BEAUTY COPES WITH DIMINISHED RETURNS
NEW YORK — The feel-good Eighties are fast receding in the beauty industry’s rear-view mirror.
“It seems like the last five years have been more like 10 years,” said Linda LoRe, president of Giorgio Beverly Hills. “There has never been so much change so quickly.”
With the mid-decade mark upon them, prestige-market manufacturers are faced with a retail climate that has been altered dramatically by competition from discounters and alternative outlets. They are dealing with value-conscious consumers who are not so easily swayed by even the most creative marketing plan.
There has been a string of consolidations among vendors and retailers, most notably the merger of the Federated and Macy’s department store chains.
Finally, the hectic launch schedule of recent years has proven, in many cases, too costly to continue.
“One of the things you learn about the Nineties real quick is to take nothing for granted,” said Sherry Baker, president of Halston-Borghese. “It’s a decade in which you have to be more strategic. The economy and certainly the consumer are less forgiving.”
To see how the major players are dealing with pressing issues and learn their strategies for the rest of the Nineties, WWD asked a number of executives about their concerns and expectations.
The result was a picture of a future that will be challenging, but rife with potential.
According to Robert Brady, president of Parfums Givenchy, the new conglomerations are having an effect on the beauty landscape.
“We’ve seen a lot of consolidation, and one of the negative side effects is that the entrepreneurial spirit is threatened in some cases,” he said. “The larger corporations have the tendency to step on entrepreneurial endeavors.
“The problem is that many of the people who have become important in this category have dealt with other categories of goods — and their ideas don’t necessarily translate or apply,” he noted.
Camille McDonald, senior vice president of marketing and creative services at the Ralph Lauren Fragrances division of Cosmair, said store consolidation has made dealings with retailers more important. She noted that if a relationship is damaged, a manufacturer can no longer easily find another account. “There’s only one place to sell now in most cities,” she said.
According to Baker of Halston-Borghese, “A danger of the consolidation is the homogenization of department and specialty store offerings.” She said a loss of store identity could drive customers to smaller specialty stores.
LoRe, whose company was purchased from Avon by Procter & Gamble last year, said some of the new giants have made positive waves.
“The smart corporations have realized that they have to allow room for risk-taking, and Procter & Gamble is one. They’ve left our team intact, and we’ve gotten an infusion of capital,” she said. “When a consolidation like that is done properly, it’s the best of all worlds.”
Robin Burns, president of Estée Lauder USA, noted that the larger retailers seem to be more strategic about planning and analyzing their businesses, since they now have to keep track of so many stores.
On the flip side, she noted, such large, concentrated retailers are less able to focus regionally and react to discrepancies in different areas of the country.
Joseph Horowitz, president of Clarins USA, said consolidation has ushered in a less shaky era.
“I feel there is a resurgence in the department store world and that it is becoming a healthier business,” he said. “They have gone from highly leveraged stores teetering on the brink to much more stable organizations. Yes, the power is now concentrated in just a few players, but I think it is better to have them big and concentrated than not to have them at all.”
Added Lancaster Group USA president Norbert Becker, “The combination of Macy’s and Federated is more than one plus one. I think a very strong entity has been formed.”
Fragrance consultant Ann Gottlieb noted the proliferation of fragrances being marketed in untraditional venues.
“Just as women who wear just one signature scent are fewer and far between, women who shop for fragrances at just one channel of distribution are becoming equally rare,” she said. “In addition to the traditional fragrance outlets, like drug and department stores, fragrance can now be purchased everywhere from The Gap to Express to Victoria’s Secret.”
Chanel president Arie Kopelman said these retail choices, coupled with the fact that people are choosing more carefully how and where they spend their money, make service more a factor than ever before.
“I think how people are being treated in retail environments can make all the difference,” he said. “If people are pampered and made to feel special, then they will probably choose to make their purchase at that location even if they can buy the same merchandise at another store.”
Lauder’s Burns added that while service was obviously important to customers in deciding where to shop, many people now shop in several retail venues. “We have seen throughout this decade that the consumer is now shopping a hybrid of retailers. There are rarely consumers who are strictly mass or class customers. As a result I think the gap between different channels of distribution is narrowing a bit.”
She noted that the mass market is becoming more like its class counterpart in product innovation, technology and packaging. At the same time, prestige brands and stores have been borrowing such mass concepts as open sell and lower-priced fragrances and bath items.
Both Burns and William Lauder, vice president and general manager of Origins, said department stores are starting to borrow automatic replenishment systems as from the mass market, too.
“I think once everyone gets the hang of properly utilizing these tools, we all be better able to decide which merchandise sells best at which stores and whether or not the sales are seasonal,” Lauder said.
Added Lancaster’s Becker: “The expanded use of computer technology is helping the business tremendously. [Electronic Data Interchange] is making things much easier to do.
