FRAGRANCES: LESS DIVERSION, HIGHER MARGINS
Byline: Faye Brookman
NEW YORK — Mass market retailers expect only modest sales increases in fragrance departments this holiday season, but they are banking on higher profits. That’s because many merchants are opting for mass over class. For the first time in several years, most chains have decided to stock their shelves with fewer diverted fragrances and more mass scents.
At the same time, many retailers are emphasizing more basic stockkeeping units that are sold day-in day-out, rather than the usual array of holiday gift sets.
“My feelings are that we will have an excellent Christmas,” said Judy Wray, senior buyer for Revco D.S. in Twinsburg, Ohio. “I’m noticing very strong sales coming from my basic stock merchandise.”
For the last three years, chains focused their holiday efforts and advertising budgets on diverted designer scents and gift sets. This year, however, retailers such as Revco, CVS of Woonsocket, R.I., Bradlees Stores Inc. of Braintree, Mass., Snyder Drug Stores Inc. of Minnetonka, Minn., and Thrift Drug Inc. of Pittsburgh all have decided to turn their attention to mass entries, in the hopes of gleaning higher-than-usual margins. CVS even published a holiday fragrance guide that featured only mass scents such as Coty’s Ghost Myst and Ici, Revlon’s Lasting and Melrose Place.
During the last four years, diverted fragrances and promotional gift sets have generally made up 60 to 70 percent of a store’s holiday mix, and the rest was basic mass stock, according to retailers. But this year, many chains have shifted the ratio so that basic mass fragrances represent 50 percent of holiday offerings.
Chains said they were able to switch gears because of this year’s spate of solid mass launches, including Ghost Myst, Ici, Renaissance’s White Chantilly and Classic Gardenia, Lasting and Charlie White, also from Revlon.
By reducing the inventory of prestige fragrances and promoting mass scents, retailers said they can enjoy greater gross margins because they can obtain the merchandise without going through a middleman. They noted that mass scents traditionally yield margins of more than 25 to 30 percent; diverted goods usually produce margins of less than 20 percent. But often, the most popular brands, such as EstAe Lauder’s Beautiful and Elizabeth Arden’s Sunflowers, offer margins as low as just a few points when they are procured through secondary sources.
Stocking fewer mass gift sets and playing up basic stock has its advantages. Retailers said they have to unload leftover gift sets at a hefty discount once the holiday season has ended. Regular merchandise can stay in stores at full price all year.
Buyers said they have to rely on this shift in strategy to bolster profits since overall sales are not likely to greatly increase this year.
According to industry sources, fragrance sales have been flat to declining most of this year, and many merchants predict Christmas will be only slightly better. Sales are expected to increase only 5 percent over last Christmas. Many retailers attributed the less-than-stellar sales to increased competition from direct sales, mail-order catalogs and deep discounters.
Sales activity at the chains on the Friday following Thanksgiving substantiated the lukewarm predictions.
“The stores are crowded, but people are just looking. The bulk of people doing Christmas shopping [in advance] go to malls. Our stores aren’t traditionally in malls,” said Peggy Williams, cosmetics and fragrance buyer for Snyder Drugs. “[Drugstores] appeal to last-minute shoppers.”
Stephanie Hayter, merchandise manager for Genovese Drug Stores of Melville, N.Y., agreed: “People always wait until the last two weeks to shop in drugstores. It is the same every year.”
Michael Polzin, spokesman for the Walgreen Co., Deerfield, Ill., called the first official holiday shopping weekend “encouraging,” although he said fragrances are still a last-minute gift choice. Wray at Revco conceded that her sales were off compared with the same period last year.
“Last year we had a 12.5 percent sell-through at this point versus a 9.5 percent this year,” she said.
Wray cited delayed shipments of key merchandise such as Coty’s Ici and some other gift sets as a possible reason.
