SHAKEN BEAUTY MARKET SETS STRATEGIES FOR TOUGH FIRST HALF
Byline: Julie Naughton / Pete Born / With contributions from Matthew W. Evans / Cassandra Chiacchio
NEW YORK — It’s time to do or die.
With traffic sporadic and sales still sluggish, prestige beauty executives are girding for a tough year. The issues at the top of their agenda are traffic, collaterals, newness, value and perhaps most important, service.
In the face of challenging market conditions, these concepts will make the difference between surviving in the first half of next year or sinking, especially during a time when most executives predict slow, if any, growth. All say they are focusing on ways to entice the customer into the store, and once she’s there, how to get her to purchase beauty. Given the highly promotional atmosphere of department and specialty store retailing of late, many are reevaluating how to deliver maximum value for dollars spent.
The concern is beginning right now. But what many believe may be a late Christmas in terms of sales could also be used as an advantage, according to Camille McDonald, president and chief executive of Parfums Givenchy Inc. and the American Designer Fragrances arm of LVMH, who will take over U.S. management of Guerlain early next year. McDonald says a “strong week five December” has the potential to emanate into the first half. “A late start could carry momentum into 2002,” said McDonald, “as opposed [to prior years] with a huge season that culminates on the 25th and drops off dramatically after that.”
McDonald did not pull back on advertising spending in the fourth quarter of 2001 and she vows not to cut back on total investment in 2002. But reprioritizing is a way of living with scaled-back expectations. Seeing that traffic was down, for instance, “more resources have to go into ads outside the store,” said McDonald. To free up some resources, the firm will depart from individual brand gift-with-purchases and go with one corporate-wide gwp. “It’s one corporate vehicle for all brands,” said McDonald. “And we’re [devoting] those resources to national advertising.” This renewed women’s advertising effort may be double what it was in the first half of 2001, according to McDonald.
And because newness always seems to be a big driver, Hot Couture will be relaunched starting week five of December and major launches will follow first in February, then in May, McDonald said.
“We have to be realistic about next year,” said Luc Nadeau, president of L’Oreal’s Luxury Products division. “The first half of next year will offer challenges. It won’t be an instant turnaround. However, I believe our brands are very well-prepared, with a spectacular portfolio of launches for the spring.”
That’s critical, said Nadeau, because newness and attention to detail will be more critical than ever during the first half of 2002. “The customer will still be looking for new ideas, which will trigger the impulse to buy,” he said. “We are addressing that with newness in all of our brands. Overall, it all comes back to our basic rule: bring newness and fun and animation to the consumer.”
Spending is still at “aggressive” levels, said Nadeau. “We still have strong investment in all of our brands,” he said. “The strength of our investments, which are very substantial, reflect our confidence in the key products we’re releasing. We have also bumped up sampling substantially for spring. Overall, the traffic has been down in department stores — between 8 and 9 percent as a guesstimate. That said, the last couple of weekends have been good for us, and our product offerings have been interesting. The pattern probably has changed a little, but I think that people truly still want to purchase, and take care of themselves. We’re looking forward to a very strong first semester, even though we understand we’ll have to battle hard.”
While conceding that transactions are flat, reflecting generally spotty traffic patterns in the market, Robin Burns is nevertheless looking to spring with a bit of optimism. Her Victoria’s Secret Beauty division scored a 9 percent in November and is trending in the high-single digits for this month. She thinks spring can yield increases in the mid-to-high single digits.
Burns, president and chief executive officer of Intimate Beauty Corp. and its Victoria’s Secret Beauty division, notes that the new Very Sexy for Him men’s fragrance is running at double projection with sales of $20 million for November and December. In addition, color cosmetics is running 58 percent ahead for holiday and, like many others, Burns believes the category will be dynamic in the spring because “color does well when you are in a recession.”
Burns is planning an 18 percent increase in spring for the category, fueled by a rollout of the lip color from 211 doors last spring to 468 in 2002. Additionally, the chain will premiere a new laser-printing technique on an introductory collection of lipsticks and glosses in February.
Meanwhile, ancillaries have been added to last year’s Pink fragrance launch and Burns is adding depth to the fragrance category by expanding the original promotionally priced toiletries base, referred to as “garden.”
