SUPPLIERS: TIME TO TRY NEW AVENUES
Byline: SOREN LARSON
NEW YORK — When fragrance suppliers flock to Florida for the Cosmetic, Toiletry and Fragrance Association Convention, they won’t be looking to glorify tradition.
Instead, what will be on the mind of many a supply-side executive is the search for an alternative — be that an alternative outlet, an alternative marketing strategy or simply any change from the way business is now conducted.
A lackluster Christmas last year and the continuing shaky state of the fragrance business have heightened the sense of urgency for change with those who work the convention.
In the wake of the slow holiday, Mike Sweeney, vice president of creative and commercial resources at International Flavors & Fragrances, said steps need to be taken to generate new interest in the prestige retail channel. “Things have to be done to get the consumer back there,” he said.
“I think a lot of people are still in a state of shock after last year,” said Charles Gounod, vice president and general manager of the fragrance division at Dragoco. “The more and more information we get, the more we realize that December was a bad month.”
“The big issue is how to create excitement in the marketplace,” said Geoffrey Webster, president of Givaudan-Roure’s U.S. division. “The basic need is to get consumers interested in our products again.”
Everyone is wondering how to continue making an impact in department stores, Webster said.
“For the vendors, there’s the question of how they can handle the shrinkage in the number of doors. They’re already having difficulty making money in the doors they’re in,” he said. “We’re seeing that our clients who are in the classic forms of distribution are having problems — but the alternative arena is having tremendous growth.
Webster noted that The Gap and The Limited, two apparel chains that have added their own bath and body lines, are prime examples of new types of ventures that are making waves.
“Excitement is being created in these new outlets — on television, in specialty stores, even direct selling. Look at Avon, which is doing extraordinarily well. These are the places where the activity is and where more and more of the business is going,” he said.
For those manufacturers who sell their wares in the more traditional department store and drugstore chains, Webster said, a renewed commitment to supporting brands is needed.
“Some of our clients operating in the mass market — in particular Coty — are doing a great job. They don’t just launch a brand and then drop it, which is all too common.”
In the prestige arena, Webster said, the practice of backing a newly launched item and leaving it for the next new introduction continues to be a trouble spot.
“The major exceptions are Calvin Klein and EstAe Lauder,” he said. “These companies are continuing to invest in older brands, and they’re reaping the rewards. Take a look at any seasonal advertising, and you’re going to see every brand that Calvin Klein has.
“Part of the blame has to go to the department stores, which are continually demanding newness,” Webster continued. “But manufacturers have to realize that one very good way to add a new dimension is to install a new promotion, come up with new advertising and concepts for core brands — not just new launches.”
Herb Kelhoffer, vice president of fine fragrances at Quest International, said the industry need only look at the way fragrances are being sold in department stores “for an indication of how the business is changing.”
In analyzing the typical department or specialty store list of top-selling brands, he said, the majority are sold by companies who “have control over the counter and the people who sell their products.
“It would seem that the only way to ensure a product’s longevity in fine fragrances is to remove products from the fragrance bar arena, an environment that is characterized by untrained, unloyal salespeople who are often motivated to sell only new launches or special promotions,” he said.
Kelhoffer lamented the steady decline in entertainment, excitement and service in the traditional, larger retail spaces, which has resulted in “lower traffic, particularly among younger customers. These consumers, as well as the manufacturers, continue to seek alternative forms of distribution, which provide less-expensive fragrances in an increasingly service-oriented environment.”
Karen Elliot, senior vice president of marketing and fragrance development at Fragrance Resources, agreed that the minimal sales gains seen of late in traditional distribution is an issue that demands attention.
“The lack of growth overall is the number one issue people should be paying attention to,” she said. “Consumers just aren’t buying. Many manufacturers have been quite comfortable with the way they do business, and as a result, they’ve saturated the marketplace. They’re not going to increase the pie that way.
“The answer is to tap into the group of people that isn’t using the products,” she continued. “We have to be more innovative in our approach to reach that customer — but the bigger companies are still doing business as usual. For the big companies, going into uncharted waters makes them very uncomfortable.”
