Byline: Jennifer Weil / With contributions from Melissa Drier, Berlin / Nicole Kaldes, Milan / Sarah Harris, London / Brid Costello, Paris

PARIS — What’s the extent of the damage wrought by 2001?
European beauty manufacturers are taking stock in the run-up to the holiday season. Most say their companies should end the year with mid-to-high-single-digit gains rather than the double-digit increases forecasted before the Sept. 11 terrorist attacks in the U.S. However, 2002 should yield anything from flat to double-digit increases.
Executives remain optimistic, despite the difficult climate. “It was a very good year,” confirmed Gilles Weil, vice president in charge of the luxury products division at L’Oreal, which experienced strong growth until September and plans for good sales just under that through yearend.
Asia has been particularly strong for L’Oreal, he said, adding the company recently launched Biotherm there, which quickly became a bestseller.
“Europe is still doing very well,” maintained Patrick Choel, president of LMVH Moet Hennessy Louis Vuitton’s fragrance and beauty division, who said some countries, particularly in southern Europe, such as Spain, have registered double-digit gains.
Yet it’s true to say economic slowdowns worldwide and the steep drop in travel-retail sales have combined to weaken beauty volumes. And some manufacturers say the Jan. 1 introduction of the common European Union currency, the euro, will cause consumer confusion and dampen purchases. Add to that continued erratic spending patterns throughout Europe during this important end-of-year shopping period and, possibly, earlier-than-expected holiday sales, and volumes could be further damaged.
Markets might be fickle, but manufacturers here are rallying to keep those cash registers ringing by boosting budgets to support their products both in-store and in magazines.
Post Sept. 11, for instance, Beaute Prestige International (BPI), Shiseido’s Paris-based fragrance division, which expects to be better-than-budget this year, according to president Remy Gomez, upped its spend, largely on ads, by about 10 percent in the U.S. and by a smaller percentage in Europe, and didn’t curb any of its rollout plans.
“We concentrated our efforts on a store-by-store basis and put heavy support behind the launch of the Fragile eau de toilette,” he explained, referring to BPI’s latest women’s fragrance.
“In difficult moments, you need to invest a little bit more,” agreed Michel Resnik, general director of the Italian division of Unilever Cosmetics International (UCI), which is also increasing its support output.
But in any case, many maintain that beauty is immune to economic cycles that seem to wreak havoc in other sectors.
“Despite Sept. 11, I believe fragrance and cosmetics business is resilient to crisis, that it keeps growing regularly,” said LVMH’s Choel. He is expecting about 9 percent growth this year for the company’s fragrance and cosmetics division and 8 to 10 percent growth next year.
“The [beauty] business is up worldwide,” he continued. “In a great year, it is up 5 percent to 6 percent. In a bad year, it is up 2 percent to 3 percent.”
According to Goldman Sachs research, cosmetics is clearly a more defensive industry than luxury goods, for instance.
European players with exposure to skin care should be happy. The segment — with its high margins — will be able to maintain the strongest growth, better than makeup, hair care or fragrance.
Another element that has played in favor of the Europeans is that the majority of them, including L’Oreal, Beiersdorf and Wella, are significantly more weighted toward mass than prestige channels. In tough times, consumers have a tendency to trade down from prestige to mass, which actually benefits these players.
But it is a market that is showing signs of slowing in most developed European markets. Fragrance sales are anything but buoyant, according to estimates from U.K. tracking firm Datamonitor. Volume for men’s and women’s scents in Germany for 2001 should be almost unchanged against 2000. In Italy, for example, sales of women’s scents are down by 4.9 percent, year-on-year, while those of men’s are up 5.5 percent.
But when it comes to the U.S. market, Choel is seeing a turnaround. “The sell-out there has been quite good in the past few days,” he explained, but “the sell-in is not that great,” since department stores have been reticent to buy.
And that’s true in pockets of Europe, too.
“We’ve seen some reluctance regarding sell-in for Christmas, as retailers didn’t know how it would go,” said Klaus Sorensen, general manager of Estee Lauder in Germany. The company is expecting mid-single-digit-plus gains for the first half of 2002. “Fragrances are holding their own, but in department stores in particular, other [non-beauty] classifications aren’t doing so well. And when there is too much stock, no matter what department it is in, it hurts all business.”
In New York, Philip Shearer, group president of international at Estee Lauder Cos., views business as good in the domestic markets of Europe and Asia. However, the usually lucrative travel retail business is “suffering,” along with the entire travel industry.
“This Christmas should be decent going into next spring,” he said. “We should be all right.”
And among those hurting badly is travel retail, where beauty firms can generate up to one-quarter of their volume.
The economic downturn, which cast a deeper shadow over the course of this year, had already pushed travelers into shifting their spending toward more medium and low-priced mass-market products at the expense of prestige products by early September, according to Swedish tracking firm Generation in a recent study.
The events of Sept. 11 only served to compound the difficulties, and North American airline companies estimate the number of passengers might drop by as much as 50 percent. Asian operators put that figure at around 25 percent for the coming months. Airport operator BAA, for instance, recently reported a huge drop in traffic. In November, it had a 26.1 percent decrease of transatlantic passengers and a 10.6 percent decrease of overall traffic in its airports year-on-year.
“In Europe, the figure probably lies somewhere in between,” reported Generation.
And executives doubt the increased volume generated in high street stores from customers shopping there rather than in travel-retail milieus will ever make up the difference.
But those Europeans still choosing to travel might find their spending curbed by euro confusion, at least for the first few weeks of the new year. The new currency will be introduced in 12 markets simultaneously and will gradually replace francs, marks, lire and their like until they are totally pulled from circulation. Retailers can expect shoppers to be reticent to hand over the new bank notes initially, especially on big-tag items.