“Our goal is to reach the retailer as one entity, and technology is making this communication easier,” he added.
Robert Nielsen, president of Aramis and Prescriptives, thought department stores should rethink their strenuous schedules.
“I think retailers need to reconsider their store hours. We as manufacturers have been stretched beyond the pale,” he said. “When the hours were first extended, business went up, but now it’s really straining our resources.
“When we service our stores with Aramis selling specialists, we end up just not having enough personnel to cover the hours. It really puts a strain on the level of service if people are stretched beyond their means. If I had my wish, everyone would be open for eight hours — say, from 11 to 7.”
Nielsen said stores are becoming too much alike.
“What we’re seeing is a cookie-cutter mentality at retail, and that means it’s getting tougher for new lines to break into the lineup,” he said. “Prescriptives is in only around 700 doors, and sometimes it’s hard to get the TLC that we need.
“There is still an opportunity to create niches in specialty stores,” he added. “It’s important that stores like Neiman Marcus and Nordstrom really focus their lines and continue to go upscale, not the other way.”
LoRe pointed out there are new retail competitors.
“We’ve seen the rise of discount outlets and malls,” she said. “Direct mail is increasingly important to cut through the clutter. And electronic selling is coming around quickly. We have QVC, and we have to pay attention to Prodigy and other new outlets.”
According to McDonald of Ralph Lauren, companies must find new ways to reach consumers who, in the age of electronic media, have shorter attention spans and are more impatient.
“They’re not ‘malling’ the way they used to,” McDonald said, noting alternative advertising vehicles may be the Internet, MTV or outdoor sites.
THE CHANGING CONSUMER
The Nineties consumer is very discerning, said McDonald.
“The Eighties were an era of conspicuous consumption, and the Nineties — though not necessarily a more austere era, as some people are playing it — is an era of more careful choices,” she explained.
Companies need to be focused and clear in their product development and communication, McDonald said, using Polo Sport’s lifestyle-oriented fragrance and skin care line as an example. She said the products appeal to customers because they are uncomplicated, priced affordably and ageless.
“You have to look for your niche a lot harder; it’s no longer enough to have just a designer signature,” McDonald said, noting that in the Eighties, at least 80 percent of sales hinged on the designer name.
“The consumer mind-set has definitely changed; there is a great hunt for discount items,” said Kopelman. “I don’t think people are necessarily spending less money. I think they are just really thinking through how they are disposing of their disposable income. I think that has made our business less impulse-driven.”
Horowitz of Clarins noted that because people are spending more judiciously, value has become the gospel.
“As women have gained more confidence, they have become a different consumer,” he said. “They need to be completely convinced that they are getting the right stuff. They are expecting proper service and efficacious products at a price point they feel is truly worth paying.”
According to Gottlieb, “More and more women are buying fragrance for themselves, so fragrance purchases are becoming more of a personal choice. I think that has made the industry more about choice than it ever was before. This means [a consumer] might own several different fragrances purchased from several different classes of trade.”
The consumer of today, Baker explained, is far more knowledgeable about the merchandise, from treatment to fragrance, and is concerned about value — not just price.
“Her expectations are very high,” Baker said. “If you have sort of deceived her, you only do it once. She is thinking about what she is buying. The seemingly endless consumption we saw in the Eighties is long gone and never to come back. We have all become sharper thinkers as a result.”
Nielsen noted the prestige market has a permanent edge. “All of our research has confirmed that consumers rely on department and specialty stores for two things the most: foundations and face powders,” he said. “And since people are aging and will be using more of these products, this can only bode well for those of us in that market.”
Nielsen said attention should be paid to demographics.
“What’s important to know is the aging of the population,” he said. “The 35-to-64-year-old group of males is now around 45 million, but that’s going to swell to 56 million by 2005. The same thing will be true for women. We’re talking about an enormous consumer constituency here.”
Brady of Givenchy said the younger generation is full of untapped potential, too.
“Generation X hasn’t grown up yet,” he said. “They’ve been typified in a number of ways, and most of them will turn out to be wrong.”
He claimed that consumer demand for upper-tier products is not in danger of diminishing.
“Going back to the beginning of the decade, luxury goods were considered to be dead,” he said. “Clearly, that’s not at all the case. Take a look at [Louis Vuitton Möet Hennessy, Givenchy’s owner]. It’s the biggest luxury goods company in the world and the numbers will show that they’re not doing too badly.”
THE PRODUCT PARADE
The extravagant product launches of the Eighties are symbolic of a decade of excess, but they are still counted upon in these more frugal times.
“There is still a percentage of consumers out there who will buy what is new, and the louder you shout, the more they will hear you,” Gottlieb said. “So for the companies with deep pockets, it is still a terrific way to launch a fragrance.”
Many feel, however, that the constant hoopla, as well as a new batch of scents each month, has been counterproductive.
