COSMETICS’ POST-HOLIDAY BLUES
Byline: Soren Larson and Pete Born
NEW YORK — In the wake of a Christmas noted for its mediocrity, fragrance and cosmetics manufacturers are nursing their bruises and contemplating what lessons the December experience offers for the coming year.
Cleaner distribution, more product innovation, better inventory stocking in off-peak periods, more intuitive marketing and a keener understanding of changing consumer demands — these were some of the observations made by key executives.
Although some department stores achieved sales plans and many specialty stores — notably Saks Fifth Avenue and Neiman Marcus — described their holiday business as above average, overall the gains were minimal.
The fragrance category in both the class and mass ends of the trade was the most troublesome, with makeup and skin care faring somewhat better.
“It’s a static marketplace in terms of dollars, and I’m sure it was actually down in terms of units,” said Robert Brady, president of Parfums Givenchy.
A frequent lament from department store retailers was the dearth of major fragrance launches this past fall. The only new brand to make a dent on the women’s side was Estee Lauder’s Pleasures, while Tommy from Tommy Hilfiger led the way in the men’s category. In the mass market, even the formidable Coty received mixed reviews for its two new women’s scents, Ici and Ghost Myst.
Leonard Lauder, chairman and chief executive officer of Estee Lauder Cos., sees the prestige market suffering as a result of years of excessive behavior, which manifested itself partly in widespread diversion.
“The erosion of confidence in the trade channel of distribution” led to “an erosion of confidence in the pricing structure,” which resulted in “an erosion of confidence in the economics.”
He asked, “If you can’t trust the channel and can’t trust the price, what can you trust?”
Lauder’s solution has been to acquire small, dynamic companies — like MAC overseas and Bobbi Brown — that are “not overpromoted and ideologically pure and clean.”
Hopefully, they’ll grow to the point of one day carrying the company, he said, adding, “I would like to be the Johnny Appleseed of cosmetics.”
“I think we’ve reached the level where we can’t increase promotion,” said Guy Peyrelongue, president and chief executive officer of Cosmair Inc. “I don’t think we can increase the level of gift sets, and I don’t think we can increase the level of Christmas coffrets.”
Peyrelongue’s answer is product innovation. “What really will make a difference is to bring new products,” he said, noting that this season, Cosmair will unleash Ralph Lauren’s Polo Sport Woman and Lancome’s Poeme. “Consumers watch very closely how they spend money, but when there is a new product, there is elasticity.”
Cosmair also has a multitude of product additions planned in its mass division, ranging from the L’Oreal color cosmetics and Plenitude divisions to hair care.
Peyrelongue also sees need for improvement in customer service — primarily in slowing the chronic turnover of sales personnel in department stores. The company is concentrating on cultivating good managers in the stores.
“When people stay with you, you see a tremendous difference,” he noted.
Phillip Shearer, senior vice president and general manager of the Lancome division, agreed that innovation is key. “The customer has to be excited,” he said. “Once we find something that works, we need to fine-tune it to constantly improve what the customer is going to get.”
Although the final week before Christmas was strong, the month as a whole was no holiday. “There always is a Christmas,” Shearer said. “The big challenge is whether we can believe in Santa Claus.”
Robin Burns, president and chief executive officer of Estee Lauder USA, said that working women have less time to shop and as an efficiency measure, are doing their own shopping while looking for Christmas gifts. In years past, there were separate trips devoted to gift buying, Burns noted.
As a result, cosmetics department sales are up while the fragrance bar business is struggling, because women are stopping to pick up a moisturizer at a cosmetics counter en route to the fragrance bar.
The increase in self-purchase has prompted Lauder to make adjustments, ranging from making sure lipsticks are in stock during the holidays to improving training.
Another change is the rising importance of the week after Christmas, when increasing numbers of people are home on vacation and in the stores. “The week after Christmas is becoming more important than the week before,” Burns said, adding that it has become an important week to launch skin care products and promote the treatment category.
“What happened was just more of the same,” said Givenchy’s Brady. “On top of the consumer apathy for ready-to-wear — they just weren’t coming into the stores — there was an overabundance of choices and the usual over-promotion, which dilutes any brand-building strategy.”
Brady said the relationship between department stores and their vendor partners is unfocused.
“There’s no difference in the way they treat the vendors, some of whom are in a very wide distribution, some in a selective distribution,” he said. “But the good news is that we now fully have [department stores’] attention.”
Retailers may be ready to concentrate more on long-range goals.
“It’s about dealing with the business in a strategic, long-term fashion,” he said. “The manufacturing end has been losing its margins big time, and the stores are implementing programs predicated on margins that no longer exist.”
Like Brady, Neil Katz, president of the cosmetics and watch division of Liz Claiborne, said department stores have to generate more traffic — while vendors have to avoid giving away too much in an effort to entice.
“Cosmetics depends on traffic, and people just weren’t in the stores in the pre-Christmas period,” he said. “The key to our health is the stores’ ability to get people in. And there has to be another way to do this other than putting everything on sale so early. Consumers realize they can get a better deal later and later in the season.”