The Estee Lauder Cos., Elliot said, is an exception to that rule. The firm’s Aramis division launched Tommy by Tommy Hilfiger last year — Lauder’s first licensed venture. The company also bought MAC and Bobbi Brown, both of which are at the forefront of the hottest trend in cosmetics — makeup artist lines.
“[Lauder] is seeing it has to do business in a different way,” Elliot said. “They saw the makeup artist thing happening, and they started making the acquisitions. Aramis came out with the Tommy fragrance, and they had never done a license before.
“Gryphon is another success story,” she said, referring to the company that has created private label lines for The Limited, Bath & Body Works and Victoria’s Secret. “Gryphon has been converting the traffic in The Limited and Victoria’s Secret into toiletries traffic.”
Gounod of Dragoco also cited the Tommy launch as breaking the mold in a positive way.
“Tommy had a wonderful entrepreneurial approach,” he said. “It was [Lauder’s] first license, it was targeted to a new youthful customer — it was done with a new spirit.”
Michael Conti, director of fine fragrance sales at Haarmann & Reimer, was also among those who expressed consternation about the state of department stores.
“Traditional retailing has been disappearing. The question is, what’s going to replace it?” he asked. “You can buy CK One at Tower Records, and that leads to the question of where are the young people. My guess is that they’re not at Saks.
“In a department store, you get the feeling that someone is selling you a brand, rather than trying to find out what fits you as a person,” he continued. “They just want to sell you the latest whatever. Nordstrom has been trying something new by grouping by florals, orientals and so forth. I look at this and I tell my clients, ‘Let’s do something different.”‘
The Gap and Banana Republic, which also recently came out with their own range of bath and body products, are coming at the business with a different approach, Conti said.
“If you look at what The Gap is doing — and they’re doing it well — and you realize that Benetton tried it several years ago and it didn’t work, maybe it was too early, and at that time people said, ‘Hey, you can’t make it outside traditional distribution.’
“Now all of a sudden Bath & Body Works has 600 doors, and Victoria’s Secret has 300, and they’re still experimenting with new concepts.”
One area of possible expansion for the fragrance industry, Conti said, is in the home category. “People are perfuming their homes now,” he said. “All manner of products that create ambience are coming out. This doesn’t mean the designer business is going to die, although one in 20 brands will succeed.
“It’s so much easier to launch a new designer brand in Europe,” he added. “It’s about smaller markets and smaller budgets. In Italy, there are 300 launches a year. But in the U.S., you’ll see five major launches because it has become so expensive.”
Patrick Firmenich, vice president and general manager of the Firmenich supply house, said the industry is still watching intently to see if television shopping can become a working venue for fragrances.
“People are following closely the home shopping networks,” he said. “They’re waiting to see if this is a real channel for fragrances.”
He also cited the emergence of major private label lines as an interesting new twist.
“We’re seeing more and more,” he said. “Sears made a dramatic entry and this is something to watch. It seems that alternative channels like this are being very successful — Gryphon and the Gap are some great examples. Gryphon is becoming very big, and clearly they’ve increased the pie. They’re not stealing the business away from anybody else.”
While the suppliers stressed the need to look outside traditional channels of distribution and to open up to alternative thinking, they also touched on a number of other points:
* Globalization. Firmenich said that Europe and the U.S. “are paying more attention to each other and are thinking globally. Everyone wants to develop brands for worldwide sale. Un-+¦tapped markets are a part of this — Southeast Asia is still the place that has incredible potential.”
Peter Dichter, marketing director of Drom International, said the globalization of the business continues to be the most pressing issue affecting the industry.
“The world is shrinki-ng, thanks to media and movies, and you can no longer tell a teenager from the USA from one in Siberia,” he said. “They sound alike and wear the same clothes. Generation X was as close to a worldwide phenomenon as we’re going to get. The Internet has people sending mail or corresponding with other people in places too remote to get to any other way.”
The industry can take advantage of the situation by launching global brands, he said, but this is a complex maneuver.