She also made a discovery about her new Very Sexy men’s fragrance. The strategy was to sell it to women, but men have started buying it off the demo carts stationed at store entrances. Apparently all the Victoria’s Secret lingerie advertising has left an impression. “We have credibility with men,” said Burns, who noted that she sold a bottle of the fragrance to an electrician in Staten Island. If Victoria’s Secret says it’s sexy, he told Burns, that’s good enough for him.
Andrea Robinson, president of Ralph Lauren Fragrances Worldwide at L’Oreal USA, agreed that the landscape is rough, but added that “the strong companies have an opportunity to pick up business.”
Quoting NPD BeautyTrends rankings for October showing Ralph Lauren with a top position on both the men’s and women’s fragrance bars for the first time, Robinson said she plans to build on momentum. The company plans to increase its advertising by a double-digit margin next year to drive in traffic, while stepping up its point-of-sale activity, both with events and promotions.
Like Robinson, Kathy Cullin, president of Puig USA and general manager of Puig North America, sensed trouble earlier this year. Her strategy for 2002 is “to do at least what we did this year for the first half of the year for our existing brands.”
Puig’s plus business will come from its new Carolina Herrera fragrance, Chic, plus Nina Ricci’s Premier Jour, which has yet to anniversary. Cullin hopes to increase consumer awareness of the Herrera franchise with increased national magazine advertising and liberal use of scented vehicles — such as catalog blow-ins and scented remits — to generate traffic. The company also plans to increase its presence at point of sale with a “significant” hike in the number of sell-through specialists rotating through stores.
“Unilever Prestige is taking an optimistic approach to the first half of 2002,” said Laura Lee Miller, president of the company. “We are moving forward with our plans to debut the first fragrance from Vera Wang in 2002. Nautica Latitude Longitude will continue to be a focus in 2002, working to secure a strong foothold in the U.S. top 10. And, we will continue to support the BCBG Girls collection that was introduced in September.
“While we are challenged in the U.S. with a difficult economy and lack of consumer enthusiasm, we will continue to stay on top of our business plans,” said Miller. “We are fortunate to have a global business, and that we can look at Europe to build our global brands and add critical mass to our portfolio. Latitude Longitude launched in Europe in September 2001 and will be further developed in 2002. The global expansion for BCBG Girls and Vera Wang is still under discussion for 2002-2003.
“Gift sets with value continue to appeal to customers,” said Miller. “We will focus on offering consumers reasons to buy our brands with new gift sets and value-added promotions during the first half of 2002.”
Maggie Ciafardini, executive vice president and general manager of Beaute Prestige International, believes that strong business through yearend could carry further into the first half. And from Ciafardini’s point of view, things have been looking a bit brighter. “I sensed an energy this past week that hasn’t been there,” she said. “[Consumers] were out in stores and buying.” This could be due to a number of factors, including the weather, consumers coming out of their shells or the start of Chanukah. Still, “I think we’ll continue in a very cautious mode,” added Ciafardini, who expects a generally conservative climate in the next few months.
But conservative does not mean compromise to Ciafardini, especially when it comes to getting the message across. She is enthusiastic about potential sales for the first half because, for the first time, BPI is supporting a Valentine’s Day effort with advertising specific to that holiday.
BPI plans to act aggressively in the face of what could be a conservative first half by more closely synchronizing promotional initiatives with those being run by its retail partners, and getting more scented pieces into stores. “We’re definitely not cutting back,” said Ciafardini. “We’ll intensify [efforts] that worked in 2001.”
“Clearly, we’ve been observing many ups and downs over the past few weeks,” said Patrick Bousquet-Chavanne, a group president at Estee Lauder Cos. in charge of the Lauder brand, among others. “By early in the new year, assuming there are no major worldwide events, I hope we will be in more normal circumstances.”
“Clearly, fragrance has shown some softness, and in the aftermath of 9/11 it’s going to be a challenging season for fragrances,” continued Bousquet-Chavanne. “New product activities are, and have been, crucial. I think the key categories with most updates are treatment and makeup. That doesn’t mean that we won’t have innovation in all categories next year, however, because we are looking at bringing newness to market over the next six months in an aggressive way.”
