ITALY IN FLUX AS COSMOPROF APPROACHES
Byline: Amy B. Barone
MILAN — A three-year drought in consumer spending, exacerbated by a recent government belt-tightening, has kept the brakes on Italy’s $1.03 billion prestige beauty business.
Although the mass market appeared to benefit from the continued downturn, prestige retailers are expected to eke out only a 2 percent retail sales gain this year, the same as in 1996, according to estimates by industry executives.
The challenges faced by Italian beauty manufactures and retailers are certain to become much-discussed issues at the upcoming 30th annual Cosmoprof industry trade fair, which will open in Bologna on April 25.
The slackening of sales momentum within Italy’s $4.4 billion total beauty market has been worsened by recent polices of the Italian government, which is determined to be among the founding members of the new Euro-based European-wide monetary system by 1999.
Prime Minister Romano Prodi’s center-left government issued a Eurotax, taking a bite out of monthly paychecks, which started in March and is due to run through November.
The government also recently passed an additional, supplementary budget of $9.24 billion to reduce the government deficit and meet the European monetary criteria, amid worsening economic news. Istat, the national statistics office, discovered that the 1996 slowdown exceeded forecasts by 0.1 percent. The economy contracted by a total 0.8 percent.
While beauty sales in pharmacies continue to drop, mass market outlets are gaining ground, especially in regions like Veneto, where highly developed chains attract new beauty consumers.
Industry executives say the market is characterized by the ongoing disappearance of small, traditional perfumeries, while the major retail groups continue to open bigger and bigger stores in a drive to engender consumer loyalty.
For the last two years, the Italian market has been flooded with fragrance launches. But the launch onslaught markedly lessened in the second half of last year as manufacturers pulled back on their reins and delayed such high profile introductions as Givenchy’s Organza.
Retailers were relieved to see a slowdown in the previously hectic launch pace. But perfumery managers, nevertheless, had to cope with a drop in average transactions as consumers began trading down to lower-priced fragrance and cosmetics items.
Yet the retail scene is rapidly evolving with bigger stores, longer perfumery chains and larger retail groups. Moreover, there is a desire among retailers to provide consumers with more shopping-friendly stores.
Manufacturers and perfumeries are collaborating to make beauty shopping more fun. Industry executives envision a future dominated by spacious stores with fewer counters, organized with a system of assisted self-service. The new, emerging approach also incorporates a slew of amenities like special promotional offers and store fidelity purchase cards. The product offering is also being broadened to appeal to men and children, as well as the usual assortment aimed at women.
Over the past three years, Italian retailers have become increasingly aggressive with savvy marketing strategies, such as cooperative advertising in local and national newspapers, contests and drawings, fidelity cards, in-house publications for consumers and a push toward customer service.
Executives realize the key to a healthy future is a mix of strategies geared to elicit loyalty and create brand awareness.
Retail groups, Ethos of Vicenza, Garbo of Milan and Coprasso Due of Rome, continue to gain ground in their perspective regions with openings of new perfumeries that tend to reinforce name recognition among consumers.
Wholesalers, which act as distribution middlemen between manufacturers and retailers, have seen their margins shrink through competition with a new crop of price-cutting hypermarkets and deep discounters, who buy their merchandise directly for manufacturers. As a defense, the wholesalers have begun opening their own perfumeries.
These include Orchidea of Perugia, Beauty Point of Rome, La Chiocciola of Florence and Gardenia of Grossetto.
Cosulich of Trieste and Laguna of Spinea have also been decreasing their wholesale activity while concentrating on perfumery operations.
According to Gianluca Babbucci, president of the 15-door Orchidea chain, “The market needs a vast product range; about 30 percent of our stock is toiletries.”
Orchidea — which carries prestige brands such as Chanel, Estee Lauder and Shiseido — likes to open stores of at least 1,800 square feet (200 square meters). Its orchid logo is emblazoned on the stores.
Like other perfumeries, Orchidea plans to introduce a fidelity card this summer, and regularly advertises in local newspapers, women’s magazines and on radio.
There is more than one perfumery company vying for the status of being Italy’s biggest national chain. Among them are the 51-door Douglas Profumerie of Verona, the 34-door Limoni Profumerie of Bologna and the 27-door Laguna Profumerie of Spinea. All are avidly seeking large store space in principal Italian cities, such as Milan and Rome. With a retail network that runs from the northeast corner of Italy down to Naples, the 27-door Laguna Profumeria of Spinea near Venice hopes to open another 15 doors in 1997 in such cities as Foggia, Lecce and Bari in the south, and Alessandria, Trento and Pordenone in the north.
By 1999, Laguna hopes to go public with 100 stores and sales of nearly $120 million (200 billion lire). According to sales director Mario Esposito, “We’ve shifted strategy, placing less emphasis on price and fancy promotions and more on brands and image.”
In 1996, the company generated a retail volume of $24 million (40 billion lire). It hopes to double that figure this year.
Future plans include publishing an in-house circular for distribution in the stores and a Milan store of at least 9,000 square feet.
To the relief of perfumeries, manufacturers have begun to acknowledge their efforts and are fortifying their merchandising and marketing support.
According to Estee Lauder Italia’s managing director Pier Luigi Garcea, “Of our top 20 clients, only 10 were on the list three years ago. The market is evolving rapidly and our mission is to become sales and profit partners.”
This year the company invested in elaborate makeup displays for retailers with clout in the market and ample space.
