AUSTRALIA’S MARKET A GOLD RUSH
Byline: Patricia Huntington
SYDNEY, Australia — Last September, Tommy Hilfiger’s Tommy fragrance arrived on Australian shores and shattered all expectations, becoming the biggest men’s fragrance launch in the country’s history.
“It’s just blitzed the competition,” said George Bingham, national fragrance buyer for the Myer/Grace Bros. department store chain.
Tommy managed to double its original sales forecast, in a matter of months knocking Aramis off its decades-old pedestal as the country’s leading men’s scent. Through June, Tommy had a wholesale volume of $2.9 million, ($AU 4 million), after doing over $1 million in its first month.
“I’ve never seen anything quite like it,” said Bingham, noting that Tommy “blew away” his sales estimates by 40 percent. “
Now, with the Sept. 28 launch of Tommy Girl, Estee Lauder Australia — the local branch of Hilfiger’s licensee, Estee Lauder Cos. — is banking on another blockbuster Down Under. Lauder is projecting sales of $3.65 million ($AU 5 million) for Tommy Girl from October through June 1998.
Tommy’s success and the high hopes for Tommy Girl are all the more extraordinary given that prior to the first launch, most Australians had never heard of Tommy Hilfiger, let alone bought his clothing.
It also goes a long way to show the potential of the beauty business in Australia. Disproportionate to the relatively minuscule size of its population of just over 18 million, Australia is Lauder’s sixth-largest market outside the U.S., a fact which continues to surprise Lauder executives.
“I think the penetration of Lauder per capita [in Australia] is one of the highest in the world,” said Karen Wilson, managing director of Estee Lauder Australia.
The prestige segment of the Australian fragrance market is worth some $145 million ($AU 200 million) at wholesale — half the total market. Upscale department store chains compete with a vast network of pharmacies that have traditionally sold prestige fragrances.
However, in contrast to the men’s market, which accounts for 25 percent of sales and is showing double-digit growth, the women’s market is slowing, with only 3 to 4 percent growth in the past year.
“You really have to be more innovative, you have to be smarter, you have to know the business intimately and really deal it on a door-by-door basis,” said Wilson of Lauder’s Australian strategies, which include a $3.65 million ($AU 5 million) annual advertising budget.
Battling it out with Lauder for market share are around 15 other major companies, mostly former local distributors that have been transformed into wholly owned subsidiaries over the past 10 years.
These firms have imported approximately 20 percent of the estimated 130 new fragrances released worldwide in the past year. Among the big recent launches were Chanel’s Allure, Lancome’s Poeme, Christian Dior’s Dolce Vita, Yves Saint Laurent’s Opium Pour Homme, Gucci’s Envy, Giorgio Beverly Hills’ Ocean Dream and CK Be, which did not achieve the blockbuster status of CK One but nevertheless remains on most bestseller lists.
Like Lauder, Chanel regards the Australian market as a profitable anomaly. Sales for last September’s launch of Allure doubled the company’s forecast, making Australia one of the very few world markets where Allure turned a profit in the first year, according to Jenny Miller, retail marketing manager for Chanel Australia. She said the fragrance now accounts for 17 percent of Chanel’s Australian fragrance business.
Chanel has also done particularly well due to a resurgence of classic French brands here. On the decline only three years ago, Chanel No. 5 has made a major comeback and accounts for 50 percent of the company’s Australian fragrance sales, according to Miller.
The company views the recent deregulation in the Australian advertising industry, which has finally allowed Chanel to use its European-made commercials on Australian television, as a major factor in No. 5’s comeback.
Miller describes the Australian market as “a hugely competitive fragrance environment for a relatively small marketplace.
The prestige distribution is centered around two dominant department store groups and a phalanx of fragrance-specialist pharmacies.
Sixty percent of sales of prestige sales are through department stores, with the 72-unit Myer/Grace Bros. chain dominating. The “sheer size” of the latter was a factor in luring fragrance expert and author Michael Edwards to these shores 14 years ago from Europe, when he was looking for a test market for his retail fragrance manual. He’s now a leading consultant to the local industry.
“The French have never really fully appreciated the impact of a group like Coles/Myer,” said Edwards, referring to Myer/Grace’s parent company.
He noted that Coles/Myer, which has an array of retail holdings, had sales of $13.3 billion ($AU 18.175 billion) through July 28, pegging it as the world’s 12th largest retailer. Of that, $2.35 billion ($AU 3.231 billion) is the Myer/Grace business.
