Fragrance: opportunity knocks
Fragrance: opportunity knocks
> Back <The fragrance category may be suffering, but there is still a lot of room to do better
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Fragrance usage was on the decline well before the credit crunch and the collapse of Lehman Brothers and Bear Stearns. So when the recessionstruck Main Street and the consumer began buying less and retailers started destocking, the category was hit harder than most. This was especially the case in the US. There, fragrance is now said to be at its lowest levels and beauty’s worst-performing category. Sales of prestige fragrances for the first quarter of 2009 were down 7% from the same period in 2008 to reach $424m, according to NPD. (The best-selling lines for this period were Coco Mademoiselle by Chanel, Armani Acqua di Giò pour Homme, Light Blue by Ralph Lauren, Estée Lauder’s Beautiful and Dolce & Gabanna’s The One for men). For the full year 2008 North America reported a 4.4% decline in fragrance sales to $6.19bn (Euromonitor).
In Europe, sell-through, while not spectacular, was not as bad as expected (although manufacturers and their suppliers have suffered from a reduction in inventory by retailers).
Figures for 2008 in Western Europe perhaps paint a deceptively buoyant picture. According to Euromonitor retail sales there increased by 6.7% in 2008 to $13.99bn, masking a difficult fourth quarter and the real impact of the recession, which will probably come through in the figures for 2009. This logic also applies to the global growth rate of 9.7%. In addition, the global market was lifted by double-digit increases in the emerging markets of Eastern Europe and Latin America (up 16.8% and 25% respectively). By segment the losers have been celebrity fragrances, flankers and mid-market products. On the upside, the classics continue to do well. And while the consumer may be buying less fragrance, she is not buying less expensive products. According to NPD, high-end fragrances in the US priced above $100 (which account for 9% of the prestige category), reported a sales increase of 10% in the first quarter of 2009 versus the same period last year. Despite these bright spots, retailers and manufacturers canvassed by BW Confidential are bearish about the rest of the year. While there is a feeling that ‘Christmas can’t be as bad as last year’, it’s unlikely 2009 will be a good year either.
A flagging fragrance market is an all too familiar story for beauty executives. The category’s problems—a glut of launches, me-too products, and a lack of creativity—have been well documented over the years. But the recession may force the industry to give the fragrance market the shake-up it needs. “Given what’s happened in the past eight months, this business cannot be the same as in previous years. It will have to be different as you can no longer fool the consumer. You can no longer launch hundreds of fragrances, as the customer is more selective and wants something unique,” says US Fragrance Foundation president Rochelle Bloom. It’s not only the downturn that has forced this change in consumer
behavior. Thanks in large part to the internet, shoppers are much more knowledgeable about fragrances—more than many brands think. A look at some of the fragrance blogs or websites, such as Sniffapalooza (once derided, but now courted by fragrance brands) shows that consumers are having educated discussion and debate about fragrance, comparing different products and asking why they are all alike. Fragrance expert
Trying to sell just another flanker or a coffret that hasn’t changed in years to this consumer is unlikely to work. For NPD senior global industry analyst and vice president of Beauty, Karen Grant the industry needs to go back to brand building and create original products with real appeal. “There are lots of new ways to innovate, such as in the packaging and creating novelties. The Harajuku Lovers by Gwen Stefani did extremely well as
Desperately seeking creativity
The juice also needs to be more original. Brands have tried to play it safe by opting for scents with broad appeal, but as Edwards puts it: “Isn’t it riskier to throw lots of money behind a fragrance with broad appeal and come out with something similar to what is already on the market, than to do something different?” Quality is also an issue. Analysts say the quality has deteriorated over the years, meaning that fragrances don’t linger on the skin the way they once used to. And as consumers want their fragrance to last and for others to comment on it, they will often be disappointed and not buy the product again. Another opportunity when it comes to the juice is natural fragrances. This is already a strong trend in toiletries and skincare, but is largely untapped by some of the big fragrance players, according to Mont Blanc Resourcing fragrance consultant Marc Roesti. While the natural tag alone will attract certain shoppers, there is also evidence that consumers perceive these scents positively without knowing they
Michael Edwards calls this consumer the ‘connoisseur’, and compares such behavior to the ‘foodie’ trend that emerged several years ago.
people perceived it as a novelty item. Marc Jacobs’ Daisy also did well, as its packaging is fun. There needs to be more variety and different approaches.”
