Online Exclusives

A Reality Check for Fine Fragrance

By Nancy Jeffries, Correspondent | November 23, 2010

The Fragrance Foundation looks at the problems and opportunities that impact the segment.

Business, or the lack of it, was at the forefront of the annual State of the Industry luncheon, presented by The Fragrance Foundation, November 18, 2010, at New York’s Harvard Club. The State of the Industry luncheon, which is the organization’s annual economic review and forecast for the holiday season and beyond, was introduced by Rochelle Bloom, president, The Fragrance Foundation, who thanked sponsors Clarins Fragrance Group, Symrise, Mane, and BPI (Beauté Prestige International), for their support of the event.

 
Bloom generated enthusiasm for the fragrance industry, in thought and deed, noting that The Fragrance Foundation has commissioned 40 telephone kiosks strategically placed in New York’s midtown, as design vehicles for advertisements showcasing the One Mighty Drop campaign, encouraging consumers to love and purchase fragrance. The kiosks will feature the campaign ads through December.
 
The state of the industry panel included Peter Siris, managing director of Guerilla Capital Management, and former senior vice president of Warnaco, Inc.; Susan Babinsky, senior vice president, consumer products, Kline Management Consulting & Marketing Research Group; Candace Corlett, president of WSL Strategic Retail, which publishes How America Shops; and Ken Goldstein, an economist at The Conference Board since 1971, a well known source of business and economic intelligence which tracks both general and consumer economic trends, including the Consumer Confidence Index.
 
Economic Outlook

Siris noted that while the stock market will keep going up, he cautioned attendees against any notions of rapid recovery.
 
“The worst is over, we’re not going back into a Great Depression. I’m predicting recovery in the next 35 years,” he joked, explaining that when recovery really comes will depend on government policy, economic stimulus, and a variety of other factors. But clearly, there has been a shift.
 
Sign of the Times: The new fragrance campaign from The Fragrance Foundation.
“In my view, 99% of people are too optimistic about the future,” observed Siris. “The reality is we’re not reinventing our economy or creating enough jobs. Other people in the world are moving ahead of us, like the development of electric cars in China.”
 
In discussing the housing market and consumer spending, Siris was even more succinct.
 
“The consumer is finished. I’m not talking about Christmas; it will show up every year. The reality is (that) our economy has depended on consumers spending more money than they have. The government doesn’t have any more money. People in the past have taken money out of their homes, and now they’re putting money into their homes. The world we’ve lived in is finished. There are ways to fix the economy, but politicians aren’t making these decisions,” said Siris.
 
He noted that high end products will do well, as wealthy people are still spending; however, he noted, “We all have bills to pay and we’ve taken on more debt than we can afford.”
 
He reminded attendees that opportunity lies in U.S. workers being able to leverage their skill sets to ultimately help others in developing countries learn how to utilize their strengths as they learn how to become consumer economies.
 
Fragrance Forecast

Susan Babinsky presented an overview of the fragrance business, noting that following the decline in 2009, there was some recovery in 2010.
 
“I think everyone should be encouraged that the fragrance business is moving forward. Business is stabilizing, with the biggest improvements found in specialty and online sales. These are the areas driving growth. “Online sales are at +20% per year,” she noted.
 
She stated that in 1999, among the top five fragrance brands, each recorded sales in excess of $40 million in sales; while in 2009, each brand in the top five did under $40 million in manufacturers’ sales.
 
“The new brands aren’t achieving the blockbuster status of years past. It’s very hard to find a fragrance business that is throwing off significant operating margins,” said Babinsky.
 
She cited the current best-in-class performers, including Marc Jacobs’ Bang and Lola; as well as Beyonce’s Heat, with its perfume ring (a nod to Put A Ring On It), and Ralph Lauren’s Polo brand, as top performers. In addition, Babinsky included Abercrombie & Fitch’s Fierce brand, Love Express, which launched this year and is building upon the success of Express apparel, and the Old Spice franchise, with its catchy campaign, “Smell like a Man, Man,” (with 23 million hits and counting on You Tube), as well as Axe, and the new Justin Bieber fragrance, which looks to be a promising launch, considering the pop singer has six million followers on Twitter.
 
