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Special Issue
WWD Special Report issue 01/29/2010

Top leaders in the beauty world are warily looking forward to a hoped-for improvement in the business climate this year, following the severe bruising of 2009. But if life does return to normal, it will bear little resemblance to the free spending era of the past decade, with consumers still feeling the shock of the recession.

Shoppers are pickier than ever, and marketers have to be more careful. As Nicholas Munafo, president of Beauté Prestige International USA, said, “We as an industry will all come out of this recession smarter and stronger; it forces you to rationalize every decision, because consumers are more selective and more discerning.”

This story first appeared in the January 29, 2010 issue of WWD. Subscribe Today.

Jean-Paul Agon, chief executive officer of L’Oréal, said he is “reasonably optimistic” about the global business this year, with “slow growth” expected in Western Europe and North America and “a very dynamic market in the rest of the world.”

He expects strong growth out of China, India and Brazil. “We believe we could have good news out of Eastern Europe and Russia,” Agon noted. The company will pursue a four-part strategy: pursue “accessible innovation” at a reasonable price to reach a broad swath of the market; widen the targets of new product categories; “accelerate internationalization” in markets like Indonesia, Turkey and Mexico, and invest in business drivers such as brand advertising and research and development. “Innovation is the name of the game,” he asserted.

“We are seeing some initial improvements in economies around the world and some early signs that the consumer is regaining her interest in shopping,” said Fabrizio Freda, president and ceo of the Estée Lauder Cos. Inc. “We could begin to see a recovery in 2010 — at different levels, in different parts of the world. However, this recession has truly changed the consumer. The first companies who understand those changes should win big during the recovery. We believe that the biggest opportunities happen during the first 18 months of a recovery, and that is what we are preparing for.

Freda added Lauder continues to apply cost-cutting and efficiency generating concepts that arose during the recession. “The progress we are making on our restructuring is providing resources to invest behind key strategic priorities and capabilities, such as expanding in China, leveraging our digital assets and building best-in-class consumer insights,” he said. “Our efforts are focused on growing our top line in the key regions and categories where we are strongest and increasing our profitability.”

“If we get lucky and have a good spring, all these [economic] problems might blow away over 2010,” said Coty Inc. ceo Bernd Beetz. “I think that’s the biggest challenge for us all.”

He added it would be “very good news” if the world economy, which was in contraction in 2009, were to grow in 2010. “There is interest and eagerness in the market,” Beetz said. “The consumer is on to something and if the consumer sees something that really [speaks] to her need, she’s buying, she’s reacting.

“The vibration we are getting on Beyoncé is sensational,” he added. “So we’re looking forward to a really big business. That’s somebody who is really bridging different sectors as an artist. It is music; it’s entertainment. It’s a performance with her worldwide tour, so I think we are hitting the right nerve [with Beyoncé].”

“In these days of scare resources and a challenging environment, Clarins’ focus is on skin care and growing markets like Asia while protecting the strong markets like Europe,” said Philip Shearer, the company’s chief executive officer. “When it comes to America, which is considered a big challenge for us, we are [deploying] a strategy based on our potential of differentiation, mainly through spas in skin care and working quite carefully with our retail partners.”

On the fragrance front, Shearer said the focus is on Angel, Alien and the Azzaro franchise, including new concepts for Chrome. The company will launch a new fragrance under the Thierry Mugler brand in the second half of this year.

“The idea overall is to focus on our strong points,” explained Shearer.

When asked about the year ahead, he said, “A piece of advice to everyone: The definition of insanity is to do the same thing over and over again and expect a different result. That’s all I have to say.

“Basically, we just have to change things,” he continued. “I’m not kidding.”

Marc Puig, ceo of the Barcelona-based Puig, observed, “Over the next two or three years, we don’t see much growth in our industry, especially in the developed world.”

As a result, Puig said his company will be looking for chances to gain market share, including acquisitions. “We see that this crisis has opened up opportunities that might not have been there a few years ago,” he noted.

Pamela Baxter, U.S. president of Christian Dior, has finished 2009 with solid performances from her brands. Dior well above the market; Givenchy did well with its men’s fragrance, Play; Guerlain trended ahead of its distribution (Neiman Marcus and Saks Fifth Avenue) in makeup and skin care, and Fresh has done well. “We are in better shape than most,” Baxter said, “and we are not pulling back.”

Guerlain pre-launched a new version of its premium-priced Orchidee skin care line and showed a high-single-digit increase over the original, Baxter said. With its Dior Show mascara ranking number two in the market, the brand is going ahead with its black shade and Extase, as well as extensions of last year’s Dior Skin Nude. Givenchy will launch its new women’s fragrance, Ange ou Démon le Secret, the third incarnation of its Angel or Demon perfume franchise, in March. Guerlain will add new finishes to the Rouge G lipstick it launched last year.

As for Dior’s fragrance business, the company has decided to stick with its big winner, J’adore, following a highly successful experiment over the holidays. The company took the brand’s best market, Miami, and put TV advertising behind it. The result was that J’adore went from ranking fourth in the market to number one for December. “We are putting everything behind J’adore,” Baxter concluded.

Heidi Manheimer, ceo of Shiseido Cosmetics America, said, “In some ways, this year will be easier, and in some ways it will be harder. The past 18 months have held so much uncertainty about consumer reaction and spending — it has caused us to look at everything on every level, whether it be expenses or product launches. We’ve gotten our plans in line to react to the situation and give the consumer what she’s looking for — we are better prepared as a company to deal with any market challenges now. We are cautiously optimistic about the rest of the year.