Beauty manufacturers have long been prepared for the changeover, but harbor fears for the retail side.
“The euro…will be a pain in the neck [for consumers],” said BPI’s Gomez. “We do not know how people will behave. It is going to be a mess, a short-term mess.”
And some countries will likely be more susceptible to the euro changeover than others, according to Evelyn Ulpat, managing director of Chanel France for beauty products. In a country like Italy, for instance, where people have long been accustomed to counting in thousands and millions, the smaller denominations could prove tricky to handle.
On the flip side, some German manufacturers feel the launch of the euro will “rather enliven the market, as the consumer, from my point of view, more easily spends 5 euros than 10 deutsche marks,” said Helmut Baurecht, president and owner of the German makeup specialist Artdeco.
While some executives are saying that the first half of 2002 will be flat, others say they are looking toward increased growth — L’Oreal’s prestige division, for one, is projecting “strong gains,” according to Weil.
At Shiseido UK, the first half of 2002 is expected to be flat, and then sales should pick up in the second half, according to Emily Doncaster, the firm’s marketing manager. She said the company’s sales were stellar pre-Sept. 11, particularly from the strong turnout of The Skincare. But then they plummeted. “Retail sales figures for October revealed that for the first time in 2001, business in our top-three U.K. stores [Selfridges, Harrods and Harvey Nichols] did not meet target,” she said.
Wella Group is “sure we will have double-digit growth in sales,” according to its chief executive officer Heiner Gurtler. Looking toward next year, he said the first quarter will probably remain strongly effected by the downturns, but that the company “sees no grounds to change our long-term goals.” These call for an average sales growth of 13 percent, including acquisitions, until 2005, and a rise in gross margins to 13 percent from 8.1 percent.
In Italy, Eurocosmesi expects to close 2001 with a 12 percent increase over 2000, according to Enrico Scabini, managing director of the firm. He said this is in part thanks to the good reception of the launch of Iceburg Effusion in the third quarter. He said the company should register a 7 to 8 percent increase in the first six months of 2002 and a 5 to 6 percent spike for the whole year.
Chanel is finishing 2001 in line with projections, said Ulpat. Its Coco Mademoiselle fragrance is already a bestseller in numerous European countries, according to beauty retailers.
And manufacturers are now banking on some emerging demographics to bring in sales: older women and men, for instance. This year saw a rash of beauty product launches targeting women over 45, including Lancome’s Absolue, Decleor’s Vitaroma Lift Total, Guerlain’s Substantific and Yves Saint Laurent Parfum’s Lisse Expert. In men’s fragrance, big hitters such as Parfums Christian Dior, Lancome and Thierry Mugler entered the fray.
Manufacturers are also looking toward new geographic zones, though they say there is no rush to open new markets in light of the current crisis. Clarins is looking further into Eastern Europe, where it has already made inroads, and is keen on Latin America, too. Sisley is also focusing on emerging markets, such as Eastern Europe, and is preparing to open two subsidiaries, one for Malaysia and Singapore and another for Hong Kong, according to Philippe d’Ornano, executive vice president of the company.
Nuxe, which put off its U.S. launch for a few months, is planning an introduction there in the first half of 2002, at which time it will also enter Asia, said president and ceo Aliza Jabes.
India and China are of interest for BPI, although they are “highly risky,” due to their strong gray markets, said Gomez.
As for the other frontier — cyberspace — the Internet rush is over for the present, although European beauty firms got the nod in June 2000 to start selling online.
“You must look at the Internet as a means of information,” said Clarins’s Bizot. Clarins, along with Estee Lauder and Clinique went live with their Web site,, in October. “The Internet is going very nicely, especially in America,” said L’Oreal’s Weil, who did not divulge figures, but said: “It is a growing business there.” The company’s Lancome brand put up a French e-tail site in November and plans to start a Japanese one early next year.
With them, the company is not looking for big turnover, but to gain more proximity with its consumers, he explained.
And Guerlain just started e-tailing via French department store’s Galeries Lafayette’s site,
Just as the jury is out on how big online beauty sales will be, no one is sure how seriously the European consumer has been affected by events of Sept. 11.
Some maintain there has been little change. “Even with glitter products, which we thought would cause big problems on the grounds of Sept. 11 [and people wanting to be more low-key], there was no decline,” said Artdeco’s Baurecht.
Others think there’s been a sea change. “People are turning to more classical products,” said Gabriele Pungerscheg, president of European designer fragrances at UCI.
Pungerscheg also sees a trend in which duty-free sellers are evolving their formats to be more like high-street vendors, with larger promotional areas, for instance. Domestic beauty sellers, for their part, are starting to rethink their selling tactics to include more classical service, according to Patrick Bizot, president of Groupe Clarins’s international division.
Of course, some nagging issues still remain, such as the multitude of launches, which executives say diminish the rarity and quality of their products, the merging of mass and class and poor service standards.
“It has been a little bit more difficult to hold the catalog [this year],” said L’Oreal’s Weil, referring to the company’s core brands. “The market was a little tougher.” This was due, he said, to the increasing consumer emphasis on newness and the ever-growing number of open-sell stores, where established brands do not always get sales staff attention — something necessary to help drive momentum.
Goldman Sachs also highlights that there has been a sharp rise in the technological content of beauty products over the last few years.
Another trend it identified is that the growing market share, volume-wise, of big beauty manufacturers such as L’Oreal or Beiersdorf has been boosted by the accelerated consolidation of retailers, which have opted to work with a smaller number of bigger suppliers.
But despite identified trends, it is hard to gauge how the next 12 months will pan out.
“The big question is the long-term effect of what has happened since Sept. 11,” said BPI’s Gomez.
“It is difficult to predict what is going to take place,” said UCI’s Pungerscheg. “It is a guessing game, it is difficult.”

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