DESPITE LAUNCH FEVER, FRAGRANCE FIRMS SEE SMALL GAINS FOR SPRING
Byline: Pete Born and Soren Larson
NEW YORK — A salvo of blockbuster fragrance launches will hit the market next spring — but there is no guarantee that the outpouring of promotional fire will ignite a sputtering beauty industry.
The launch lineup is promising: Ralph Lauren’s Polo Sport Woman, Chanel’s Allure, Lancome’s Poeme and the once-delayed and controversial Black Pearls by Elizabeth Taylor from Elizabeth Arden.
Nevertheless, the mood is one of trepidation. While prestige manufacturers predict single-digit growth next year and mass marketers are somewhat more optimistic, trouble still lurks.
Some executives point to Wall Street estimates of dollar growth of less than 5 percent this year for the $4.5 billion U.S. prestige beauty business. Once price increases are subtracted, unit sales appear to be flat or even down.
Moreover, the traditionally fitful alliance between department stores and their vendors has continued to erode.
“We are at a crossroads in our fundamental relationship,” said Robert Brady, president and chief operating officer of Parfums Givenchy Inc.
With department store traffic continuing to decline and consumers looking apathetic, beauty vendors are being squeezed by modernized department store inventory controls and pressured on margins, according to Brady.
He warned that the prestige beauty industry “could go the way of ready-to-wear, where, in desperation, manufacturers opened up distribution into every venue they could find.”
To Robert Cankes, president of Christian Dior Perfumes Inc., the unkindest cut has come from the apparel and accessories sections of department stores, where dismal business has prompted merciless price slashing.
“I’m worried that this level of in-store promotion will have an effect on both beauty and fragrance sales,” he said.
Some executives claimed it is becoming difficult to even get the goods into the store. Leonard Lauder, chairman and chief executive officer of Estee Lauder Cos., cautioned that the department store industry’s mania for white-knuckled inventory control could backfire.
“Right now cosmetics seems to be growing faster than the store,” he said. “The big challenge facing the stores is how to capitalize on the trend.”
Lauder noted that during the last two years, department stores have expanded electronic inventory control systems to cosmetics departments for the first time, and the transition has been brutal for many manufacturers. Computers have taken command of the order-writing process, and not as much stock is deemed necessary.
Although many retailers are forecasting gains in the fragrance category for this Christmas season, their optimism takes into account those scents that are not grouped in with the fragrance bar, notably Lancome’s Tresor and Lauder’s Beautiful and Pleasures. When those brands are eliminated, the fragrance business is lodged in the doldrums. CK One is still holding strong and classics, like Chanel No. 5, are heating up, but not much else is making a dent.
Philip Shearer, senior vice president and general manager of Lancome, said he expects the industry to grow in the mid-single digits, with Lancome surpassing that figure.
“We want more,” he said. “The question is, where do we find it?”
The California market, he said, will be in transition as Federated converts many Broadway stores and sheds others, but other markets, such as the Midwest and the South, will be ripe for growth. Shearer also noted that prices are barely increasing, so the gains must come from unit sales.
“The real challenge is to paint more lips and not lose any lips from our channel to other channels,” he said.
Lancome will focus on its new fragrance, PoEme, which is scheduled for a March debut in the U.S., and Primordiale, the treatment item launched this fall with powerful results.
Arie Kopelman, president and chief operating officer of Chanel Inc., sees the market polarizing into victors and victims as manufacturers continue to battle for market share with major launches “in a category that is growing marginally.” This is not a new trend, he noted, “but the situation is more extreme than what we’ve seen in the past.”
Chanel No. 5 is a 74-year-old fragrance that is as hot as ever. Chanel is also expecting big numbers in April from the launch of Allure — as much as $50 million at wholesale. “There are success stories, and there are disaster stories,” Kopelman said of the launch business. “The middle ground is falling out here.”
The outlook at Guerlain had a similar tone. Patrick Waterfield, president of the U.S. subsidiary, sees a mediocre performance by the fragrance business. “The first half will be pretty flat. Allure and Poeme might stimulate some business, but it’s been so tough this year, with the lack of newness, I couldn’t predict anything more than 1 or 2 percent gains,” Waterfield said.
