STORES SEEKING NEW OPTIONS AS THE GRAY MARKET DARKENS
Byline: FAYE BROOKMAN
NEW YORK — In recent years, consumers had flocked to the local drugstore to snap up diverted prestige scents at bargain prices — sometimes at discounts of 20 to 40 percent off department store tags.
But in many mass outlets, that’s not the case anymore. While historically, retailers have counted on prestige scents — with their higher tickets — to help increase the total Christmas volume, the situation was different last holiday season.
According to industry sources, in the mass market, prestige fragrances experienced an 8 percent decline in 1995 and a 21 percent drop during the four weeks leading up to Christmas, in comparison to 1994 figures. Sales of all fragrances actually dropped 4.2 percent in mass outlets compared with 1994, according to figures from Nielsen.
Diverted scents didn’t even appear in the top 10 sellers in the mass market this year, according to Nielsen reports. In past years, prestige names often made the cut. This year’s fastest movers were Vanilla Fields from Coty, L’OrAal’s Vanderbilt, Coty’s Lady Stetson, Jovan Musk from Quintessence, Coty’s Exclamation, Coty’s Vanilla Musk, Sand & Sable and Longing, Revlon’s Charlie and Jovan White Musk.
Industry experts note that the widespread availability of once-exclusive fragrances has resulted in jaded customers, who are no longer impressed by seeing these brands in drugstores. Though many brands in the prestige class of trade tout a tight distribution in department and specialty stores as a way of crafting an elite image, that image has been diluted by the presence of many of the loftiest names in the lowest outlets.
This has led manufacturers such as Givenchy and Boucheron to bring suit against unauthorized retailers of their products, although it is unclear what impact these actions may have had.
Also adversely affecting sales is the fact that many prestige fragrances are becoming available through nontraditional channels, such as home shopping networks and the Internet.
Additionally, new competition in the form of fragrance offerings from stores like The Gap and Victoria’s Secret has altered consumer buying patterns.
One possible casualty of the decline is Model Imperial of Boca Raton, Fla., a distributor of fragrances and cosmetics which supplies department store brands to mass outlets. The firm is facing the possibility of filing for protection under Chapter 11 of the bankruptcy code to help pay off its $50 million debt.
The decreasing numbers have many mass market retailers wondering if the bloom is off the diversion rose. The gray market, where mass merchants are able to pick up products they are technically not supposed to have, may no longer be essential.
“That’s the feeling of our members,” said Jim Curley, category manager for the Chain Drug Marketing Association, based in Deerfield, Ill., referring to a decline in prestige sales. “Prestige scents are like toothpaste: They are everywhere.”
“There is an overabundance of products, and with the slow turns, it is becoming expensive to carry the inventory,” agreed industry consultant Allan Mottus. “Last year, there was a combination of not having a blockbuster coming down from department stores, as well as a great deal of product in the marketplace that hurt the business.”
Many retailers said they started to pare back diverted scents last year and will continue to do so in 1996 — a reversal from the recent past, when anything that came down the gray market pike was snapped up.
Among the retailers de-emphasizing prestige goods are Revco Drug Stores in Twinsburg, Ohio; Snyder Drug Stores in Minnetonka, Minn., and Bradlees in Braintree, Mass., which is reportedly exiting the designer fragrance business altogether.
At the same time that prestige fragrance sales are declining, retailers report renewed efforts on the part of mass vendors to support their brands.
“Renaissance is spending behind mature brands, and they moved for us last Christmas,” said Penny Wade, category manager for Harco Drug. Thomas Bonoma, chairman of Renaissance Cosmetics, claimed that efforts on the part of his company and others is helping chains to de-emphasize the importance of stocking prestige brands. “We’re offering a bridge fragrance line,” he said. Renaissance has started rebuilding classics such as Tabu and Canoe, while launching new items such as Dreams by Tabu and Navigator, a men’s scent. Coty continues to provide the mass market with products that lure shoppers to drug or discount stores. One of the most successful has been Vanilla Fields, which the company said appeals to a more affluent market than other Coty fragrances — customers who may have formerly bought designer products. The firm expects a new men’s scent called Raw Vanilla will also court shoppers who perhaps used to buy fragrances at a department store. With gross margins averaging 35 percent on mass market scents versus 20 percent on diverted goods, retailers are anxious to bolster the mass fragrance business. “Retailers would obviously rather sell us than diverted [goods],” said Bonoma. Beyond the ample availability of upscale fragrances, there are several other reasons why the demand for prestige brands is wilting in the mass market, retailers said. Many chains which have put upscale scents out in the open have experienced high levels of theft — and the cost of preventing such losses can often be high.
“Our members are very concerned about security,” said Curley. “But when you put the products under lock and key, you have to have a sales assistant — and not all retailers have that.”