Jeffrey Dame, senior vice president of marketing and sales at Parlux, said he saw “a tremendous amount of sets still out there very late. There’s an adjustment going on — the business has been overpromotional and too reliant on these items.
“But it won’t slow down next [Christmas],” Dame continued. “People are going to continue to be aggressive, because they want to be there if the consumers come around.”
Jean Hoehn Zimmerman, senior vice president of sales and marketing at Chanel, said her company’s strategy of avoiding giveaways continues to pay off. “There were no big surprises this Christmas,” she said. “We’ve had a program of consistent advertising and no [gifts-with-purchase], and it’s working.”
She noted that the resurgence in department stores of classics like Chanel No. 5 reflects a new attitude on the part of retailers.
“More and more, people are focusing on the classics and going with the brands they believe in,” she said.
“Retailers have told me they are going to concentrate even more on the classics,” agreed Donald J. Loftus, director general and chief executive office at Sanofi Beaute, who noted that this will benefit his company’s upcoming launch, Opium Pour Homme. The women’s Opium has been part of the classic brand comeback.
While some claimed overpromotion is rampant in department stores, Loftus said his firm’s plans worked well: Sanofi inaugurated a new program this Christmas where it introduced new sets for the last 10 days of shopping.
“We put a new item behind each brand just for that time period,” he said. For example, the company sold an Opium body lotion with a spray for the cost of the spray. “It was a great sell-through, and we’re definitely doing it again next time around,” he noted.
Charles Busta, vice president and general manager of Procter & Gamble’s cosmetics and fragrance division, said Christmas was “a continuation of what has been happening the rest of the year” — meaning that dollar sales of color cosmetics were slightly ahead, with unit sales down 1 to 2 percent.
“Impulse purchases result from two things: store traffic and presentation,” he added. “At Christmas, the store traffic is there, so it must be the presentation that is at fault.” He noted that one reason could be the lack of holiday promotions. Most mass manufacturers now only present spring and fall shade statements.
“We also as an industry need to create products that are easier to apply,” he added. “Women as a whole are wearing less makeup because they have less time, and workplaces are becoming more casual. We as an industry need to work around those two factors.”
Conversely, Robert Hiatt, president and chief executive officer of Maybelline, said his mass market company’s makeup and skin care sales were solid through Christmas.
“We may be singing a different tune than some other people,” he said, adding that continued success this year depends on sticking with basic business.
“There is less emphasis on giveaways,” he said. “If you provide the basic information with newness and information, you’re providing a reason to buy.”
[For a related story on Maybelline, see page 5.]
George Fellows, president and chief operating officer of Revlon, said the fragrance business — both class and mass — has become a struggle because of profound changes in consumers’ lives. Since women now go to the office every day, using fragrances with a strong sexual message is no longer appropriate. “The research we’ve done indicates a lower propensity of fragrance usage. It’s down measurably over the last five or six years,” he said. Companies need to “get closer to the consumer. The old ways of marketing fragrance are past.”
As an example, Fellows pointed to Lasting, Revlon’s fall fragrance launch. As the name implies, the fragrance grew out of research indicating that women want longer-lasting scents. While many vendors cautioned against relying too heavily on a burst of newness to drive up sales numbers, stores are optimistic about the prospects for this year’s launch schedule.
This year will include some heavy-hitting department store fragrance introductions: Ralph Lauren’s Polo Sport Woman, Chanel’s Allure, America from Perry Ellis, Lancome’s Poeme, Christian Dior’s Dolce Vita, Breeze from Giorgio Beverly Hills, Yves Saint Laurent’s Opium Pour Homme and the long-delayed Black Pearls by Elizabeth Taylor from Elizabeth Arden.
In addition, Liz Claiborne will have a simultaneous introduction of men’s and women’s scents. “It’s going to be a master brand,” said Katz. “The same name, but different fragrances.”
In the mass market, P&G will launch Navy for Men in April, with the bulk of the other new brands landing closer to Christmas.
“It’s certainly going to be a stronger year in terms of launches,” said Michael Sweeney, vice president of creative and commercial resources at International Flavors & Fragrances. “But we won’t be returning to the high levels of two or three years ago. People are looking more at the bottom line now, and that’s intensified by more companies going public. They want a quicker return on their investments.”
He added that lower opening price points, to increase accessibility, will continue to be an important trend.
Karen Elliot, senior vice president of marketing and fragrance development at Fragrance Resources, noted that “because of the enormous expenses behind these launches, we won’t be seeing a lot of major introductions.”
Instead, she said, the industry has been experiencing a polarization. “We’re seeing a lot of specialty and niche launches,” she said. “And then alongside that is a handful of blockbusters. Dolce Vita, for one, will have a lot of spending behind it this year.
“People are turning their focus on existing business and classics,” she added. “It’s a matter of going with what works and not taking risks.”