Guerlain’s stalwart, Shalimar, repackaged last year, has been showing a bit of a rebound, he said, adding, “We were encouraged by Shalimar being up in the single digits in an otherwise flat market.”
Skin care should fare better than fragrance, he said, predicting the category could grow by 5 or 6 percent in the coming months.
“The U.S. is still a market with a lot of potential growth,” he said. “It’s by no means saturated.”
Overall, Waterfield said, Guerlain’s volume should grow 15 to 20 percent in 1996. The company will launch extensions of its Alphabella alpha-hydroxy acid franchise, followed by its major introduction — a new women’s fragrance, slated for a launch in the fall. The product’s name has not been revealed.
Dior’s Cankes is a little more optimistic: He projected sales gains in the mid-to-upper-single digits for department store fragrances and cosmetics.
In the face of heavy fragrance activity next spring, Dior had decided to concentrate on the color cosmetics and treatment side of coin. During the first quarter, Dior will introduce Capture Rides, the company’s first alpha-hydroxy anti-wrinkle cream, at Seattle-based Nordstrom. In March, the new product will roll out to Dior’s beauty distribution of 750 doors.
Cankes noted that a 15 percent increase is expected next year in Dior’s makeup and skin care volume, which has been estimated at near $70 million at wholesale. In addition to introducing Capture Rides, Dior has expanded its beauty distribution by 10 percent with another 75 doors. It also added 100 beauty advisers, bringing the total to 1,250.
Parfums Givenchy, which reportedly does more than $70 million including Parfums Kenzo, also expects to add 15 percent to its overall volume. Without citing figures, Brady added that Givenchy picked up market share during 1995 within its fragrance business.
This has been a difficult year for the prestige fragrance business, and Brady said consumer aloofness and a further disappearance of store traffic portends a continued slide in unit sales.
On a less gloomy note, Peter W. England, who took the helm as Arden’s president in August, has reignited the product development machine following a quiet year. The launch of Taylor’s Black Pearls has been scheduled for spring, and Arden is planning major skin care and cosmetics introductions — Ceramide Night and Eye Story.
England said the company is hoping for a sales increase in the high single digits, driven largely by Black Pearls. He expects the entire prestige market to eke out minimal gains of 3 or 4 percent for the first half.
Executives at Calvin Klein Cosmetics, another subsidiary of Unilever, are optimistic about the new year.
“We feel there will be slight growth in 1996 in the prestige business,” said Shelia Hewett, vice president of global marketing.
Unlike some manufacturers, Hewett does not view a rash of fragrance launches as a competitive threat.
“The more launches, the better it is for all of us,” she said. “They bring newness into the stores and draw more consumers.”
Hewett said one of the critical issues facing the prestige market is “making the product accessible to the consumer.” She noted that Nordstrom has been experimenting with open-sell counters and Bloomingdale’s is working with the concept in its new store in Skokie, Ill.
“We’re not as depressed as everybody else right now,” said Donald J. Loftus, director general and chief executive officer of Sanofi Beaute Inc. “Actually, we’re worried about ’96, because we’ve had such a strong ’95. This was the first time we weren’t undergoing restructuring in years.”
Loftus said Sanofi’s strategy of concentrating on core brands — Oscar de la Renta, Yves Saint Laurent and Nina Ricci — has been paying dividends, with gains for the key lines of more than 20 percent.
Sanofi will boost the Opium franchise with a new campaign featuring Linda Evangelista to run throughout the spring. In the fall, the company will launch Opium Pour Homme, which has reportedly enjoyed a solid launch in Europe this season.
Loftus said the upcoming crop of prestige launches should boost the category, although competition will be fierce.
“This fall we had a reprieve, but looking at next year, I’m glad we’re launching a men’s fragrance, and I’m glad we’re doing it in the fall. And the Oscar women’s [fragrance] isn’t until spring 1997.”
Jeffrey Dame, senior vice president of marketing and sales at Parlux, said he is “very bullish” about his company’s chances for growth in 1996, even though the industry as a whole has been faltering.
“From what I hear, cosmetics has been showing slight increases, men’s fragrances are flat and women’s are actually down [in the department store tier],” he said. “It looks like there won’t be any growth in the first half of next year, either. The only category that’s been performing is the classics, like Chanel No. 5.”
