UPSCALE FIRMS SEARCH FOR SOLID GROUND
Byline: Soren Larson / Jenny B. Fine
NEW YORK — The prestige beauty business is embattled on a number of fronts. Alternative retail outlets like QVC and specialty chains like Gap have been siphoning sales. An intensified focus on new products has led to a preponderance of short-term strategies. And the increased expense involved in promoting department store brands has produced dire questions regarding profitability.
As Robert Brady, president of Parfums Givenchy, put it: “The business is not growing in terms of units, which is resulting in intensified market share wars, which in turn leads to the increased costs of simply doing business.”
As the millennium approaches, these increased costs could result in a market “where you’ll end up with a small number of big players,” said Peter England, president and chief executive officer of Elizabeth Arden.
“There won’t be very many players in the middle, because they will not be able to carry the cost of doing business,” he continued.
The population is also changing. While baby boomers will continue to form a sizable contingent, marketers are looking more intensely at ways to attract teenagers, an age group that is expected to explode in the next few years, according to Jean Hoehn Zimmerman, senior vice president of marketing and sales for Chanel.
“Growth will come from the extremes,” she said. “On the one hand, you have the aging population that will bring an increase in treatment-oriented products, and then there is the boom of the teenager that will happen in 2000.
Despite some dramatic changes, as they look toward the turn of the century, the top department store vendors have few qualms about sticking with their traditional retail outlets — though some issues have to be resolved.
DEPARTMENT STORE DIAGNOSIS
“We still have the opportunity to increase the items we sell per customer, and by improving the environment in which we sell our products, we have the opportunity to increase the productivity of our current distribution channel,” said Robin Burns, president of Estee Lauder USA and Canada. “That doesn’t mean we won’t explore alternatives, but we feel there is a tremendous opportunity within existing channels.”
Maintaining the upscale market’s points of difference — service, prestige, in-store entertainment — is paramount for many.
“The key is to stay interesting. We have to stay fresh and make people want to come into a department store to buy cosmetics,” said Joseph Horowitz, president of Clarins USA. “Our business is still built on building a relationship with the customer and building that loyalty. The department store is the place that provides the atmosphere for us to do these things.”
However, an atmosphere that some deemed oppressive is clouding the relationship between manufacturers and upscale stores.
“The vendors are being squeezed by department stores at every turn, which has led to an erosion of profit margins,” said Brady, citing pressure to buy catalog space, for one. “Its getting harder and harder to maintain an atmosphere of entertainment in the department store fragrance arena, and it has to be there.”
“Retailers need to stop acting like governments,” said William Lauder, vice president and general manager of Origins. “They tend to tax vendors to pay for every expense. And often retailers are locked into the traditional forms of media — they have to sell so many pages to the vendor.”
Neil Katz, president of Liz Claiborne Cosmetics, also claimed that while vendors have done their part promotionally, their actions have not been adequately reciprocated.
“The stores are going to have to choose those resources who are with them for the long haul and then truly support them. Newness is great, but are all those new products going to be supported six months from now?”
Jack Wiswall, senior vice president of Cosmair and general manager of its European Designer Fragrances division, noted that retail consolidation has many negative aspects.
“The stores have to take on more theater and excitement, which has gone away a little because of consolidation and stores emerging from Chapter 11,” he said.
“Our role is to continue to present the stores with ideas that fall into that category,” Wiswall continued. “What are we going to do with the current and new businesses in terms of giving stores new ways to animate it, and having the promotions come to life and not be so static.”
According to many, the shrinking hasn’t ended yet.
“There will be 2,000 doors by the year 2000,” said Robert Nielsen, president of Aramis and Prescriptives. “There are only about 2,100 decent doors now”
Not only are there fewer doors, but fewer points of difference between department stores. That, said England, needs to change.
“Stores will be looking for ways to create an identity,” he said. “There will be more of a focus on tailoring offerings to each individual group of stores to make them more relevant to the store’s consumers and positioning.”
Profitability is now a major concern, and fundamental changes also need to be made to feed the bottom line.
