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Hard Times for Prestige



By Colin Hession, Colin Hession Consulting



Published March 9, 2010
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Sometimes there is so much industry discussion on a particular topic that you almost don’t need to see the hard numbers in order to grasp the story. But equally, when you do get the figures, it serves to put the issue into perspective. Such was the case when The NPD Group, aleading U.S. market research company, recently published year-end stats for the global prestige category; i.e., skin care, makeup and fragrances.

Source: The NPD Group, Inc., Mexico Data Source: Segments Sell Out Mexico * Jan. ‘09 – Oct. ‘09; ** Dec. ‘08 – Nov. ‘09
The figures show some dismal, but not unexpected, results for both the U.S. and Europe. Karen Grant, vice president and senior global analyst for The NPD Group had it right when she commented“Make no mistake, 2009 was a most challenging and difficult year for the prestige beauty industry.”

However, the most telling figure in the NPD table has surely to be the +17% growth for prestige beauty in China. This is yet another statistic to add to all the hair-raising stories about the size of China’s sovereign wealth funds, and underlines the huge emerging strength of this giant from the Far East.

So what of the future for the prestige sector, having lost ground in Western markets? We think it will include a further blurring of the line between prestige and mass, both in manufacturers’ pricing and in retailers’ offerings. Pure play prestige suppliers, such as Estée Lauder, will inevitably have a harder time than companies that have a mass presence as well. And we’ll see more private label in prestige.

More Private Label in Prestige


At the end of last year (see Happi Dec. 2009), we wrote about increasing private label involvement from Watson’s French-based prestige perfumery chain, Marionnaud. Not to be outdone, Marionnaud’s
More private label for prestige.
great rival in Europe, Douglas Perfumeries, held a press conference in Germany earlier this year to announce a new strategy that includes increasing the number of private label offerings as well as brands exclusive to the Douglas chain, “particularly in the fragrance sector, in an attempt to differentiate ourselves from competition in the market,” said a spokesman.

So, for any of our North American readers who want to get their prestige products into Germany and beyond, it would make sense to pitch an “exclusive” to the mighty Douglas, which boasts 1,230 stores in Europe. And if you’re a private label manufacturer, and are brave enough to try and make the costs of shipping across the Atlantic work with prestige pricing, then it’s probably worth a private label pitch, too.

Klorane on QVC


Quirky French company Pierre Fabre has taken the unusual step of putting its Klorane plant-based hair care products on QVC. Unusual for Pierre Fabre, because the privately-held company is well known for taking a rather different stance on some modern marketing practices, including trying to prohibit its authorized retailers in France from selling products over the internet. Fabre concentrates on “phyto” products; i.e., using plant extracts, and has total sales of $2.5 billion, 47% of which are in dermo-cosmetics.

Strategic point: if you haven’t got the funds to take on Walmart, Target, CVS and Walgreen’s, then selling your soul to QVC can sometimes turn out to be a savvy course of action—cf Bare Escentuals, which started out on QVC, and is now being sold to Shiseido for $1.7 billion.

Sally Trials More Formats


Scuttlebutt suggests that Sally Beauty has been having a hard time in the UK, with the 260 hair care stores it runs here. So it’s interesting to learn that that it is planning to test a new format in five stores in order to push its retail offering. Retail accounts for 25% of the business and during the next few years, the company apparently sees a potential to go to 40%. Managing director Richard Howell is quoted as saying “We have a very clear customer on the trade side, but we believe we offer something different for retail and need to accentuate that.”

More consumer friendly?
The five trial stores will apparently look more modern, with enhanced lighting and color-coded areas to separate trade and consumer.

If this makes ordinary consumers more aware of Sally’s hair care offerings generally, by being more consumer friendly—instead of its current, rather Spartan and uninviting in-store style—then we think this could certainly pay dividends for the company. The fact is that most young women are inherentlyinterested in the whole paraphernalia of hair care, from professional accessories to high-end liquid products, not to mention much cheaper colorants (packaged in toothpaste-type tubes as opposed to elaborate cartons). But how many of these consumers currently realize that they can find all these things under one roof, in Sally, and buy them at competitive rates?

This is particularly relevant now with consumer purse strings tight, and as reported by U.S. salon consolidator, Regis, consumers have been leaving longer gaps between salon visits and choosing to do their own treatments at home.

UK Supermarkets Protest Government Controls


Suppliers of groceries and HBA in the UK have long complained that their major supermarket customers are bullies. But whenever government has invited suppliers to name names, not surprisingly very few manufacturers have been brave enough to lift their heads above the parapet. The UK’s Competition Commission recently developed a mandatory Groceries Supply Code of Practice, to replace the industry’s less onerous self-regulation and government has indicated plans to enforce the new rules.

Needless to say, Tesco, Asda and Sainsbury’s have all rubbished the idea of legal enforcement, arguing that it is totally unnecessary since they are all such nice, gentle guys who have such wonderful relationships with every one of their suppliers, etc. etc.!

We’re not so sure. Only recently, Walmart announced a global project to cut billions of dollars of costs from its supply chain by combining store purchasing across national frontiers. In small markets like the UK, where just three or four major chains dominate, it is increasingly difficult to achieve national distribution if you’re not a multinational manufacturer. So whereas we would normally opt for U.S.-style light regulation, in this instance the Competition Commission has a point.

Chattem Makes Good


Foreign takeovers are not always good news, although one can’t help but be impressed by the $1.9 billion deal done by Chattem CEO Zan Guerry. Chattem has a nice position in the U.S., in specialty toiletries and OTC, via such lines as Selsun, Gold Bond, Sun-In, Icy Hot & Ultra Swim. Chattem’s new owner, Sanofi-Aventis,only has approximately 5% of its sales in healthcare OTC and primarily in Europe, so the Chattem acquisition gives Sanofi a solid base for expansion into the U.S.

It looks a classic win-win deal—Chattem’s existing infrastructure will not only be used as the basis for U.S. expansion, but will benefit from further investment in the company’s Chattanooga base. Apparently everyone keeps their jobs, and all looks set for a happy marriage…just hope the French management style coalesces with the Chattanooga one…

Alberto-Culver Buys Simple


Alberto Culver recently purchased the Simple skin care brand in the UK to add to its portfolio of St. Ives
Fragrance-free has its limits.
and Noxzema. Simple is a multi-SKU range based on zero fragrance. The line has been M&A’d a number of times since being divested by its original owners, Smith & Nephew. While it has achieved a useful position in the UK’s mass facial skin care category, we’re not so sure about this acquisition for Alberto.

Simple may seem like a good idea; i.e., no fragrance, but the fact is that at the end of the day, personal care products are all about being nice to use, and as most consumer research will tell you, in the world of cosmetics and toiletries that means smelling nice, too. Yes, there are people who don’t want fragrance, but not as many as one may think. Simple has tended to hold its position by having a handful of SKUs which sell well, and then constantly introducing new ones, such as baby, hair and men’s, which seem to come and go. An acquisition price of 11 times EBITDA appears to be on the high side, given the lack of further leverage for the brand, but who knows?


About the Author
Colin Hession is managing director of Colin Hession Consulting, a specialist consultancy that focuses exclusively on personal care in Europe, in terms of commercial andmarketing development. Tel: +44-1202-710377, Fax: +44-1202-710399, e-mailch@hessioncosmetics.com, www.hessioncosmetics.com


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