In 1996, Lauder’s Italian operations, which rank third in Europe for the company, showed an 11 percent increase in sales volume. Similar growth is projected for this year. Parfums et Beaute, a division of the Paris-based L’Oreal, is sending new merchandising units to its top 150 clients. “We invested nearly $361,400 for special units to display men’s and women’s fragrances together,” stated Franco Sgardello, managing director of the Milan-based company.
“This is a year of tests — we’re spending more on in-store support than on traditional advertising and have set out to correct excesses caused by a weakened lira,” he said.
The company experienced limited growth in 1996 and expects the same for 1997. A fall in Cacharel sales was offset by a 25 percent increase in Armani fragrance volume.
Perfumeries have given high marks to Christian Dior Italia for its strong in-store support through training programs, special makeup and beauty service sessions and a superior logistics system, thanks to a new state-of-the-art warehouse facility in Pisa.
For 1996, Dior’s sales in Italy grew 5 percent to $60 million (100 billion lire), which the company hopes to surpass in 1997, according to Scarpa.
“Last year was difficult, but we continued to support stores when many companies couldn’t,” said Gabriella Scarpa, who has been managing director since 1991. “We’re very close to the stores and always looking to improve relations.”
Back in 1992, the company revamped its distribution to gain better control and eliminate risky retailers.
A rapidly evolving distribution system has not eliminated a host of practices that irk manufacturers. Many view price-slashing promotions as an infringement on their prestige business and report that gift-with-purchase giveaways are frequently sold rather than properly used.
It is a little discussed but widespread practice in Italy for owners of perfumeries to swap merchandise, resulting in brands falling into the hands of unauthorized retailers.
In addition, discounting worsened last year. In the second half, price wars heated up, especially in Naples and the Veneto region, where discounts ran as high as 35 and 40 percent, compared to the 20 percent industry average.
Consequently, companies have implemented more stringent controls. Lauder grades retailers via a classification system to ensure that the stores meet standards and hit sales targets.
“We’re more rigid in Italy because of credit difficulties and sell exclusively on a store-by-store basis,” Garcea said. “But we have no worries regarding the gray market.”
Tightening its sales network, Parfums et Beaute recently reduced distribution of the Cacharel fragrances by 300 to a total of 1,860 perfumeries.
It is seeking new doors for its Ralph Lauren brand, whose distribution has been reduced slightly to about 1,155 stores. “Our strategy marks a return to the brand with a series of new merchandising initiatives,” Sgardello said.
Beauty companies, sticklers for traditional forms of advertising like print and radio, are experimenting with glitzy promotional strategies like sampling at movie theaters and discotheques.
For the launch of Envy, Cosmopolitan Cosmetics, Wella’s newly named prestige fragrance division here, hired sales assistants to disseminate perfumery invitations and samples in big cities like Rome, Milan and Naples.
“It was a huge success,” stated Nicholas Wilkinson, division director. “Micro-marketing works here.”
Garcea added, “We get great returns with cooperative advertising, it’s a good linkage and constantly improving. But for the launch of Estee Lauder Pleasures, we hired attractive models to hand out perfume samples in key Italian cities and the approach worked.
“When we present [Tommy Hilfiger’s] Tommy in September,” he continued, “we’re thinking big with plans for outdoor campaigns and promotions at discotheques, gyms and rock concerts.”
Loft, a Monte Carlo-based company, acquired the license to produce the Gigli and Ozbek fragrances from Proteo. It currently handles production and global distribution of Alyssa Ashley perfume. Atkinsons, Unilever’s Milan-based division, recently finalized its first licensing agreement for a signature fragrance for Milan-based designer Alviero Martini, which is known for Prima Classe luggage and leather accessories.
Seeking European beauty brands to distribute, Trussardi Parfums changed its name to International Cosmetics and Perfumes and will present a duo of fragrances for the “young generation” on the eve of Cosmoprof.
Companies plowing ahead with new beauty projects include advertising wizard Diesel. In June, the jeans and sportswear company will unveil an “unconventional” unisex scent, with an ad campaign to boot.
Bulgari has created an Eau Fraiche version of Bulgari Pour Femme, which will roll out to Italian stores in June.
On May 7, Diana de Silva cosmetiques SpA will introduce Mediterr-Hanorah, an unusual skin treatment for the Hanorah, it uses ingredients commonly found in the Mediterranean diet.
De Silva also will unveil two new Byblos fragrances, called Fuoco and Ghiaccio, or “fire and ice.” In addition there will be new line extension products to the Cielo, Mare and Terra fragrance group.
ICR, which still manufactures a small part of Versace’s fragrance production, is back in the fragrance market, with a licensing deal with Rome-based designer Guy Matteolo. The company is expected to show Matteolo’s first signature scent at Cosmoprof.
New products used to leave retailers scrambling for space, but bigger stores and restructuring projects may ease growing pains. Bent on bringing the product closer to clients, Rinascente Group initiated major renovations at the Milan flagship’s cosmetics area.
The six-door Grasso Profumerie of Messina is opening a three-floor, 350-square-foot perfumery in Palermo this month with a massive cosmetics corner staffed by participating beauty companies.
“The Italian perfumery of 2000 will resemble Niketown,” predicted Sgardello. “It will be show business-driven because there will be a lot of competition for consumers’ free time. There’s still much to do. We need the big retailers to revolutionize the industry.”