Despite much of the world’s pessimism on retail prospects, Bousquet-Chavanne remains optimistic. “We believe that cosmetics will outpace other categories in department stores. As an industry, we are in a better position than some of our other categories. We have to go into spring season with aggressive plans being new product launches. The growth will really heat around those being successful.”
Bousquet-Chavanne is also optimistic about the prospects of the division’s retail partners. “In uncertain times, the likelihood of consolidation in any industry increases,” said Bousquet-Chavanne. “However, the foundations of most of our retail partners are much more solid than they were five or 10 years ago. I think that they have worked very hard at renewing themselves, and they are on much healthier footing to weather the storm. One of the challenges that I see both for retailers and ourselves is how we can extract ourselves from a heavily promotional business. The temptation in severe weather like this is to put more promotional items on the counter, but when the sunny weather comes back you have to extract yourself from that.”
Arie Kopelman, president and chief operating officer of Chanel, agrees. “The consumer is still looking for value more than she ever did,” he said. “And if we all continue to manically promote, it’s not good. It’s not a good way to build business in the long term, because it depresses profits. The industry and retailers have successfully educated Americans to only buy on sale, and when that happens, it’s hard to go back to business as usual. In the end, the consumer doesn’t profit, because customer service, advertising, research and development and all the other things needed to build a business suffer because margins are so razor thin. Our longer-term goal is to build the business and reinvest in it, especially at a time when there is such fragility in the overall equation.” That said, Kopelman doesn’t see business changing significantly in the first half. “Consumers are rethinking their priorities — it’s no longer what they want to buy, it’s what they need to buy. As a company, we are gearing up for an enormous push on a number of fronts — it will be the most active half in the 16 years I’ve been with the company. Color cosmetics and treatment should do well, although I think they’ll stay on an even keel, probably not adding or subtracting business. But beyond the brands, the three magic words moving forward are service, service, service. There’s going to be more of a focus on that than ever. Building consumer loyalty will be more important than ever. People feel things at a different intensity than they did before Sept. 11. If you can service the customer well, it will make a deeper impression than ever before, and if you disappoint her, you’ll lose market share quickly.”
“It’s been a challenging fall, but business is picking up,” said Dan Brestle, a group president of the Estee Lauder Cos., whose brands include Aveda, Bobbi Brown, Stila, Prescriptives, Jo Malone and Kate Spade. “Business is getting more brisk, but I don’t think by yearend we’ll see a significant increase over last year. I think most people will be happy to maintain their numbers.”
Brestle acknowledged that the fragrance category, in particular, has continued to see challenges. “The good news is that fragrance is an impulse purchase, and it will come back,” he said. “But as manufacturers, we need to find ways of stimulating the market. If consumers aren’t responding, we have to reinvent ways to entice them.”
Like Bousquet-Chavanne and Kopelman, Brestle is concerned about the heavily promotional atmosphere at the counter right now. “When you use motivation to stimulate the purchase, it’s hard to take away that stimulus,” said Brestle. “From a cosmetics issue, it’s a big issue, but it’s our only way to add value to an ongoing purchase. Fragrances used to own the price point from $25 to $75; it was an easy purchase. But with the discounting going on with apparel, you can get a cashmere sweater for $75. Gift sets are our only way of competing with that, because we don’t want to start discounting the fragrances themselves — in the long term, it would hurt the integrity of the brands.” Makeup and treatment, on the other hand, are bright spots. “They’re doing well,” said Brestle. “It may not be their biggest season ever, but they’re continuing to do good business across the board.
“Last spring wasn’t an easy one, so I think we’ll actually see single-digit growth in the first half, with a turnaround around Mother’s Day,” said Brestle. “The fear that there is going to be an additional tragedy is lessening. I think this is the year that we reset the mark, and say we’ll start again. You can only have so much uninterrupted growth — which we had for eight years — before things slow down.”
William Lauder, a Lauder group president whose brands include Clinique and gloss.com., is more cautious about retail prospects. “One of my general concerns is that the U.S. is dramatically overstored in business,” said Lauder. “I’m not certain that all of our retail partners understand that and understand that adding stores is not necessarily beneficial.”
