Byline: Jennifer Weil / with contributions from Jackie Cooperman / James Fallon / Melissa Drier

PARIS — It’s all systems go for the European beauty industry.
Executives cite a buoyant business here, emerging markets such as Russia and South America, a rebound in Asia and the possibility of retailing over the Internet as some key elements fueling its development.
“[The year] 2000 kicked off very well, with a growth rate of more than 15 percent at the end of March,” said Lindsay Owen-Jones, L’Oreal’s chairman and chief executive officer, at the company’s annual meeting in May. He said the first quarter of the year was one of the best, particularly due to favorable exchange rates.
Other executives say their export business has been strong because of the depreciation of the euro; in France, for example, it was up by 5.7 percent last year.
Analysts are equally bullish. “Overall, the first-quarter 2000 results give a much more positive outlook for the sector than a year ago,” agreed Merrill Lynch in a recent Household Products, Cosmetics & Personal Care report, adding, “the fundamentals for 2000 remain healthy, we believe, with a potentially stronger upside in Europe than initially estimated.”
France, for instance, has experienced strong sales. According to the French Federation of Fragrance, Cosmetics and Toiletries, the country’s beauty volume rose by 5.7 percent in 1999. That growth rate was higher than the past decade’s average, which was at 4.6 percent.
And the beauty business is expected to continue gaining momentum. According to London-based tracking firm Datamonitor, France’s prestige market from 1999 to 2004 is forecasted to increase by 5.4 percent; Germany’s, by 4.7 percent; Italy’s, by 6.4 percent; Spain’s, by 7.1 percent, and the U.K.’s, by 4.8 percent. Specifically, fragrances are expected to post sales gains of 4.9 percent; makeup, 5.4 percent, and treatment, 3.9 percent in the period.
Elsewhere, executives say Asia’s economy is rebounding, and that they are finding myriad opportunities in emerging markets such as Eastern Europe — Russia in particular — and South America.
But the U.S. and Europe remain key zones for brands here. “Even in countries that are economically mature+we are not confronted with the stagnation of our [cosmetics] market,” Owen-Jones explained. “They continue to grow strongly due to new consumer habits.” These include an increased number of young people and men buying beauty products.
“The world is booming,” said Christian Courtin, president of Groupe Clarins. “Asia is coming back strongly; this year, we [launched our products in] India. We’re also doing very well in the Far East and Southern Europe. The general economic climate is good for our business.”
“Some countries — like Brazil — that were not open to [foreign] cosmetics companies five years ago are becoming very interesting,” agreed Hubert d’Ornano, president and managing director of Sisley, who added China is among the other new, hot markets for his brand.
“The global business is satisfying,” said Claude Palatin, president of Escada Beaute, whose sales are expected to increase from the $77.9 million generated in fiscal 1998-99 to $101 million in 2002-03.
Many executives concur that the second half of 2000 will see strong growth, with numerous prestige manufacturers expecting high-double-digit gains. LVMH Moet Hennessy Louis Vuitton’s beauty division, which includes such companies as Parfums Christian Dior, Parfums Kenzo and Bliss, for instance, was up more than 20 percent in this year’s first half and expects more of the same for the June-through-December period. This is particularly due to a multitude of launches, said Patrick Choel, president of perfumes and beauty at the company.
“Our business is doing extremely well — we are in very high-growth mode,” said Choel. “Last year, we were up 24 percent with acquisitions, up 10 percent without them. We were up by 24 percent for the first quarter year-on-year.
“During the past years, we have been streamlining, cleaning up the parallel markets; then we went for a very aggressive innovation pattern. All of our houses are growing at double digits. We are quite optimistic.”
So what could there possibly be to worry about?
Despite strong sales, there are still some core problems facing the business. Among the biggest, according to the beauty executives polled, is the longstanding glut of fragrance introductions.
“No matter what you launch, it is against lots of competition,” said Hans-Kristian Hoejsgaard, president of Lancaster Group. “There is lots of noise to cut through.”
Also at the top of the list is the stepped-up clip of consolidation among retailers and manufacturers throughout Europe.
LVMH’s Sephora is among the biggest, most active players, with its more than 300 doors. Just this month, it added 51 sales points to its stable through a partnership with the Greek selective distribution group Marinopoulos. The retailer also opened its first U.K. door this spring and intends to introduce at least another three there.
“The big national chains now do about 50 percent of the prestige business,” said Alain Grange Cabane, president and chief executive officer of the French Federation, referring to France. Meanwhile, the trend is Europe-wide; in the U.K., for instance, Boots the Chemist PLC has a 30 percent market share.
