Fleeting fragrance life cycle nothing to sniff at

They may be called Eternity, Addict and Obsession, but fragrances, and their makers, are struggling to captivate an increasingly fickle consumer.

perfume bottles 88 (photo credit: )
perfume bottles 88
(photo credit: )
MarketWatch: In-depth global business coverage They may be called Eternity, Addict and Obsession, but fragrances, and their makers, are struggling to captivate an increasingly fickle consumer. Blame it on the unquenchable thirst for novelty and a shrinking attention span, but while consumers were once loyal to a scent for years, most now own half a dozen different fragrances, dabbing a drop of one or the other to suit a mood, an outfit or a season. That's put cosmetic giants on the back foot, forcing them to innovate, repackage and promote many more scents each year than they marketed even a decade ago. Recent earnings from some of the world's leading cosmetic companies show the shorter life cycle of fragrances is eroding the bottom line. Paris-based L'Oreal, the world's No. 1 cosmetics group, known for its Lanc me and Cacharel lines, said in October that lackluster third-quarter US sales were partly due to a loss of sales momentum by fragrances. At the same time, smaller French rival Clarins said perfume sales fell 11% in the period. J.P. Morgan analysts noted then that, taken together, the L'Oreal and Clarins results suggested a "worrying" trend. "The increasingly short life cycle of fragrances seems to be a source of increasing volatility for cosmetics companies," the broker said. The problem extends well beyond Europe, too. US company Elizabeth Arden, whose scents include Elizabeth Taylor's White Diamonds and Britney Spears' Curious, in November said it would rely on"significant promotional support" to new products and existing brands to drive sales in the second quarter. The smell of success? Meanwhile, at department-store cosmetics counters, the gloves are off. With limited editions, extravagant bottles and vials, and celebrity endorsements, the beauty giants are sparing no expense to set their latest liquids apart from their rivals. As Estee Lauder, which owns more than 100 fragrances and uses actress Gwyneth Paltrow as its ambassador, said in its most recent annual report: "A scent is never just a scent. It's an image, an aspiration, a mood, a statement..." Still, the market's ruthless, and a weak debut can spell a speedy exit from the shelves. "The life cycle of fragrances has shortened dramatically in recent years," said Karen Grant, a senior beauty industry analyst in the US for market research firm NPD Group. "A few years ago, it used to be that a fragrance would come out, slowly build up sales, and perhaps after three or five years you would start seeing some attrition. Now a fragrance comes out and often by the second year it's either off the shelves or posting double-digit declines in sales." To make things worse, the perfume market is also suffering from slower growth than some other segments of the beauty industry. L'Oreal's fragrance division was its slowest-growing cosmetics' business segment in 2005. Comparable perfume sales at the group rose 1.3% to €1.47 billion in 2005, compared to growth of 8.9% for skincare and 5.6% for hair care. In France, the world's largest perfume market, sales were flat in 2005. At US department stores, sales rose 3% to $2.94b., according to market research firm NPD. In an effort to boost the lethargic $14b. industry, cosmetic groups are churning out new scents at an unprecedented rate. In the U.K. alone, there were 171 perfume launches last year, including about 70 in the run-up to Christmas. In the US, Grant said more fragrances were launched in 2005 than throughout the 1970s and 1980s combined. These launches come at a premium, with the marketing and advertising costs knocking profitability. At L'Oreal, for example, advertising and promotion expenses rose 8% in the first half of 2006 compared to the same period a year earlier. Elizabeth Arden, meanwhile, in its 2006 annual report said gross margin declined to 42.3% from 44.47%, partly because of the higher costs of new launches. General expenses at the group jumped 27.4% in 2006, "principally due to $54 million in advertising, promotion and selling costs to support brand development and sales, including for the 'Curious' Britney Spears and the Elizabeth Arden Provocative Woman fragrance launches," the company said. Capitalizing on celebrity In an effort to contain these costs, many beauty groups have chosen to spin off new versions of existing scents. "It allows them to capitalize on an existing brand name, but with a fresh approach," said Diana Dodson, a senior industry beauty analyst with market research firm Euromonitor International. "It also means that the launch costs them a lot less." In 2006, Cacharel unveiled a new, lighter version of its classic Anais Anais scent, Calvin Klein introduced CK One Summer and CK One Electric in the US, and Georgio Armani developed Emporio Armani Remix For Her. Marc Jacobs, meanwhile, developed an autumn version of its Splash scent. Grant says consumers are encouraged to develop a "wardrobe" of scents to suit different moods and occasions. But observers said the strategy is not entirely fail-proof, with new fragrances often cannibalizing sales of the original scent. "You're often just getting the same customer to drop their old version for the new one. You're not growing the market," Dodson explained. Thinking outside the box Sometimes it's not what's inside the bottle that changes, but everything around it. Companies are constantly altering the verbiage and the look of their labels to draw the buyer's eye. Many firms create special bottles for the holidays, sometimes drawing on the fame and flair of the famous. Every year French fashion designer Jean-Paul Gaultier, for instance, chooses an emblematic gown from his collection to dress his classic perfume bottle in the shape of a woman's body. Beauty companies have long exploited celebrity, using actresses and models to peddle their products. In an iconic campaign, Chanel paired French actress Catherine Deneuve with No. 5. The likes of Nicole Kidman and Liz Hurley are the faces of today. Even singer Britney Spears and romantic novelist Danielle Steel now have fragrances to their name. Estee Lauder, which sells rapper Sean John's Unforgivable, said in its annual report that 2006 has been the year of celebrity fragrances and designer fragrances. Observers agreed. "Celebrity scents are booming and they're particularly successful with the teen market," said Euromonitor's Dodson. But there's a downside to the flood of launches. "It's a vicious cycle really," said Grant. "The more they [perfume makers] launch new fragrances, the more the life cycle shortens." Playing the prestige card Some cosmetics groups are adopting a different tactic, preferring to sell less at a higher margin via prestige products, which command hefty prices. "Some believe the way forward is the premium-scent market, often reached through limited edition and limited distribution," said Dodson. Groups like Gucci and Hermes, for instance, have very strict rules about where their perfumes can be sold, giving them an edge of exclusivity. Some are shooting for an even more demanding customer. French perfumer Francis Kurkdjian recently developed a scent based on fragrance once worn by French queen Marie Antoinette, which will be sold only to order. A 25 ml bottle of Sillage de la Reine (literally, In the Wake of The Queen) will cost €350. A limited prestige version of 10 crystal bottles will sell for €8,000 each. And that's nothing to sniff at. 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