NEW YORK — Along its road to recovery, the fragrance business is bracing for more speed bumps this fall, including the closure of 80 Federated Department Store doors this year.
But despite a succession of yellow caution signs — including lost store sales, rapid-fire launches and a flood warning for celebrity scents — The NPD Group has declared the fragrance business is turning a corner.
Total prestige fragrance sales increased a respectable 3 percent to $2.94 billion in 2005 — just shy of reaching $3 billion for the first time. Women’s fragrance sales inched up 2 percent to $1.97 billion, while men’s sales surged 5 percent, nearly hitting the $1 billion mark, according to NPD.
The consumer tracking firm forecasts that the industry can power additional growth by shifting gears to deal with the road ahead. Its suggestions include:
- Connect: Create a rich history behind each scent and tell that story to the consumer, perhaps at the counter or through the Internet.
- Relate: Appeal to consumers’ individuality by customizing sizes or delivery forms, such as portable scents.
- Excite: Put a new spin on purchasing occasions by billing scents as a great date fragrance, an empowering fragrance for a first interview or a lucky scent for meeting the parents.
- Adapt: Tap into emerging forms of media — including satellite radio, text message alerts and podcast trailers — to get heard.
NPD stated that such “out-of-the-box thinking” is needed to succeed within a new set of realities. Modest sales gains far from mask the business’ underlying ailments. By WWD’s count a staggering 100 new fragrances are slated to hit the market between July and October. The sheer number of fragrances may succeed in driving sales volume, but unit sales are dragging far behind, according to industry executives. The consumer is finding it difficult to sort through the clutter, and the manic pace of new launches has single-handedly shortened fragrance life cycles, in the view of NPD, which noted that, on average, it takes nearly two women’s launches to generate what just one fragrance achieved 10 years ago.
The Federated store closures will only exacerbate these problems.
Industry consultant Allan Mottus forecasted the shuttered doors could throw fragrance sales off 7 to 8 percent this year. “I think it’s going to be a difficult year, particularly for nonessentials like fragrance,” said Mottus. He noted that if last holiday is any indication of what’s to come, Internet retailers and mass merchants, offering deep discounts, will continue to steal share from department stores.
NPD, however, anticipates the aftershocks will be a bit more mild, and will still allow 2006 fragrance sales to pick up by 1 to 2 percent over last year.
Through its conversations with consumers, NPD found that the rash of store closures will not deter beauty consumers from shopping the channel. Rather, the end result could be that once the dust settles there will be the same amount of consumers shopping in fewer doors.
“It seems consumers are saying that despite the store closures, they will keep shopping in the department store channel,” said Karen Grant, senior beauty industry analyst for The NPD Group.
Using 2005 sales as a guide and subtracting sales of stores slated to close, NPD found that the 80 doors represent 5 to 6 percent of 2005 department store fragrance sales, or roughly $147 million.
The problem is that a host of specialty retailers, including Bath & Body Works and Sephora, have made fragrance — and all beauty products for that matter — available in more places. Conveniently situated in malls and shopping centers, these specialty chains are positioned to intercept shoppers en route to department stores.
NPD’s 2005 FragranceTrack Study, a survey of 10,000 men and women, revealed that last year a higher percentage of women, or 43 percent, shopped for fragrance in the specialty stores — including BBW, Sephora, Perfumania and Ulta. In comparison, department stores attracted 40 percent of fragrance buyers.
But even in the face of less foot traffic and fewer department stores to do business in, beauty firms are accelerating the pace of fragrance introductions.
Grant noted that the number of new launches has steadily risen each year since 2001, when prestige fragrance sales began a three-year slide in the post-Sept. 11 period.
“In the last eight years, there have been approximately 700 new fragrance launches in U.S. department stores, with 65 percent introduced during the last four years,” she continued. “There were more fragrances launched in 2005 than in the entire decades of the Seventies and Eighties combined.” In fact, in 1977 — the year Opium was introduced — there were seven fragrance introductions. In the first half of 2006, there were 10 times that number, Grant noted.
Given the sheer amount of new entries, fragrance firms often have a couple of weeks at most to make a launch statement in the store.
In 2005, new launches represented 13 percent of all women’s sales, while new men’s introductions accounted for 20 percent — the most NPD has seen since it began tracking beauty sales. The top performers over the last year include women’s brands, such as Calvin Klein’s Euphoria, Lancôme’s Hypnôse, Lovely by Sarah Jessica Parker, Escada’s limited-edition seasonal scent Pacific Paradise and Armani Code for women by Giorgio Armani. On the men’s side they included Unforgivable by Sean John, Armani Code by Giorgio Armani, Ralph Lauren’s Polo Black, Lacoste Essential and Nautica Voyage.
But when sales of a new scent fall, they can fall fast, prompting a move downstream to the mass market. Grant said that in less than 12 months some brands, particularly celebrity scents, were cycled out of prestige distribution or followed by a flanker. NPD found that in just 12 months on counter, the average new women’s fragrance will generate less than 25 percent of the market share that it generated its first few months at retail.
The market has reached a saturation point, and the prevailing strategy of “in with the new, out with the old” has encouraged channel diversion.
Today, prestige fragrances account for more than half of mass market fragrance sales, which excluding Wal-Mart totaled less than $700 million last year, said Grant.
But despite the difficulties, NPD predicts a smoother road ahead. The tracking firm reports that building off of momentum of December 2004, fragrances continued to benefit from rising sales, marking the beginning of a “recovery process.”
“First quarter 2006 did not have a good start,” said Maria Ianni, fragrance category specialist for NPD. “Fragrances suffered compared to a year ago, but began to pick up in May 2006, especially with the women’s business, thanks to a later Mother’s Day.”
Several fragrances have recently proved that success hinges on doing things differently. For instance, the Estée Lauder Cos. tapped into Sean “Diddy” Combs’ fan base for the launch of Unforgivable and communicated directly with them through an Internet campaign and eyebrow-raising advertising images. The buzz carried over into the stores, and now Unforgivable is projected to be the top new prestige scent launch of 2006, according to NPD. Grant said the scent also appeals to a powerful fragrance buyer: African-American men, 70 percent of whom wear fragrance “always” or “most of the time” compared with 50 percent of Caucasian men, according to NPD FragranceTrack.
YTD May 2006 Top 5 Women’s Fragrances
YTD May 2006 Top 5 men’s Fragrances
Acqua Di Gio