The juice also needs to be more original. Brands have tried to play it safe by opting for scents with broad appeal, but as Edwards puts it: “Isn’t it riskier to throw lots of money behind a fragrance with broad appeal and come out with something similar to what is already on the market, than to do something different?” Quality is also an issue. Analysts say the quality has deteriorated over the years, meaning that fragrances don’t linger on the skin the way they once used to. And as consumers want their fragrance to last and for others to comment on it, they will often be disappointed and not buy the product again. Another opportunity when it comes to the juice is natural fragrances. This is already a strong trend in toiletries and skincare, but is largely untapped by some of the big fragrance players, according to Mont Blanc Resourcing fragrance consultant Marc Roesti. While the natural tag alone will attract certain shoppers, there is also evidence that consumers perceive these scents positively without knowing they
are natural. In a blind study by a major manufacturer, a fragrance with a high concentration of natural ingredients scored much better than other ‘non-natural’ fragrances.
One of the problems with fragrance is that the penetration rates are not that high. However, a lot could be done to bring more consumers into the fragrance market. Critics say that marketers focus too much on youth, and that the scents and sometimes racy advertising campaigns aimed
Price too may be a turn-off. Consumers, especially in today’s climate, don’t necessarily want to spend $60 just to try something new and may find they don’t really like it once they get home. “Consumers have been asking for smaller sizes for years, what’s wrong with giving them that?” asks the
Re-inventing retail
Bloom too believes the store set-up is in urgent need of review and suggests experimenting with different formats, such as eliminating counters in department stores, merchandising by fragrance family or creating areas for replenishment for the consumer who is only looking for that service. A study by Michael Edwards on how consumers would like to see fragrance sold found that shoppers did not want perfumes to be merchandised
by price nor alphabetically. The majority of those questioned did want to see fragrances organized by brand, but 40% also said that they would like to see fragrances organized by the way they smell. One option then, Edwards suggests, is merchandising by brand and displaying testers by fragrance family. There is also a lot that can be done in category management, which will probably take on greater importance due to the retailers’
at this group have turned off older consumers. Appealing to women in their 30s, 40s and 50s and those who have lost touch with fragrance with an appropriate offer and marketing campaign could bring in much additional revenue.
Fragrance Foundation’s Bloom.
One of the biggest challenges and opportunities lies in retail and the shopping experience, which the manufacturers like to describe as “dire”, “terrible” or “not having changed in the past 15 years.” Shopping for fragrances needs to be made easier, and stores better adapted to how consumers browse and buy. Research by Paris-based JMG Research shows that the consumer is looking for new retail formats. “There is a lot that can be done for the consumer at retail. She is looking for a new experience and is very reactive to new propositions. When something is out of the ordinary she will buy,” says JMG Research managing director Jérôme Goldberg. He cites the example of Paco Rabanne’s One Million operations in travel retail, which featured a large safe and proved a hit with shoppers.
by price nor alphabetically. The majority of those questioned did want to see fragrances organized by brand, but 40% also said that they would like to see fragrances organized by the way they smell. One option then, Edwards suggests, is merchandising by brand and displaying testers by fragrance family. There is also a lot that can be done in category management, which will probably take on greater importance due to the retailers’
recent stock issue. In a recent test at retailers in Italy and Portugal, Coty managed the summer fragrance category and saw sales increase by 40%. “We think a lot can be done in category management, especially in the upscale designer fragrance segment. Retailers do not know how to merchandise them,” says Coty Prestige svp commercial Jean Mortier.
When it comes to service, in-store staff could do with a new way of talking about fragrances. Talking about ingredients from far away places doesn’t really mean much to a lot of shoppers (even though this is often the type of language used in manufacturer press and marketing materials). And
telling a customer who just wants to buy a fragrance for the evening about orientals or other fragrance families may not make much sense. “Fragrance is emotional and the industry needs to pay more attention to this rather talking about technical information. There needs to be beauty assistants who are helpful and knowledgeable and not just push the latest launch,” says John Ayres, director of UK-based fragrance consultancy Pandora. That there is so much room for improvement should give the industry some hope. At a time when companies are reviewing how resources could be better spent and what works and what doesn’t, finding new ways of selling fragrance may just move up the priority list.