Cabane added these types of mega-chains have influenced how manufacturers and retailers interact.
Executives specify that while consolidation might ease the buying process in some ways — for instance, manufacturers are now able to deal with just a handful of central buying offices rather than the 500-some-odd small perfumeries — maintaining a good relationship is imperative.
Also, orders often get smaller when chains consolidate, since central offices tend to have state-of-the-art buying systems that can keep inventory to a minimum. And on top of that, a retailer ordering for 100 points of sale has more leverage when demanding price breaks than a single-door owner.
Internet is another buzzword here, too. That’s because in June, the European Commission agreed that high-end beauty products can be sold in cyberspace if certain guidelines — drafted by each brand — are followed.
Prestige manufacturers here have long been protected by selective distribution contracts that allow companies to limit their distribution and refuse to sell to brick-and-mortar retailers in the European Union that do not meet key criteria in ambience, service and prestige assortment. The European Commission has ruled such selective criteria can also be applicable in cyberspace.
“We want to control the quality of the sites,” said Choel.
For La Prairie, for instance, that means its retailers will be able sell the company’s products online only if they have the same assortment at similar prices as in brick-and-mortar stores, are prepared to send samples free of charge and can offer full customer service, according to Harald Stolzenberg, president of the company.
Most manufacturers agree the Internet is a great way to touch a new clientele, but that it won’t be a cash cow — at least for a while. Choel said he doesn’t foresee more than 1 to 5 percent of LVMH’s beauty business generated on the Internet at the outset.
“[It’s] already an incredibly important information tool, but I’m skeptical about how many people will really buy over the Net,” said Stolzenberg.
“For us, the Internet is a fantastic communication tool,” agreed Clarins’s Courtin, who added it is helping his firm reach an emerging demographic here — the teen and 20-something set.
“What is surprising is that the young generation is looking for certain products that target them,” he said. “The Web is one way to speak with them.”
Clarins had an online advertising campaign for its recently launched products for oily skin targeting young people, called Multi-Matte. “We had excellent results,” he said.
The line joins a slew of new treatment products targeting this age group, including Chanel’s Age Delay rejuvenation serum.
Brands say the color cosmetics market for young people is growing, too. “I think makeup buyers are getting younger, starting at around 15 years old,” said Alberto Colombo, director of Pupa’s international division. “The growth of that young [group] is a big advantage for us and for our growth.” The company is expecting growth of 40 to 50 percent for 2000.
The men’s market is also gaining steam. King of Shaves, for instance, the second-leading shaving brand in the U.K. market after Gillette, is forecasting a sales increase of 40 to 50 percent a year over the next four years, said Will King, the company’s co-founder and ceo. That means King of Shaves is expected to have retail sales of $100 million by 2003.
Such growth will be boosted by both geographical expansion and new product launches. King of Shaves will roll out its shaving oils and shaving gels in the U.S. beginning this fall to such retailers as Target, Eckerd, Rite Aid, Walgreen and Duane Reade. It expects to be in about 10,000 doors by yearend, said company chairman Herbie Dayal.
King of Shaves also continues to launch new formulations, with the introduction in the U.K. this fall of its first shave foam, called Proshave.
On the travel-retail front, sales within the European Union continue to be hard hit. According to Swedish tracking firm Generation, volume in the category was down by $2.4 billion between July 1,1999 — when the European Commission banned such sales — and June 30, 2000. The perfumery sector’s sales dropped by 9.1 percent in the period, which is equal to about $175 million.
“Sales of perfumes and cosmetics within Europe were held back by the EC abolition that came into force July 1999,” the company reported in a forecast dated July. “Although most prices remained unaffected, there was considerable confusion among consumers as to what could still be purchased and at what price. Several months of hesitation by passengers on entering shops hit penetration and sales levels hard. This caused sales to stagnate within the European region in 1999. In 2000, with confusion largely resolved and the market continuing to pick up well in the Asia and Oceania region, growth of 6.9 percent is expected.”
As for the future of the industry, Generation expects sales in the travel-retail beauty category will double between 1999 and 2010, “when it will be worth $8.846 billion. However, the category’s relative importance will only continue to grow until 2003, after which time it will begin to recede as the market reaches saturation point and luxury goods continue to grow at a pace. The present assumption is that perfumes and cosmetics will never be worth more than 25 percent of the global business.”
Overall, executives say they are optimistic about 2001.
“The cosmetics market will grow without a doubt because beauty products respond at once to a concrete need and profound psychological motivations — affirmation of the individual, seduction,” said Owen-Jones.
Others are even more ebullient, saying next year could be out of this world. “The forecast for 2001? A space odyssey,” said Grange Cabane.

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