“Previously, when a consumer went into a store, she was served by sales personnel who influenced what she bought. Now the consumer decides for herself what she wants to buy at open-sell set-ups, but she also wants specialized competence. She wants to know how, for example, she should wear the eye shadow she’s just chosen.”
Commenting on distribution, Baurecht pointed to the internationalization of the beauty market. “Limoni is trying to build a distribution channel in Germany, Sephora is here and Douglas is in France and Italy,” he commented.
“But in Germany, especially, department stores are growing in influence, like in the U.S. As for the smaller independent perfumeries, many small operations can survive if they address a very individual customer and turn themselves into small, private consultation businesses,” he suggested.
For Baurecht, another potential area of growth is shop-in-shop setups with makeup artists. “We’re thinking about such a concept with a department store,” he said.
In the meantime, big open-sell displays rule the scene and run up big sales, he noted. “With a four or five meter table, we can generate sales of $250,000. Before, we always thought $50,000 was great. But the big open-sell systems need more room, and retailers are now concentrating on six or seven brands. The trend before was to take a little bit from everybody, but that’s now been turned around with fewer brands being featured in large open-sell presentations.”
Piofrancesco Borghetti, chief executive officer of Marbert in Dusseldorf, Germany, said vertical integration was the most crucial topic.
“I don’t believe it’s possible to survive — either as a manufacturer or a retailer — without it,” he said. “We showed at Limoni [the Italian perfumery chain Marbert bought in 1998] that you can sell what you want. Marbert is now number three there in market share, and that’s after starting from nil. We learned that only 12 percent of the consumers go into a perfumery asking for one product or one brand name. And when they do, it’s mainly for fragrances. Rather, what they’re looking for is generally suggested — by us, the retailer.
“Shops need a full assortment of brands,” Borghetti continued, “but in the future, quality will be the main issue, combined with service and price. Service in Germany is missing, and it could be better in Italy.”
What does Borghetti see as service? “You must have the feeling that the people working in the shop have the sun in their pockets, and not that they’re robots,” he said. “You have to have the feeling of a warm atmosphere and to enjoy coming in. Maybe there’s some music playing or cappuccino to drink. Most perfumeries out there have cool, sophisticated and snobby environments. They’re missing that boutique feeling, which is the only way to succeed. Discount prices don’t lead to success,” he said.
Borghetti has been an active force in the globalization, verticalization and consolidation of the beauty industry, with his takeover of Limoni and other independent Italian perfumery chains, his cooperative arrangements with the Italian department store chain Coin and most recently with the acquisition of 25 Alrodo discount perfumery doors in Germany.
“All shops will be transformed into Limoni stores in March,” he said. “The philosophy is, no discounts or smart shopping, but rather service. We’re stressing service. Nevertheless, everyone is worrying I’m going to get into discounting.”
Some big prestige brands are “waiting to see if they sell to us,” he said. “And it’s clear they want to look at what we’re doing, shop by shop. But if they don’t sell to me in Germany, then they will only have Douglas. And it will be interesting to see if Douglas and Parma don’t build up something together,” he said, speculating about Germany’s leading 500-door perfumery chain and the 600-door Parma-Aurel perfumery cooperative.
Borghetti predicted e-commerce would be a serious factor in three to five years. “But how can the specialty stores compete with e-commerce? They’re dead if a consumer can buy on the net for 20 percent less,” he declared.
“Look at Prada,” he went on. “They’re making more of an e-commerce strategy. My girlfriend bought two Prada bags and they arrived the next day. If you know what you want, you don’t need to go to the shop. And with major fragrances, people know what they want. With skin care and decorative makeup, customers want to try out the products. But there are a lot of goods in the gray market for fragrances, and if they’re sold via the Internet for 50 percent less and are still making money, I don’t see why anyone wouldn’t be interested in it.”
Asked about the current e-tail restrictions on products for selective distribution, Borghetti responded, “What is selective? Price isn’t selective. L’Oreal and more and more mass market producers are offering good quality, good marketing. But today, everybody is offering price.”
Klaus Wolfram, company spokesman for Cosmopolitan Cosmetics in Cologne, Germany, said the most important topic on his list was “the internationalization, or let’s call it the globalization, of the market. And the consolidation of companies. It looks like the year 2000 is going to be like the ‘Grunderzeit,’ the years of rapid industrial expansion in Germany, starting in 1871.
“The beauty business is becoming interesting from a variety of different angles,” he said. “There’s the globalization of business and real changes in distribution, with companies like Marbert going into trade. And e-commerce has started, with all of its opportunities and threats. You have to be careful concerning your contracts with trade partners and licensees. But I don’t share the view that e-commerce will be huge in the next 12 months. I think it will take some time to create an atmosphere or area for the customer. And if you look at what the trade has done in the past and more recently, e-commerce, then we really have some time ahead of us.”
Commenting on Cosmopolitan’s presence on the Internet, Wolfram said, “We didn’t want to be the first mover, but rather to be professional. It has to be a unified entrance, and we’re now starting work on a home page which will appear soon with all links to all companies and our labels,” he said. “It’s the same thing with e-commerce. We’re more or less watching the market develop, and we may do it. But only when we feel really prepared and ready for it.”
In Wolfram’s view, “globalization will probably lead to an increase in the number of companies joining together. The strong will probably win via consolidation and the weak ones lose. And the more you go into a global business, the more you have to be sure that everything everywhere is going fine. That’s the challenge for a corporation. Not only to grow, but to control activities outside with the product. If it’s treated like a discount product, you’re in trouble. And the more global the brand, the more difficult it is to write it off,” he remarked.
“What’s more and more interesting for us, from the advertising and media point of view,” he went on, “is that you have to look at it globally, not locally. And the brands we’ve acquired over the past few years — not Bruno Banani, perhaps, but Naomi, certainly — have a global appeal. Ghost and Anna Sui are rising stars, and in a few years might be really good for the company. And we may have another new license to announce in the next few months to support this internationalization.”
The company as a whole, he concluded, “is heavily going into prestige. Even with Bogner and Chiemsee,” he said, “we’re much more prestige-oriented than we used to be with Puma.”