makeup business 20 years ago,” he says, recalling the Nineties, when Indie makeup artistry brands—like MAC, Bobbi Brown, François Nars, Smashbox and Make Up For Ever— were struggling for a foothold before gradually redefining and dominating the U.S. market.
Fledgling as they may be, the upstarts have the momentum. Sales increases for fragrance juices priced higher than $120 a bottle chalked up a whopping 85 percent in units, while the entire U.S. prestige market in juices gained 2 percent, according to NPD. In 2013, juices higher than $120 represented 11 percent of the prestige fragrance market. Now that category’s market share is 15 percent, when measured in dollars. The premium category doubled in dollars from $182 million to $391 million.
Perfumers and fragrance innovators began offering more specialness meant to appeal to an increasingly sophisticated palette, says Karen Grant, vice president and global industry analyst at NPD Group. All of a sudden, the market became dotted with what Grant calls “fragrances that make a statement. They were all over in Europe. They’ve been brought over here,” she says, adding it’s happened as major brands began backing away from a fragrance market that has been weakening since the early Aughts.
“Retailers also had to fill that void and differentiate themselves,” Grant says. Consumers began toying with the newer, more innovative fragrances.
“Just as the consumer started looking for expertise in makeup and skin care, they started looking for expertise in fragrance,” Grant says.
Demsey adds that distribution controls loosened up and the gray market became another problem.
“Commoditization of the category led to, in my mind, a fragrance industry that was weakened, less aspirational and not valued by the customer,” he says.
It was a different story for the artisanal scents. “The consumer gave credit to the quality of the product, the olfactive creativity, the intensity of the juice, the more personalized experience, the more selective distribution and quite honestly, the quieter promotional backscape,” says Demsey.
Jerry Vittoria, president of fine fragrance at Firmenich North America, asserts that the drive for greater quality is raising the bar for major launches like Lancôme’s La Vie est Belle, Marc Jacobs’ MJ Decadence, YSL’s Black Opium and the “Profumos” of Armani. “These are higher-quality juices often matched with unique packaging that are bridging the quality gap with the luxury niche players and bringing more modern olfactory ideas to the market,” he says, adding that consumers “are looking for approachable luxury with an interesting olfactive twist.
“Consumers want authenticity. The growing popularity of luxury niche reflects the need of the consumer, especially the Millennials, to believe in something that is honest, authentic and artisanal—not mass manufactured. Premiumization not only means more upscale, but advocates for the need to be more scarce and uncommon,” Vittoria says, quoting figures that indicate the artisanal niche category could grow to $800 million to $900 million by 2020.
“With the business pushing $1 billion, the category is becoming significant,” he says. “That is no longer niche.”