Overall, Lauder said, “Retail is going to be spotty, and it is going to be driven by whatever level of consumer confidence there is in the economy. I think we’ll see some retailers with strong business. The categories that make consumers feel good — treatment and makeup — will do well. I’m not as confident about fragrance, because the consumer showed us pretty clearly before the major world issues came up that it’s not a vibrant business. Color and treatment have been strong, and we expect them to maintain their strengths.”
It’s the slowed consumer traffic in department stores that is concerning Lauder, although he’s determined to find the silver lining in the cloud. “In cosmetics, we depend very heavily on traffic,” said Lauder. “With less traffic, we have more time to spend with each customer and we’re going to have to create more of a reason to get the customer into the store. That will include in-store events, attraction to new categories and new products.”
“I think business will remain challenging,” said Heidi Manheimer, executive vice president and general manager of the prestige cosmetics division of Shiseido. “Fortunately we are maintaining an increase right now, and we are hoping that continues. We are planning conservatively for the first half, streamlining our plans to promote healthy business.” Shiseido has several line extensions planned for the first half and advertising will remain similar, although there will be a deeper focus on the skin care.
“We are focusing on our basics and marketing through products, rather than hype. We will heavily promote our basic skin care regime. And as always, we are working closely with our retail partners in regard to out-of-stock issues. I think that this month there has been a small resurgence of business, and it will be an indication of how the first half of next year goes,” said Manheimer, who added that sales are up 10 percent for the year. “We’re approaching the season conservatively but positively,” said Connie Ruscio, president of Fragrances Exclusive. “We think there are opportunities, and we’ll go after them. Our in-store program with our brand partners is better than it has ever been, and this fall, in spite of everything, consumers have responded positively to our brand introductions. For instance, we launched Dolce & Gabbana’s Light Blue, and it has already doubled its forecast in a tough season. Since we haven’t yet rolled it out to its full distribution, that presents a great opportunity. We also see great opportunities from new introductions from Annick Goutal and Moschino, and from continuing the rollout of Bulgari Blu Pour Homme to its full distribution. Bulgari Blu Pour Homme has been trending very well this season, and I think that’s going to represent some significant business during the first half.
“Looking at the last quarter of this year, November was much better than September and October, and department stores are trending better than they have been,” she continued. “Customers seem to be really looking for value. Gift sets are selling very well, and our lower-priced gift sets have moved the fastest. The smaller sizes of fragrance are playing a bigger role than they ever have.”
Like Ruscio, Hilary Dart, president of Calvin Klein Cosmetics, is optimistic about the potential of fragrance during the first half of next year. “We expect our business to continue to be strong in the first half,” she said. “First half 2002 will be one of our most aggressive periods. One important bright spot for our entire industry is the perception of fine fragrance and cosmetics as accessible luxuries. That said, the tough economy instills a sense of caution in terms of spending, so consumers are looking for high-quality and high-value offerings. As a result, we have seen an increase in sales of gift sets, and expect them to be popular throughout first half 2002 as well.”
According to Dart, the company’s fragrances are holding strong. “The Eternity and Obsession master brands continue to be ranked in the top 10,” she said. “We’re also looking to our new launches to generate significant business.”
“My guess is that the first half of the year will reflect how December goes,” said Neil Katz, president of Liz Claiborne Cosmetics. “It will be a continuation of that. Our concern is how conservative the retailers are going to be. We will be as aggressive as ever, looking for growth. Our retail numbers are up over 15 percent and we are looking to continue at that pace, which will be difficult in a flat or down market. We have a value-oriented approach, with the majority of our sales coming from gift-with-purchase and gift sets.
“Women’s fragrance appears to be down close to double digits and down single digits for men,” said Katz. “Our business is up 15 percent for the year and for the season — that’s for all of our brands. The fact that the men’s business is stronger than the women’s is perhaps a reflection of the marketplace. What’s hurting fragrance is the amount of sales going on right now. Apparel is discounted while fragrance is always full price and that is a deterrent. That’s why we offer value in the form of gwp and value sets. Going forward, we will focus on all of our major brands. Part of our strategy involves putting people in stores to create events that push sales. At the fragrance counter, our people engage and entertain the consumer. Our advertising will remain similar in the first half of next year.”