“Global brands are springing up everywhere, and it has become imperative to be able to spot a potential trend — no matter where it might originate. As our customers become more and more global, the fragrance houses must follow suit. Flexibility is the key, because markets are changing so rapidly.”
Conti of Haarmann & Reimer said more designers and brands can cross the ocean and find success in new countries.
“Someone like Armani hasn’t reached his potential,” he said. “There are pockets like that. I’d love to see the internationalization of American designers. Like Donna Karan — I’d love to see that. Calvin Klein is showing it can be done.”
Nevertheless, Conti cautioned that the industry has to look outside these shores for the real opportunities.
“I don’t know how much more fragrance we can sell to Americans,” he said. “The pie is growing in China and India, where per-capita consumption is on the rise. Everybody knows that something big is going to happen in these places.”
Added Gounod: “The challenge is to manage a business globally, but when it comes to marketing, we must have regional solutions and regional consumers. There is still distinct consumer preference from country to country.”
* Diversion. Kelhoffer at Quest noted that the changing face of distribution “has led more marketers to keep their sales figures buoyant by channeling more product through the gray market. With few exceptions, large companies are not sufficiently patient to build a brand over the longer term. By taking distribution out as far as they can, the brand suffers the consequences of a shorter life cycle. “Ironically, manufacturers tend to replace these brands with new introductions destined to have a similar fate,” he said.
* Launch mania. Elliot at Fragrance Resources said the solid crop of new launches this year — including Polo Sport Woman, Lancome’s Poeme, Christian Dior’s Dolce Vita and Chanel’s Allure, to name just a few of the big names — could give a jolt to the business. Still, she warned of the pitfalls of continually relying on splashy introductions to juice sales figures.
“People will be optimistic about the launches, but a lot of these products will end up stealing from Peter to pay Paul,” she said. “Somebody’s going to lose out in the end. More and more newness is just acting as a Band-Aid.”
“Not all of the new introductions lately have been well executed,” said Firmenich. “This erodes the image of the industry. It’s not about the quantity, but the quality.
“As long as you have well-executed products, you can attract new consumers,” he added. “There are still fewer women in America that use fragrance than in Europe, so there is potential here.”
Gounod said the industry has to rein itself in by limiting the number of products it creates.
“We cannot feed an animal that doesn’t want to eat,” he said. “But if we are especially creative and use the newest technology in the right way, maybe we can create a bigger appetite for our products.”
He said the static volume of the fragrance industry has increased the need for acute creativity in order to survive.
“The name of the game is stealing market share, both for suppliers and brands,” he said. “But I definitely see some strong creativity coming up [this year]. The paradox is that you have to be innovative, but it costs so much to take risks.”
* Consolidation. Dichter of Drom said the fact that the industry is shrinking on all fronts is having drastic repercussions.
“Many fragrance houses are merging, which creates an image problem for them, since the new house has to absorb and assimilate the images of each of its components.
“As corporations acquire other corporations,” he continued, “the acquired firm often loses its identity, and decisions emanate from the acquirer.”
Sweeney of IFF had a more positive take on the merger mania.
“We believe there will be more buoyancy in the coming fragrance market, as we expect a greater frequency of well-supported launches,” he said. “The consolidation of cosmetic and fragrance companies into larger organizations, together with the recent trend of private companies going public, all [lead to] more fragrance launches, as these companies seek to expand market share.”
Gounod of Dragoco said the suppliers have fewer clients to deal with, which means dealing with larger and larger entities.
“Most of the money will be spent on the few major companies,” he said. “But we can never neglect entrepreneurs.”
Quest’s Kelhoffer noted that as retailers become more powerful through mergers and acquisitions, his clients “are under increasing pressure to develop coherent marketing strategies and distribution plans for new products launches. The resulting shift in power between the two camps is creating bigger challenges for the manufacturers, particularly as they try to negotiate exclusivity deals.”
Surmised Conti: “Sometimes it looks as if we’re going to end up with one huge company selling its one brand in the one store chain. That won’t be much fun.”