A LOOK AT: FRAGRANCE & THE WEB
telling a customer who just wants to buy a fragrance for the evening about orientals or other fragrance families may not make much sense. “Fragrance is emotional and the industry needs to pay more attention to this rather talking about technical information. There needs to be beauty assistants who are helpful and knowledgeable and not just push the latest launch,” says John Ayres, director of UK-based fragrance consultancy Pandora. That there is so much room for improvement should give the industry some hope. At a time when companies are reviewing how resources could be better spent and what works and what doesn’t, finding new ways of selling fragrance may just move up the priority list.
The web hasn’t really been taken seriously by fragrance brands in terms of marketing or as a selling platform. Many manufacturers were initially
frightened of damaging their prestige image by doing much with the medium or considered that the internet was just not adapted to selling or
marketing an emotional product like fragrance. But consumers are online, and don’t brands need to go where the consumers are? The internet could turn out to be an important distribution channel for small players and niche brands. One interesting example is Victorinox, whose fragrance activity is managed by former Clarins executive Vera Strubi. The company plans to do the majority of sales for its new fragrance Swiss
Unlimited on the internet. To get over the problem of testing the fragrance before purchase, the company will send a sample along with the product
frightened of damaging their prestige image by doing much with the medium or considered that the internet was just not adapted to selling or
marketing an emotional product like fragrance. But consumers are online, and don’t brands need to go where the consumers are? The internet could turn out to be an important distribution channel for small players and niche brands. One interesting example is Victorinox, whose fragrance activity is managed by former Clarins executive Vera Strubi. The company plans to do the majority of sales for its new fragrance Swiss
Unlimited on the internet. To get over the problem of testing the fragrance before purchase, the company will send a sample along with the product
when a consumer buys online. The consumer can then try the sample and if he doesn’t like it he can send the fragrance back. (The company will also set up kiosks in airports and in retail outlets that will enable consumers to sample and buy the fragrance that will later be shipped to their home, as well as a ‘You fill’ station, where consumers go for refills). “The industry is saturated. We don’t want to be the 300th fragrance in a store, we need to launch differently and create our own distribution,” Strubi tells BW Confidential.
When it comes to marketing, brands’ efforts have largely been confined to mini-sites for new launches. The potential of interactive marketing, linking with social networks, such as FaceBook and Twitter has not been mined. Neither have the possibilities of sampling online, even though this can provide a more targeted campaign with measurable results and a wealth of consumer data. BW Confidential will explore this subject in an upcoming issue.
Fragrance market figures
Top-three global prestige fragrance brands 2008 by market share %
|
Fragrance |
% share |
|
Chanel No 5 (Chanel) |
2 |
|
Acqua di Giò pour Homme (Armani, L’Oréal) |
1.2 |
|
J’adore (Dior, LVMH) |
1.2 |
Source: Euromonitor
Global fragrance sales 2008 by category $bn
|
Category |
Sales $bn |
% change 08/07 |
|
Premium women's fragrances |
13.89 |
+5.7 |
|
Premium men's fragrances |
6.95 |
+5.6 |
|
Premium fragrances |
21.60 |
+5.7 |
|
Mass women's fragrances |
10.20 |
+15.7 |
|
Mass men's fragrances |
6.79 |
+14.7 |
|
Mass fragrances |
17.27 |
+15.2 |
|
Total fragrances |
38.88 |
+9.7 |
Source: Euromonitor retail sales price
Global fragrance sales 2008 By region $bn
|
Region |
Sales $bn |
% change 08/07 |
|
Western Europe |
13.99 |
+6.7 |
|
Latin America |
8.80 |
+25 |
|
North America |
6.19 |
-4.4 |
|
Eastern Europe |
4.43 |
+16.8 |
|
Asia Pacific |
2.58 |
+9.4 |
|
Middle East and Africa |
2.30 |
+10.8 |
|
Australasia |
0.59 |
+2.7 |
Source: Euromonitor retail sales price