She cited the rollerball format as hot, with Victor & Rolf’s Flowerbomb and others, now in rollerball; and noted that Sephora and Bath & Body Works were also best in class. Technology also had a strong showing, with Estée Lauder’s AScent, designed to be usedwith iTouch in fragrance selection, as well as a new Sephora download application, and the new Givaudan iPerfumer, a powerful tool to access and explore scents, fragrance families and more. Babinsky encouraged an addition to the app, noting it would be great to have a “click and buy” feature. She also anticipated success for the upcoming Taylor Swift scent, due in 2011, and a Lady Gaga fragrance as well in 2012. In addition to the previous new and noteworthy entries, Babinsky stated that master brands, like CK One, illustrate the importance of brand sustainability in the market.
 
Recovery or Not?

Candace Corlett, WSL Strategic Retail, told attendees that shoppers are telling us about the future of shopping, noting that consumers will skim across all formats, options, and brands, in their quest for the smarter buy.
 
“Last year we called it a re-set; then a re-boot, and now a recovery. Truth is, what is now is what is,” said Corlett. She went on to say that if you think the recession is over, it’s not.
 
“Last year, 57% of those surveyed thought the recession would last 1-2 years. This year ,59% now say it will last 1-3 years or more,” said Corlett.
 

State of the Industry event caption: Left to right, standing, are Rochelle Bloom, President, The Fragrance Foundation, Peter Siris, Managing Director, Guerrilla Capital Management, Candace Corlett, President, WSL Strategic Retails; seated, left to right; Ken Goldstein, Economist, The Conference Board, Barbara Wyckoff (wife of Peter Siris), and Susan Babinsky, Senior Vice President, Consumer Products, Kline Management Consulting.

And yet, Corlett said that there has been a a decline in resistance to shopping.
 
“The crisis may be over, but the lessons learned are not,” she added, noting that 68% of those surveyed by WSL say they have learned lessons during this recession. She noted that 72% are paying more attention to price, and looking online for the best deals is now at the top of the list. The majority surveyed (63%) said they don’t spend as much on gifts anymore, and 60% say, “I stick to brands I can afford,” effectively putting the lid on their aspirations and indicating they are willing to try products that cost less, noted Corlett.
 
Consumers are looking carefully at value, i.e., what’s worth it, and will purchase such items as iPads.
 
“They will find the money for what’s worth it to them,” said Corlett.
 
Moreover, the majority of consumers will be shopping to live, not living to shop.
 
“Most people have not come back to trading up and spending, and most who are spending are coming back to real priority spending. However, the hope is there and it’s waiting to be tapped into,” said Corlett.
 
The question is, how do you create enough excitement to get shoppers to come back to your brand, with excitement and emotion?
 
Corlett noted that consumers are now browsing internet sites on their lunch hour.
 
“It’s all at your fingertips and this is where you need to go. There is no box, and you have to think about where you need to be so consumers can get to you,” she added.
 
It’s all about reframing value and innovative discounting is important. She cited value bundling as one strategy.
 
“Now is not a time to be subtle about talking price. Manufacturers are giving $5, $10, or $30 gift cards with purchase, and a high percentage of people go right back in and spend it,” Corlett said, alluding to a Target strategy, among others. “This is an innovative way to generate sales. It’s engaging shoppers, and it’s a new way to talk about sales,” she said.
 
“Finally, emotional real estate, like the light show presented by Ralph Lauren at the opening of his store on Madison Avenue, when three-dimensional horses came prancing out of the store, followed by fragrances, that is an example of creating retail excitement,” said Corlett. She also cited Vivienne Westwood’s new fragrance, Naughty Alice, which features an engaging online experience via the internet.
 
“Everyone wants to have Alice,” said Corlett. “The Internet presents options for creativity that go beyond an innovative bottle,” she said.
 
Ken Goldstein said that the U.S. Consumer Confidence Index is low, and while we may have a decent holiday season, “We’re likely to see a very cold January and February, following the holiday season.”
 
However, noted Goldstein, in the first half of 2011, he believes that not only will the recession be over, but it will start to feel like it’s over. Goldstein said that spending power is flat, which means that energy prices, including gasoline, will go up, and more money will be needed for energy and food.
 
“With all the money going to gas and food, consumers won’t have money to fix their hair,” said Goldstein. He hypothesized there might be 1-2% growth in the next 6-9 months, which may go up to 2.5% in the next year, however, stated, “I don’t know if we will see 5% ever.”
 
Clearly, while the economy is starting to come back, manufacturers’ ability to get a higher price might increase, stocks may go up, but overall, not that much, acknowledged Goldstein, leaving many consumers, as he put it, to dream.

Additional information about The Fragrance Foundation and its newest campaign may be found at: www.fragrance.org.
 

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