“The cost structure has to change — manufacturers cannot create margins in the current atmosphere,” Brady said. “The expectations are unreasonable, and retailers should realize that they, too, will suffer from the neglect. They have their hand around the neck of the golden goose, and they have to stop squeezing.”
Nielsen stressed that service levels have to be maintained in order to draw in new customers and keep them.
“The cosmetics and fragrance industry is almost singlehandedly responsible for drawing the 18-to-24-year-old crowd into department stores,” he said. “Clearly, the success of Tommy and Tommy Girl [Hilfiger fragrances] is a result of getting this group into department stores. One major wish we have is that once we get these customers into the stores, we’re not servicing them. The stores have to invest more in sales help.”
At the same time, though, many vendors see the rise of assisted self-service in department stores, noting that it appeals to women who may be short on time and not in need of a great deal of product information.
“We have to make the selling environment more functional and more accessible,” said Burns. “We know that consumers are focused on saving time, which means eliminating showcases where you have to stand at attention and wait for someone to help you.”
“The self-selection trend is going to happen because consumers want more access to the products,” said Patrick Waterfield, president and ceo of Guerlain.
At the same time, he cautioned, there will be women who either require or desire more assistance at the counter. “That’s where the staff are going to have to be much better trained and more responsive to consumers, able to pick up whether she wants to be left alone or needs help.”
Chanel has made its counters “more accessible,” Zimmerman said. In Bloomingdale’s New York flagship, the company created a large open-sell area, while Macy’s Herald Square store was outfitted with new testers that make it easier to sample products.
Lynne Florio, president of La Prairie, added that it is up to vendors to prepare for a surge in self-service setups. “When it comes to the selling environment, for La Prairie we have to arrange a self-service environment while still being able to provide education and service when it’s needed.
“Duty-free is all self-service. Retailers are moving in this direction,” she continued. “In Europe, a lot of perfumeries have already taken out their counters. The customer is able to have a much more intimate relationship with the beauty advisers.”
THE LAUNCH LINEUP
Both retailers and vendors are more dependent than ever on blockbuster new launches. And while the problem of ever-shortening product lifecycles has been a hot topic for years, not much has changed.
“Manufacturers have resorted to a launch-a-minute strategy, which is a high-risk gamble, at best,” said Brady. “The vast majority of these launches fail, and fail quickly. The current mode is to gut the budgets for existing units in favor of the new kid on the block — and that strategy is failing.”
“Launch mania will never be curbed,” said Wiswall, “but I’m not sure we’ve taken the time, money and partnership necessary to keep years two and three going. We have to focus on that.”
Linda LoRe, president of Giorgio Beverly Hills, said “we’re all beginning to look at ourselves and say, ‘Wait a minute — would we be better putting our emphasis and financial resources behind the brands we have spent so much money to develop and launch.”‘
The dilemma is reconciling the support of existing fragrance brands, while also “bringing newness into the category without doing a megalaunch every few seconds,” LoRe noted. “It really depletes both the human and financial resources of a company.”
Nevertheless, many firms are forging ahead with launch plans for 1997.
Liz Claiborne is planning a followup to its Curve fragrances this fall, using the same concept: one scent for women and another for men.
Nielsen noted that Aramis and Prescriptives have a number of new brands in the works. This year will see more ancillary items for the Hilfiger scents — “products for the hair, products for the body” — and a youth-oriented skin care line as well as another fragrance. In addition, Prescriptives will have a new scent this fall.
Never a proponent of frequent fragrance launches, Chanel spent the past three years strengthening its fragrance and makeup business, said Zimmerman, while the next two will be spent bringing skin care up to speed.
“We go category by category, systematically,” she said, “so that we can continue to support our basic business and add spending on top of that for new brands.”
Indeed, many vendors will be looking toward the treatment and color cosmetics categories — increasingly driven by technological innovation — for growth.
“It is easier for us to make a difference in skin care and cosmetics than in fragrance,” said Philip Shearer, senior vice president and general manager of Lancome. “There are new technologies and new innovations that will help these categories grow. No one would have said the lipstick market could evolve, and now we have the transfer-proof category.”
Robert Cankes, president and ceo of Christian Dior USA, said he too believes “real growth will come from areas of product innovation,” noting that the firm will be looking for blockbuster products that immediately draw consumers to counters.
