Generating store traffic will be a touchstone of survival for the cosmetics industry in 2012, as executives grapple with a bearish business that has been made even tougher by a deepening, unpredictable recession.
Most cosmetics executives expect the industry to struggle next year with volume figures that are flat to 5 percent ahead.
“You can’t rely on the store traffic anymore because it isn’t there,” said Byron Donics, president of Aramis, Inc. “We want to make the doors we’re in now more productive,” Donics said, adding, “What it will take is a strategy of driving people into the stores.”
“Two years ago, there were no worries about store traffic,” said Leonard Lauder, president and chief executive officer, Estee Lauder Cos. “People worried about which stores were going to be in business. Now it’s just the reverse.”
The falloff in traffic concerns Lauder, as does the Persian Gulf crisis and the effect of a patchwork recession that has depressed some parts of the country while leaving others unscathed. The stores’ starvation buying practices of “destocking” also prompted Lauder to remark, “Usually, my crystal ball is very clear. This year, it is very cloudy.”
On the bright side, he noted, “I am much more confident about the financial health of retailers now than before. I am totally confident about Macy’s.”
But traffic remains an issue. “For us, the greatest challenge is to continue to attract customers to our counters,” said Bernd Metzger, president and ceo of Christian Dior Perfumes, Inc. “We have to be continuously creative and attractive in-store.”
Next year, Metzger said, stepping up in-store activity and service will be Dior’s number one priority.
Karen Anderegg, president of Clinique USA, said, “What we lose when the store traffic is down is the impulse purchase. The small indulgence, the lipstick or eye shadow that gives a quick lift, is going to be even more important next year.”
“People want more personal attention,” said Guy Peyrelongue, president and ceo of Cosmair, Inc. His Lancome division opened a spa, outfitted with five treatment rooms, Monday in the New York flagship of Macy’s Northeast. Consumers want a quiet place to go, out of the rush and melee of the selling floor, he said.
When business began to soften last July and August, Peyrelongue recalled, “People tended to react by adding more promotions. But the future of our industry is not in promotions. It is in innovative products. The key to the future is research and service,” said Peyrelongue, who noted that Cosmair is shooting for a 12 to 13 percent sales gain next year.
Lauder sees a challenge for the industry in prestige fragrances and said, “Coming off 10 years of super launches, how is that going to continue to fuel itself? He noted that there may be a change in style — “a series of thoughtful launches, rather than megalaunches.”
Arie Kopelman, president of Chanel, Inc., predicted 1991 will be “the year of the fallout” for fragrances, characterized by dramatic shifts in market share and intense competition.
“Next year will be an incredibly pivotal year for everyone,” Kopelman said. “We will market products that we think are very tightly positioned and have the focus that will be needed to pierce the clutter. We’re continuing to support our products. That means being even more aggressive than we’ve ever been.”
Robin Burns, president and ceo of Estee Lauder USA, sees potential in makeup and fragrance in a period of gloom. “Makeup is the fun,” she said. “Fragrance is the fantasy.”
“The bigger, well-financed companies will come out of this bigger, and the total number of players will be fewer,” Burns said, adding that the key to 1991 will be capitalizing on the rapidly moving changes in consumer lifestyle — “the way people shop, the way they think and the way they communicate. It’s a different world than two years ago.”
She is not as ebullient about retailing. “It’s no healthier than going into 1990,” Burns said, “and we’ve added stores to the unhealthy stable and compounded it by a national recession.”
Peyrelongue considers makeup and color to have the greatest growth potential, followed by treatment, with fragrance being “still tough.”
Joseph Ronchetti, president of Elizabeth Arden, expects the most action in treatment, due to health concerns over sun damage, demographic shifts and the amount of industry research on skin care.
A handful of manufacturers — including Origins and Alfin — are looking beyond the traditional confines of the department store.
William Lauder, vice president and general manager of Origins, said the division, despite its goal of rolling out to 500 doors by 1995, is already seriously considering a freestanding Origins unit.
“Initially, it will be one store,” he said, “but our plan is to open many more.”
At Alfin, according to Stanley Kohlenberg, president, perfumeries may provide an avenue, particularly when major department stores are paring all but the biggest, most lucrative product lines.
“It costs a lot of money in manpower to find the best perfumery in every city,” Kohlenberg said. “It’s costly, but it’s necessary.”
Leslie Grunberg, president and ceo, Benetton Cosmetics Corp., said he would also like to see perfumeries become more viable.
“I go to these industry lunches and dinners and all I ever hear people talking about is how bad business is in department stores,” Grunberg said. “I don’t think there is enough being done to really make perfumeries happen.”