Tagging products with a security device that would trigger an alarm is not a viable option for many prestige fragrance diverters, because drug, food and discount store chains have a wide variety of security systems. Another hurdle for mass merchants selling secondarily sourced goods is the fact that there have been fewer dynamic upmarket launches available in drug and discount stores. One of the most popular prestige launches in the recent past, Calvin Klein’s CK One, has not been readily available for the most part, according to mass retailers and diverters. Although classics such as EstAe Lauder’s Beautiful, Elizabeth Arden’s Red Door, Calvin Klein’s Obsession and Yves Saint Laurent’s Opium still have a following, the only new player selling well at mass is Elizabeth Arden’s Sunflowers. “Sunflowers is the only diverted brand I cared about last year,” said one chain buyer based in the South. “Some diverters would only give it to you if you took a slow mover too. That’s where inventory builds up.”
Added Mottus, “We haven’t had a big launch in the prestige fragrance arena that has become available at mass.”
Additionally, said Curley of CDMA, overall usage of fragrance on the whole appears to be down. “You used to get into an elevator and everyone had on a fragrance. You don’t get that now.” The decline in consumer interest, coupled with the hit-or-miss nature of getting the right scents in stock, has resulted in bloated inventories for many mass marketers. “With inventory turning only once a year, the return on investment is very low and you really build inventory,” said Curley. The profitability of upscale scents has been further slashed by the increased costs of paying middlemen who secure the goods. Retailers estimate costs are about 5 percent higher than two years ago.
The end result is that mass retailers have raised the prices of prestige lines, thus cutting into the price savings they offer to consumers. The 20 to 40 percent discounts of four years ago are now closer to 15 percent in many stores. Several retailers have successfully tackled the inventory and profit issue by turning to other resources to manage the prestige business. Rite Aid Corp., based in Camp Hill, Pa., wanted to expand its designer scent offerings in only selected upscale stores. Rather than pull products through its warehouses — as it does with mass fragrances — Rite Aid sought the services of Rita Ann Distributors, Baltimore, Md. “We take care of the distribution for them,” said David C. Carter, president of Rita Ann. In addition to direct store delivery into Rite Aid’s Beauty Focus stores, Rita Ann oversees direct inventory replenishment as fragrances sell through. In addition, the company can make projections on the amount of stock needed on a per-store basis, according to Carter. Harco Drug, based in Tuscaloosa, Ala., has also sought outside assistance to manage its prestige business. Last fall, the firm turned its prestige category over to Sovereign Sales, based in Southfield, Mich. Company officials said the decision has resulted in an improvement in prestige fragrance turns. Turning the prestige business over to an outside source also offers a way for retailers to try to offer shoppers gift-with-purchase or purchase-with-purchase promotions that mass retailers usually find difficult to procure. Buyers said that stepped-up activities on the part of department stores to offer value via gwp’s, pwp’s and gift sets has lured shoppers back to their doors. “We are working on relationships to offer more purchase-with-purchase programs with the companies who can put these together for us,” said Carter, referring to fragrance distributors.
Through its supplier, the drug chain Genovese has been able to secure more sales support materials, such as banners and gwp’s, to supplement and support its prestige business.
Many mass retailers said that without matching the value offered at department stores, prestige fragrances don’t sell. “We find that we do better with designer [brands] when we offer a value-priced gift set,” said Lorraine Coyle, director of beauty care for Eckerd Corporation in Clearwater, Fla.
Last Christmas, she said, the chain used prestige value gift sets priced at $29.95 to “attract high-end users without negatively impacting our traditional business.” Added Peggy Williams, buyer for Snyder, “Customers aren’t buying the items unless they can get the gifts-with-purchase like they can get at the department store.” The souring of prestige is rubbing off on the knockoff fragrance business. With the exception of CK One mimics, buyers said last year was a difficult period for alternative designer scents. And only one knockoff of CK One, U You by Parfums de Coeur, made the Nielsen’s top ranking of new brands. A tally of several drug and discount store chain sales reports reveals knockoff volume declined an average of 26 percent in the final four weeks of the Christmas selling period.
Deborah Richman, president of Lady in Red in East Norwich, N.Y., agreed that the concept of a knockoff fragrance isn’t as viable as it once was. “That is why we are stressing our position with Lady in Red as a brand on its own,” she said. The same is true for Parfums de Coeur, according to company president Mark Laracy. Although Primo was originally a mimic of Giorgio, Laracy said it now has its own brand identity and following.
While the downturn in prestige sales is a cause for concern for many, a few chains said they were able to successfully market upscale brands last Christmas.
Joan Zukor, director of cosmetics for Drug Emporium Northwest, for example, said her selection of upscale offerings actually helped her stores stand out in the market.
“We had people spend $40 for a designer fragrance and they weren’t concerned with price,” she noted.
Zukor’s experience, however, was an exception to the overall industry trend. The widespread use in the last year of scan data has given buyers the informational arsenal to truly know what is moving their stores. The conclusion: The tally on diverted goods isn’t as high as they thought it was. “Instead, we see strong movement of basic stock items,” said Judy Wray, senior buyer for Revco. But Mottus cautioned that the industry should not write off diverted scents yet: “Nineteen ninety-six may bring a whole new group of fragrances that could come to mass, such as Allure, PoEme, Polo Sport, Dolce Vita and 5th Ave.”