When you add David Jones’s latest figures of $1.05 billion ($AU 1.437 billion), the two chains account for two-thirds of the total department store market, Edwards said. Myer/Grace accounts for as much as 70 percent of the Australian business for some companies. Although he declined to divulge figures, George Bingham said Lauder’s men’s and women’s fragrances account for 25 percent of his business, with Calvin Klein and Yves Saint Laurent contributing 20 percent apiece.
Elizabeth Arden’s Red Door is the store’s overall bestseller, with Chanel No. 5 the top premium price point brand.
The 31-unit David Jones chain has, according to one industry source, “lost its way” as a fragrance specialist in recent years. He noted, “It had to have its arm twisted to take on Tommy and point-blank refused to take on Gucci’s Envy.”
“We’re more than holding our own in terms of market share,” said Maurie Cowmey, David Jones’ product controller for cosmetics. “I think we’ve got the best possible range.”
Pharmacies account for 35 percent of Australian prestige fragrance sales and have been charting single-digit growth of late. They withstood a depression in the early Nineties which saw the market in Victoria state, which used to account for almost 60 percent of pharmacy sales, cut in half.
There are 5000 pharmacies in Australia — twice as many per capita as in the U.K., where 10,500 pharmacies cater to a population three times the size.
About 700 of the Australian doors boast a wide prestige fragrance selection, with approximately 400 considered serious prestige players.
The Brisbane-based Terry White Group is seen as a pioneer in this arena.
“And they’re not doing it with [gifts-with-purchase], or specials or promotions,” said Edwards. “They’ve cut back sharply on these. It’s been done on basic business. We’re not talking tiny business — it’s individual pharmacies doing half a million dollars. It’s intriguing to see.”
In two years the group has acquired 42 pharmacies, stretching from Queensland to Victoria, with another dozen slated to open by mid-1998.
“We’re getting up there; we’re now the number three client of Lauder and Elizabeth Arden,” said Jack Dempsey, the group’s national cosmetics and fragrance manager, adding that prestige fragrance represents anything from 25 to 35 percent of his stores’ beauty turnover.
“For us, it’s definitely a growth category,” said Dempsey. “Pharmacies tend to have fragrance because they have to have it, but they don’t do it authoritatively and they don’t take all the new brands.
“It’s all really about the survival of pharmacy in the future,” he added. “We see it as an opportunity in pharmacy, particularly in cosmetics, to pick up our game and to develop that side of the business and be a strong competitor for what has predominantly been department store merchandise.”
Pharmacies have run into some obstacles lately, and as a result the gray market has become a factor. Over the last 18 months, an elevation of local retail prices provided a window of opportunity for gray market operators to purchase stock at regular U.S. prices and sell it for a profit locally.
In addition, many fragrance houses have begun limiting their pharmacy distribution in the interest of creating an exclusive image, resulting in a pent-up demand; pharmacies which, 10 years previously, had a solid chance of obtaining a prestige brand were suddenly told they did not meet requirements.
A case in point was the 600-unit Amcal pharmacy chain, which sought to put Red Door in its last Christmas catalog. Arden declined, and Amcal sourced it instead from the gray market.
Vendors have had until now a modicum of protection under Sections 37 and 38 of the Australian Copyright Act , which governs copyright in packaging and labeling. However, Australia is currently at the second reading of a bill before Parliament which would dilute this protection.
Some companies, notably Lauder, Chanel and Calvin Klein, have taken legal action against gray marketers. The best known case to date is Lauder versus Perfumemania (no relation to the U.S. company Perfumania), in which Lauder succeeded in having stock removed from shelves.
“Different companies give it different priorities,” concedes copyright specialist solicitor Michael Hall of Baker & McKenzie Sydney, which represents Lauder. “It’s hard for subsidiaries, when parent companies can’t or won’t support the activity.”
Patrick McCarthy, the director of Brisbane-based discount perfume chain Perfume Connection, which operates four stores between Brisbane and Sydney, is looking to expand.
McCarthy said 30 percent of the stock in his stores is cheaper than Australian duty-free prices. He scoffs at claims that the gray market is bad for the image of prestige fragrance.
“It’s expanding the market,” said McCarthy, claiming that companies like his also cater to a demand for discontinued fragrances that Australian distributors drop from their inventories to keep pace with the sheer volume of new releases.
“There’s not a fragrance company in the world that does not have excess stock that they need to clear from time to time,” said McCarthy, adding that Australian distributors have been among those seeking to liquidate stock. “If they can’t move it through traditional channels, then they move to the secondary market.”
“The perfume companies have had it their own way for a very long time,” he added. “Australia, welcome to the global market.”