“I think that all of the bells and whistles have cheapened fragrance,” said Kopelman. “They have made the industry less special and have eroded its imagery.”
He added that the increasing number of gift-with-purchase promotions at cosmetics counters have a similar effect. “I think that because of all of the clutter out there, the selection process is getting tougher and tougher for both consumers and retailers, so we as marketers must work even harder to create magic and to differentiate.”
“If it happens every single month, it’s just not special,” agreed Lauder. “This is definitely an example of too much of a good thing. I think that as the decade progresses, you will see fewer launches of such great intensity.”
Nielsen predicted the ultrapromotional atmosphere of the department store floor would soon be a thing of the past.
“As an industry, we will be leaving the [gift-with-purchase] business,” he said. “We saw it work with [Aramis’ skin care item] Lift Off. We sold a lot of product without one sample or one advertisement. If it works, if the product is the hero, then everything else falls aside.”
In addition to big-buck introductions, the Nineties have been a time of shorter life spans for fragrances.
“If you look at the rate of attrition over the last couple of years, it is a very sorry story,” Gottlieb said. “Think of how few of the top-selling fragrances on a year-round basis are new introductions. I think part of it is a support issue. Investing a lot up front for the launch stimulates initial sales, but in order to sustain growth, you have continue to support a brand, and the juice has to be really good.” “There is no way the industry can profitably support 40 launches per season,” Lauder said. “Both retailers and consumers are picking more carefully.”
Calvin Klein Cosmetics was cited as having a major impact on the current fragrance industry: What was unusual in 1985 with the launch of Obsession has become de rigeur.
“Calvin Klein really set a new standard for fragrance in America,” Kopelman said. “Before, America basically mirrored the old European style of fragrance marketing, which was much more quiet and laid back.”
“There is no doubt about it. Calvin changed the rules,” said Horowitz. “A broad-scale fragrance must be prepared to launch with $15 million to $20 million in advertising today.”
And just as the megalaunch budgets and sex appeal of previous Calvin scents made waves, CK One, a gender-free product aimed at teenagers, is also considered to have set a precedent.
“There is no question that CK One will impact the fragrance industry from both an olfactory standpoint and from a pricing one,” Gottlieb said. “I think what you are going to see throughout the rest of this decade is an increase in the number of mid-priced department store brands and kinder, gentler fragrances. I also think that Generation X will be looked at as a more viable consumer group. Calvin has shown that when they are targeted correctly, boy, do they respond.”
LoRe lamented the high cost of bringing a new name into the game.
“Manufacturers can’t afford to be exclusive anymore unless they’re guaranteed huge returns,” she said. “Oftentimes, a broader distribution is needed to cover the marketing costs, which are immense.
“The only way to hit long balls is to come out with unique products that capture the imagination of the consumer,” she added. “We have to have a distinct reason for being and a function.”
Becker said the Joop fragrance Nightflight and Lancaster’s Oxygen Supply for Eyes will carry the company’s focus this year.
“We can’t do everything with the same support anymore,” he said. “We’re no longer going to have 10 different promotions running at the same time in the store.
“But we’re still going to continue our policy of launching new products,” he continued. “Growth depends upon the product launches. In the treatment category, we’re continuing to investing heavily in research and development, because these days you have to come up with inno-vative, new technologies.”
Nielsen agreed that investment in research and development has become crucial to the skin care business.
“We could never have done Lift Off until within the last two years,” he said, “and it’s been just tremendous for us.” The Nineties have also seen the development of new categories. Horowitz pointed to the growth of the prestige sun care market as an example.
“All the new awareness of the sun’s damaging effects has translated into a nice little business for department stores,” he said.
TOWARD THE MILLENNIUM
Looking to the rest of the decade, Baker said the aging Baby Boomers would continue to dominate product development. As for the economy, Baker said she expects steady growth, but no explosion.
Brady said maintaining sales gains will be hard, but it’s within reach.
“You have to stay ahead of the curve,” he said. “The challenge is to continue the inherent growth we’ve enjoyed as a company and to become more important to the retailer. You have to have a point of difference — that’s Marketing 101, but it’s important. You have to find the niches of differentiation.
“People are going to have to consider totally new options and venues in which to do business,” he added. “The new breed is going to have to look at things in a new way. And with everything so tight, this leads us to the all-important X factor, which is creativity. Those who have the better ideas and execution will forge new niches and in the process enhance their market share and profitability.”
Nielsen said the industry is more “push oriented than it is pull,” a condition that has to change for business to open up.
“We spend around 20 to 25 percent of our sales dollar pushing product out the door,” he noted, “and only 5 percent pulling it in — that is, with national advertising and the like.”
He concluded, “We have to reverse that trend if we want to get this industry up to the $10 billion mark, instead of sitting at $5 billion to $6 billion.”