“It will be about big initiatives rather than one-shot deals,” he said. “We’re looking for innovative products we can run with and do a big business with, rather than fractionalizing the business over too many pieces.”
Prescriptives will continue attempting to instill the latest technology in its new products.
“Last year, with Prescriptives, we launched Virtual Skin [foundation], which we thought was a real breakthrough,” said Nielsen. “We’re seeing the results — this product will have sold one million pieces in its first year. The secret is that you have a real benefit that you can see quickly.”
Everyone is “still looking for that facelift in a bottle,” said Florio.
She predicted that “we’re going to be pushed more and more toward the cosmeceutical category. The consumer is looking for a bridge between over-the-counter products and cosmetics.”
Makeup-artist lines, the hottest trend this decade in color cosmetics, will “continue to be the leaders,” said Lauder. However, Lauder cautioned, “I think there’s going to be a shakeout. I’m not confident that six or seven makeup artist lines all packaged in black are going to make it.”
With the battle for market share heating up, many vendors are rethinking their marketing ploys. “All too often, marketing groups get a little carried away with their own ideas and concepts,” said Dior’s Cankes. “We want to get a better feel, from the overall standpoint, of what a consumer expects when she comes to our cosmetics counter in a department or specialty store.”
“We must stop looking at ourselves and start looking at our consumers,” noted Giorgio’s LoRe, who said her firm will place a greater emphasis on its Beverly Hills boutique to try to greater understand its customers. “When you’re trying to depict dreams and tap into the emotions of people, you need to find more innovative ways to deliver the message.”
Lauder’s Burns noted that as consumers spend less time shopping, it is up to the manufacturer to provide them with clearly focused marketing messages.
“Our ability to impart information will be tremendously improved,” she said. “Advances in technology for communication will drive a lot of efforts of our business, including niche marketing and talking to consumers more directly.”
Nielsen said that vendors must try new marketing avenues in order to continue reaching new, younger consumers and lure them to the upscale class of distribution.
“To that end, we’ll be doing network TV for Tommy for the first time this fall,” he said. “We’re also going into magazines with a broader reach, like People.”
“We’ll continue to use a combination of push and pull,” said Horowitz of Clarins. “We’re using national media, and now more radio. And sampling is something people sometimes take for granted, but this is how we get people to try our products — it’s essential.”
For Lancome, whose challenge is to “maintain our position,” Shearer said, a new marketing strategy means reinforcing the image of the brand. The firm’s new advertising campaign, launched last year, is the cornerstone of the effort.
“We’ve changed our advertising to have more brand recognition, placing a lot of emphasis on the products themselves,” Shearer said.
Other new wrinkles, like the use of the Internet, are slowly making their way into business practices.
“The Internet is not something people are buying from now, but we need these new channels of information,” said Florio of La Prairie. “The question is how to bring our proposition into the customer’s home, and in the years to come, we’re going to see faxes and computer terminals at store counters. Making phone calls won’t be our method of communication.”
Growth rates have slowed of late, and manufacturers are adopting new strategies. As always, international expansion is a priority, as Japan opens up bit by bit and China looms as a potential giant.
William Lauder said the Origins policy is one of flexibility.
“Our attitude is that we have to do what’s right for the brand. The store-in-store format is the way we’d like to present this brand ideally,” he said, noting that the firm will have about 150 in-store shops at the end of the year.
Origins and the other top vendors are also looking overseas for growth.
“I expect to see market growth globally on the order of about four or five percent,” said England, “and that growth is being led by outside of Europe and North America, most particularly in Asia.”
While “winning in the U.S. market will remain a key,” Giorgio’s LoRe said that company is also targeting Asia as a market with great growth potential, particularly Japan.
“Japan is the key to the Asian market,” she said. “It’s not necessarily where we will get the most business, but it is where we must establish ourselves. We are image marketing, and Japan is so highly image driven.”
In the end, while many in the industry are confident that steady growth is attainable, it will all come back to profits.
“We’re all going to be concerned knowing how crowded the market is and how difficult it is to have a financially sound business, not just a commercial success,” said Katz.