“What we’re doing as a company — throughout Shiseido — is going back to basics, to our core values. For the Shiseido brand, that is skin care. It’s an area which is very strong for us and in which we have newness coming this year. We’re investing in beauty consultant education and focusing on how we can improve consultations and engage clients in the brand.

“Our strongest categories are antiaging and premium skin care, even with the challenging economy, which was a bit of a surprise for us,” Manheimer added. “Also, the brightening category stays bright for us. I think what we’ve really seen and what’s been encouraging is that high-end skin care is returning. Women are starting to purchase again. The weak area is ancillaries — like neck cream and hand cream, which used to be easy add-on sales. Now, women are focusing in just on what they need.”

Louis Desazars, ceo of Nars, said, “For sure, 2010 will be a stronger year than 2009 — but the environment will definitely be challenging because the customer has become more demanding and more educated. She is willing to spend, providing that she gets great service, innovation and emotional engagement from the brand. Those who succeed in 2010 will offer great innovation and execution.

“To address this challenging atmosphere, you need to take risks,” said Desazars. “Looking at the market, I believe that a lot of brands have been a bit too conservative, and that there haven’t been that many unique products. We will address this business climate by investing in innovation and coming out with very interesting and unique products for 2010 and 2011. We are also coming out with a fall campaign, which will be very different, yet true to the heritage and authenticity of the brand. Secondly, to be successful, you need to make sure your employees are fully engaged. They need to love what they do. We invest in training our people, and I think in this crisis, a lot of people have pulled back on that. Investing in training always pays off in the end, and allows us to ensure customers have great experience at counter.

“First of all, I am very confident in prospects for the overall beauty market — no matter what the economy, women want to feel beautiful and confident, so I refuse to be pessimistic,” he continued. “In terms of specific categories, I think makeup is the one category where there is still opportunity to grow significantly, because that’s where consumers can get more fun for less investment. I also think skin care offers growth opportunities, provided there is innovation. Fragrance is the biggest challenge — I think everyone has shot themselves in the foot. There is too much going on. Retailers need to rethink the business of fragrance — they need to be more selective and to not take every single product offered to them. Nobody seems to know how to address the problem. Everyone’s afraid — it’s a business with huge impact and huge costs. We have to take risks if we want to give new life to the industry.”

Munafo of Beauté Prestige International USA, said, “It’s still going to be a difficult year in 2010. Consumers became more judicious with purchases in 2009, and that trend will continue well into 2010 and beyond. They’re looking for value, whether than means sets or buying into a great classic. We’re poised better than most. We’ve seen Jean Paul Gaultier’s Le Male, which celebrated its 15th anniversary in 2009, go from number 10 in rank to number 8, and raised our market share from 1.9 to 2.1. It is possible to grow in this type of environment, but you have to offer something tried and true and something that is somewhat disruptive at retail — something that jumps out at point of sale and doesn’t look and feel like everything else out there.

“Our strategy for 2010 is to continue with significant media spending. We’re tripling our scented impressions and we’re also going to bring the brand alive with more megaevents with retailers.”

“I think the coming year will continue to be a tough one economically, especially in the U.S. and Europe,” said Scott Beattie, chairman, president and ceo of Elizabeth Arden Inc. “The high economic uncertainty will continue, and that definitely has an effect on luxury products, including beauty products. There will be continued inventory replenishment, which will help somewhat, but I anticipate that retail sales will be tough throughout the year.

“The importance of having a diversified global business has never been more important than it is today,” said Beattie. “It’s important to have global brands across all categories, and to have geographic diversification — some global markets are still underdeveloped beauty markets. You need to have brands that have high awareness, and you need to have a diversified business model in terms of channels of distribution and be able to cross channels between mass and class around the world. More and more, these retail outlets are blurring.”

He continued, “If you focus your brands, people and resources on the retailers who are winning across the world, you will have a successful business. Last year, many marginal retailers were exposed and came under stress.

“Many people say that the fragrance business is in trouble,” said Beattie. “And it is in the U.S. But the U.S. is one data point. Globally, that changes. If you look at the global fragrance market, it is about $38 billion to $40 billion globally, and it has had healthy growth over the last five years in most of the world market. It’s been a tough market here — we have essentially been flat — but the U.S. only accounts for about 15 percent of the global fragrance market.

“Skin care is a more universally strong category than others, although there are weak spots here and there,” said Beattie. “Antiaging is extremely strong, and cosmeceuticals are performing extremely well. The non-technology driven components of skin care are not as strong. You really have to have a point of difference; the consumer is becoming much more sophisticated, especially as price points increase. Customers are not relying as much on store salespeople as much as they once were. If a customer is going to spend $100 or more, she is going to go online and research products. The Internet has and will continue to revolutionize how people buy beauty products; access to information has become so easy, as has the ability to purchase. Customers are far more comfortable buying online; we see that from both our own Web site and from our retailers’ Web site.

“Color is a much more fashion-driven category,” said Beattie. “It’s always required a significant point of innovation and an understanding of color palettes. I think color’s a little more segmented — you target that business to a much more defined demographic than you do other categories. For instance, a MAC is targeted to a young, hip customer, and would be more fashion-forward than an Arden or a Lauder. You really have to understand your customer. In color, we’ve always had a very strong foundation customer, so we’ve linked our skin care and color as a way to make the category more integrated.”


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