GLOBAL TRADERS WARY OF POTHOLES

Byline: Jim Ostroff

WASHINGTON — Executives at virtually every American cosmetics firm are keeping a wary eye on developments that could affect their soaring global sales: burgeoning Internet commerce, nascent efforts to streamline most developed nations’ cosmetics regulations and international trade conflicts.
There is hardly a cosmetics firm that does not have a Web site to augment its promotional and ad materials in the U.S. and overseas. But most, like Johnson & Johnson, are trying to figure out how to use e-commerce to one day sell goods directly to consumers without cannibalizing their long-established distributor networks.
Combe Inc., the White Plains, N.Y., manufacturer of personal-care products such as Just for Men and Grecian Formula, views its Web presence as a vital adjunct to its worldwide marketing efforts.
“The Web sites for all of our brands are kept current, we match the look of our advertising and packaging, and we try to make the site as interactive as possible to answer questions that you cannot” answer through print or broadcast ads, said Dominic P. DeMain, Combe’s senior vice president of U.S. marketing. Yet for all the concern raised by e-commerce’s threatening of companies’ incomes, as international consumers and those at home cherry-pick products on-line, Combe has no plans to set up an Internet sales operation, said Chris Combe, the company’s president.
“My own prediction is that the retailer.com — that is, those companies that sell in stores and have a Net site — will win out over those with only an on-line presence. That is, Wal-Mart will win out over Drugstore.com,” he said.
Estee Lauder Cos. made its first leap into cybersales about three years ago. “We began to learn our way around the Internet,” the company stated in its 1999 annual report, in reference to when its Clinique brand went online. Then last October, Lauder partnered with Neiman Marcus to launch a Bobbi Brown Essentials Web site, followed by an Origins site, to bring “retail-tainment+into cyberspace.” So far the cyber-sales effort has been confined to the U.S.
On another, positive note, Louis Santucci, international vice president of the Cosmetic, Toiletry and Fragrance Association, said there is guarded optimism over efforts by industry members and governments in the U.S., Europe, Asia — including Japan — and Latin America to harmonize their regulations which, in some cases, have proved to be a barrier to U.S. companies seeking to sell cosmetics abroad. “This is not going to happen overnight, but finally the effort is picking up steam, and this is bound to be positive for our exporting companies,” Santucci said.
This effort, akin to motherhood and apple pie, is being applauded by U.S. cosmetics firms with global operations. John Wendt, president, Maybelline and Laboratoires Garnier, is eager for these talks to produce results, but in the meantime he’s not holding his breath, noting that harmonization efforts “are moving at a snail’s pace.” Moreover, Wade Nichols, Revlon’s executive vice president and chief administrative officer, expressed concern that whenever the ink is dry on such an accord, “it might be that a compromise is reached with certain procedures for product clearance and approval that are more onerous compared with the U.S. practice today.”
Combe, however, believes that “the Internet and the internationalization of the cosmetics business will force governments to wake up to the fact that there should be one set of cosmetics regulations for the world, or else how will they face angry consumers who protest, ‘I can’t believe you won’t let me buy this lipstick.”‘
While cosmetics makers scramble to fathom how e-commerce will affect them in the future, they are cautious about the simmering trade dispute that could boil over at any time, affecting the competitive balance. The industry got a first whiff of what could happen last year when the U.S. imposed duties of 100 percent on imports of various European products, including lanolin and the packaging used in upscale cosmetics products.
The issue at hand was the European Union’s trade policy, which barred U.S. beef from cows raised on hormones and bananas from the Central American nations in which U.S. firms have an interest. The CTFA, which represents European and Asian manufacturers as well as U.S. firms, objected to the ban and succeeded in having European lipsticks and fragrances removed from a draft “hit list.”
But the association’s Santucci is worried about the future. “Going back to several earlier disputes, such as the one with China on intellectual property rights, our industry is always a target for retaliation, no matter what the issue,” he said. The future looks more ominous yet, said Santucci, noting that the U.S. and EU are nowhere near settling the beef and banana disputes. Now, he added, Congress is considering “a carousel approach that would require the U.S. to draw up new hit lists periodically, with new products targeted each time, which will only infuriate the Europeans more,” inviting retaliation.
Looming on the horizon this year is an EU directive that would ban the use of animals in product-safety assessments — which is mandated by the U.S. Food and Drug Administration in testing for carcinogens — and yet another that would ban from Europe the importation of any food that has been genetically altered. The U.S. has vowed to fight these directives, setting the stage for a showdown between the two huge trade blocs that some analysts fret could lead to a full-blown trade war.
Patrick Bousquet-Chavanne, president of Estee Lauder International, said that he is “watching the situation very closely, as these disputes tend to become more complex over time, and the last thing anyone wants is for them to get out of hand.”
Also casting a wary eye on the trade imbroglio is Susan Babinsky, vice president of consumer products for Kline & Co., of Little Falls, N.J.
The present situation, Babinsky warned, “is disconcerting, as it does not seem to be going away.”
Should the trade row escalate, she said, “it would be a real blow to U.S. cosmetics companies. Many have products manufactured in Europe, and many European name brands could be affected.” A new round of U.S. retaliation that included cosmetics, she added, “would have a major impact on both the prestige and the mass market brands of cosmetics and fragrances.”
Ira Kalish, director of global retail intelligence at the Los Angeles office of PricewaterhouseCoopers, does not foresee any resolution of these disputes until next year, after a new U.S. president has taken office. “Probably we will have another year of tit-for-tat [retaliation], which means we could see some spikes in prices, although most retailers in this country sell a sufficiently diverse range of cosmetics brands, so this will be more of a nuisance,” said Kalish.
Although such dangers exists, two industry executives maintain that American and European trade leaders will yet be moved by the better angels of their nature and abort a trade war.
Revlon, which manufacturers its cosmetics in both the U.S. and Europe, would see “relatively little effect on finished goods” should the disputes widen, Nichols said. But the Revlon executive said that he “expects responsible legislators on both sides of the pond would act to settle the matter before it gets out of hand.”
Echoing this sentiment, Maybelline’s Wendt said the two sides “are smart enough not to let this get to the point where it becomes a major trade barrier that threatens their economies. The rooks will never fall.”

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