Parlux, though, has been continuing its string of acquisitions and product launches. This fall, the company bought Alexandra de Markoff from Revlon and launched 360i for Men from Perry Ellis.
Next spring, the company will continue to invest in the women’s and men’s 360i in order to boost the Perry Ellis name, Dame said, noting that the strategy will culminate in July with the launch of a new Ellis brand: America.
In addition, Parlux has a deal pending to purchase Richard Barrie Fragrances for an undisclosed amount, which would give the company a larger presence in the mass market.
George Fellows, president and chief operating officer of Revlon Consumer Products Corp., concurred that the most troublesome area of concern in the beauty industry is the fragrance category. “There hasn’t been much of a sign of a recovery, and that’s cause for concern,” he said. “But if the trade gets behind it, it can get turned around. There have been some fairly notable declines of late, and as a result people have pulled back from the business in general.”
Because of Revlon’s pending stock offering, Fellows said he was legally forbidden from revealing his company’s specific plans and growth projections. He did say, however, that Revlon has “a full calendar” of product introductions slated for the first half.
“We want to capitalize on the momentum we’ve been enjoying with our recent launches,” he said, referring to ColorStay and Age Defying foundation.
Almay will also benefit from a number of new products, Fellows said, and Revlon’s Ultima II brand — which is still “doing quite well” in J.C. Penney — is being tested in doors of the Genovese drug chain that have cosmeticians.
“A level of service is certainly a requirement,” he said.
While it has seen its market share increase in the U.S., Revlon is also intent on becoming more of a global force. “The emphasis is on taking the success model in the U.S. and bringing it to our subsidiaries.”
Elsewhere in the mass market, Robert Hiatt, president and chief executive officer of Maybelline Inc., predicted a strong increase in the growth rate.
“For the second year in a row,” he said, “there has been good growth in the mass color market.”
For the latest 30-day reporting period that ended last month, color sales showed an 8 percent increase in an industry that generated $2.3 billion in retail sales in the last 52 weeks. Hiatt attributed the color surge to the advent of long-wearing lipsticks like ColorStay and L’Oreal’s Colour Endure. Maybelline will come out with its own version as one of the line extensions of the company’s Great Lash mascara franchise.
In addition to adding products, Maybelline has been updating its in-store display units to make shopping easier. Sales have increased by an average of 12 percent in the 15,000 doors where the new units have been installed.
Much like department stores, drugstore chains, which have been undergoing a wave of ownership consolidations, have been concentrating on improving productivity via the installation of bar code scanners. Hiatt noted that the pressure is now on to improve inventory turns.
“The consumer wants selection,” Hiatt noted. “That doesn’t mean a store has to carry 50 brands, but retailers do have to have color selection and depth of assortment.”
James Preston, chairman and ceo of Avon Products Inc., also is upbeat about next year. Rare Gold, launched in October as Avon’s latest women’s fragrance, is running 20 percent ahead of the company’s last global record- setter, Far Away, which did $33 million during its launch a year ago.
In the first half, Avon jumped ahead 10 percent in the first quarter and flattened out in the second. For next year, Preston expects 5 to 6 percent increases in the first and second quarters. He also said the economy should continue to show strength, driven largely by the usually buoyant mood of consumers during a presidential election year. “I feel very good about the U.S. business,” said Preston. “I think 1996 will be a good year all around.”
Patrick Firmenich, vice president and general manager of his family’s fragrance supply firm, said 1996 promises to be a much more active year than 1995 in terms of launches.
“We are very active right now, working on projects for the second half,” he said. “It’s good to see that the industry is active, and also to see that people are coming up with new and exciting ideas.
“And the first half is going to be crowded,” he continued. “It will be much different than this fall, when there were not so many mega-launches.”
While Firmenich expressed concern that the upcoming launch schedule might be too hectic, he added, “My hope is it will grow the industry. There may be some winners and losers, but it should help grow the pie.”
Firmenich said the continuing emergence of new channels of distribution where fragrance can be sold is helping expand the industry’s consumer base.
“New places like The Gap and Banana Republic, they’re not going head-on with Pleasures — they’re not going head-on with anyone,” he noted. “They have their own niche. There’s always some cannibalization, but this is a great opportunity to reach new customers.”