“We just haven’t caught up yet,” she added. Except for a handful of prestige scents such as Elizabeth Arden’s Sunflowers, Halston, Drakkar Noir and Shalimar, buyers said they were backing off diverted products. “Customers aren’t buying the items unless they can get the gifts-with-purchase at the department store,” said Williams at Snyder. “With scan data, we know which sku’s are selling, so we now only stock the best of the diverted brands,” said another buyer with a major chain. “But we aren’t dealing with diverters as much because we don’t want to take items that we can’t sell just to get the ones that do.”
The buyer was referring to a practice by many diverters that makes available hot-selling scents, such as Sunflowers, only if less popular scents are purchased as part of a package deal.
So far, the most promising mass fragrances include Coty’s Ghost Myst, Revlon’s Charlie White and Renaissance’s White Chantilly, according to retailers. Many noted that Coty’s Ici, which was shipped to stores about three weeks later than planned because of production problems, is starting to gain momentum.
Buyers said manufacturers have realized that $10 is a magic price point in the mass market and have started producing more offerings in that range. “Manufacturers have found a way to give us sets with room for margin under $10,” said Williams.
One example is a Vanilla Musk set by Coty that contains a 0.5-oz perfume spray and a 1-oz. cologne spray for $9.99.
In the hopes of generating early shopping excitement, Williams has focused on even lower price points.
This week, she set up in-store displays with an assortment of gift sets from Revlon and Coty at $6.99 each.
“Just once it would be nice to have a change in Christmas with really good news and some early sales,” she said.
* * *
While it may not make this year’s holiday selling season, Renaissance Cosmetics Inc. is getting an early start on Mother’s Day. In February, the company’s Dana Brands division will extend its Tabu franchise with a new and younger scent, Dreams by Tabu.
Although the signature women’s scent was launched in 1931, company research showed that the venerable fragrance still has a high brand awareness with women of all ages, according to Dana executives. Its user base, however, was largely limited to women over 40.
Dreams by Tabu will be aimed at women 18 to 35.
“Women know and trust the name,” said Thomas V. Bonoma, chief executive officer of Renaissance. “This is part of our ‘mother fragrance’ strategy. We launch a new product under the brand and it has credibility, and the new item, in turn, rejuvenates the mother brands.”
Bonoma added that the company employed this tactic with its 54-year-old Chantilly women’s scent. Earlier this year, Dana introduced White Chantilly, a bright white floral scent targeted to young women.
Polzin, of Walgreens, said the chain is optimistic about Dreams by Tabu because of its elegant packaging and the strong Tabu name. Al DeChellis, vice president and general manager of Dana, added that this is an appropriate time to extend the Tabu franchise, since this year the company started supporting the original brand with a new ad campaign.
“We’re starting to see a pickup in Tabu that is attributable to our new advertising and promotional efforts,” DeChellis said. Dreams by Tabu is expected to be in 30,000 doors by the end of the year, Bonoma said, noting this distribution is nearly twice that of the original Tabu.
According to industry sources, the new scent could hit retail sales of $15 million in its first year. Classic Tabu has an estimated retail volume of around $20 million, sources said.
Dreams will be backed by $4 million worth of print advertising and promotional support.
The print campaign will be kicked off in May in women’s fashion and beauty magazines. In-store activity will include customized displays and shelf talkers. Stores with cosmeticians will hand out scented cards and distribute Dreams by Tabu gift bags with every purchase, according to Lisa Yarnell, Dana’s vice president of marketing.
Dreams by Tabu, which will be packaged in a vivid cobalt blue bottle, will bow with six items, including a powder and a body lotion.
Prices for the line will range from $8.50 for the 4-oz. Satin Talc to $22 for the 1.7-oz. eau de toilette spray. A 0.5-oz. eau de toilette trial size will be offered for $5.95.
While the original Tabu is a classic oriental, Dreams by Tabu is a fresh, fruity floral with notes of freesia, peach, magnolia and cassis.