Another pressing issue confronting manufacturers is a reluctance on the part of some retailers to maintain adequate inventory.
Robert L. Brady, president and chief executive officer, Parfums Givenchy USA, said he’s seen a “contraction” in store inventories this year. Givenchy will take a more aggressive stance to meet its “very modest” 1991 sales goals.
“We are going to be more focused next year, in terms of what kinds of promotions we have and in what stores we have them,” Brady said. “We’re going to make sure that our retail partners can support our efforts,” he added.
“Stores have a desire to minimize stocks and are cutting across the board, not just in the cosmetics department,” said Michael Gould, president and ceo, Giorgio Beverly Hills.
Gould said Giorgio is focusing on its international business. “We’ll be opening Red and Giorgio in South America in January or February. In these times, we’re looking at the international business to offset some of the softness here.”
Ronchetti said, “I have a major concern that if stores aren’t achieving anticipated sales goals and, from an inventory position, become overbought, they’ll cut back and retard growth,” thus setting off a downward spiral.
Ronchetti asserted that “retailers have to be more discriminating in how they spread their money” in taking on lines. To build brands, there will have to be more exclusive launches for longer periods to give stores enough time to recoup their investments and reap the benefits.
“The stores are launching money, not brands,” said Fred Hayman, founder and ceo of Fred Hayman Beverly Hills, Inc. Referring to launch mania, Hayman said of some stores, “They can’t digest all they’re doing. They don’t have the beauty advisers and management to do all that. They don’t have the space.”
Barbara Kotlikoff, president and ceo of Parfums Nina Ricci U.S.A., said, “I don’t think the level of launches has served the customer nor the industry very well,” Kotlikoff said. “I think we all should take stock and build the brands that we’ve got.”
Kim Delsing, president and ceo of Calvin Klein Cosmetics, echoed the prevailing view of 1991 as a difficult year. “I don’t see an extraordinary amount of growth in the fragrance business,” Delsing said. “We will get a bigger piece of it. Those out there spending and ringing the bells will make it happen.”
According to Thomas Burke, corporate vice president of regional development for Liz Claiborne, an overriding concern for the beauty industry is the threat of war. “The industry’s responsibility is to do everything they can to communicate with that concerned consumer,” he said.
“From an emotional standpoint, the crisis in the Gulf has to be settled before we get back to business as usual,” agreed Daniel J. Brestle, president of Prescriptives.
Brestle was also concerned about retail manpower. “Those stores that make staff cutbacks to reduce their overhead have me worried,” he said. “We’ll feel the effect of a reduction in staff more quickly than a reduction in other areas, like [co-op] ad dollars.”
Sanofi Beauty Products, Inc., according to Lawrence J. Aiken, president and ceo, will also take “an aggressive, offensive positioning for next year,” adding, “We’re going to continue to push, invest money, and support the retailers.”
But the retailers Sanofi intends to support next year will be decidedly fewer in number, Aiken said.
Next year, the company’s Gem fragrance will be exclusive to Bergdorf Goodman and Neiman Marcus, Perry Ellis for Women will be sold only at Bloomingdale’s, Deneuve will be exclusive to Dillard’s and Bloomingdale’s and Bowling Green will be sold only at J.C. Penney.
“We don’t grow our business by increasing distribution,” said Susan Sussman, vice president of fragrance and U.S. trade divisions, Tiffany & Co. “Our goal is to increase the business on a sell-through, door by-door basis.”
Sussman, like many of her colleagues, feels the next year should bode well for classic fragrances. “The trend in women’s fragrances is for classics,” she said.
“In a downtrend, people tend to revert to classics,” agreed Julia Farrell, president and ceo of Guerlain, Inc.
Farrell said she expects Guerlain to achieve sales gains in high double-digits next year, far in excess of the zero to 5 percent ahead predicted for the fragrance industry.
Diversion, a longstanding problem, appears to be worsening. “It is a great problem,” said Fernando Aleu, chairman and ceo, Compar, Inc. “It destroys the image of a fragrance and takes away business. It is a parasite that preys on our efforts,” Aleu said, adding that Compar prosecutes to the fullest extent of the law whenever it encounters diversion.
Brady believes that participation in Copiat — an 80-company coalition to protect trademarks from diversion — will be on the upswing next year.
Despite the negative impact, most manufacturers admitted diversion is very hard not to fall prey to, especially when excess inventory piles up in an economic downturn.
Joseph Horowitz, president of Clarins, Inc., said his objective is always to grow the business in existing accounts and gain market share. The idea is to attempt to recover as much customer data as possible from any raid drive failure, and then use it to increase sales. It requires services of companies like the one here. “There are some weak situations around the country that one would be wise to look to strengthen.”