CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL · Editorial Coordinator & Assistant: Darlene Lim [email protected] Contributors: Tina Clark, Alex Wynne, ... which includes the Nivea,

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Comment Inside

CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL

The buzz 2News roundup

Netwatch 6Beauty blogger review

Interview 7Cosnova Beauty ceo Javier González

Insight 9Japan

Show review 14Duty Free Show of the Americas

Store visit 17Lane Crawford, Chengdu, China

l Esxence, Milan, March 20-23 l In-cosmetics, Hamburg, April 1-3 l Cosmoprof, Bologna, April 2-7 l Luxe Pack Shanghai, April 16-17 l China Beauty Expo, Shanghai, May 7-9 l TFWA Asia Pacific, Singapore, May 11-15l Luxe Pack New York, May 14-15

Meet the BW Confidential team at:

Oonagh PhillipsEditor in [email protected]

For some time now, retailers have been talking about the need for an omni-channel strategy—essentially,

delivering the same experience across all platforms, whether mobile devices, desktop or brick-and-mortar.However, as consumers don’t really think in terms of

shopping channels, but more about where they can find the best products, prices and service, some say retailers should be paying more attention to these issues. This is especially the case if, in their efforts to be omni-channel, they end up replicating a poor experience in

newer selling platforms. Many suppliers bemoan the state of retail today. They are often heard saying

that retailers rely far too much on discounting and go overboard in trying to maximize every square inch of store space (resulting in shops that are overcrowded with product) and that they don’t invest nearly enough in staff training or new initiatives. Retailers are also criticized for copying the moves of leading players in the market, often resulting in a poor rendering of the original idea and a certain sameness of offer.Perhaps before perfecting their omni-channel strategies, retailers should look to

add more value to what has become an increasingly commoditized category.

Retail basics

The inside view on the international beauty industry March 20-April 2, 2014 #89

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At a glance...

Japanese beauty group Kosé has acquired New York-based make-up and skincare brand Tarte Cosmetics for $135m. In the US, Tarte is sold at Sephora, Ulta and Macy’s, and on home-shopping network QVC. The acquisition gives Kosé a stronger presence in North America. Until now the group’s expansion outside of Japan was focused on Asia. Tarte is sold in the US, Canada and Australia, and reported sales of $52.4m in 2012.

US-based make-up brand NYX Cosmetics is looking for a buyer. Company sources say it ideally is looking for a private-equity or venture-capital firm, preferably with interests in the cosmetics business, to fund its rapid expansion. The company, which was founded in 1999, is now present in almost 70 countries. For the past four and a half years, NYX has been backed by Chicago-based private-equity group HCP and Company.

L’Oréal-owned The Body Shop has temporarily withdrawn its products from duty-free shops in Beijing and Shanghai, China, following a report by Australian consumer group Choice that says the goods could be subject to animal testing. China’s regulations require that beauty products sold in the country be tested on animals, which is why The Body Shop, which claims to be against animal testing, has not yet entered the market. The Body Shop is said to have considered products sold in duty free exempt from obligatory animal testing, and is temporarily pulling the products until it can “clarify” the situation.

L’Oréal is looking to become the number-one beauty group in sub-Saharan Africa. Africa accounts for less than 3% of L’Oréal’s sales and the group claims to be the number-two player in Sub-Saharan Africa, with a market share of around 8%. The market, estimated to be worth €2.7bn, accounts for 3% of the global industry and is highly fragmented, with no company commanding more than a 15% share, says L’Oréal md of Africa & the Middle East Geoff Skingsley. Anglo-Dutch group Unilever is the leader in the region.Some 60% of L’Oréal’s business in the region is through African lines and its Dark &

Lovely brand accounts for around three-quarters of sales there. The company said that in 2013, it sold 120 million units in Sub-Saharan Africa, a 52% increase over 2012. L’Oréal has factories in South Africa and Kenya, and may open a third site in West Africa.

Strategy

Stay informed with our daily news headlines on www.bwconfidential.com

n NYX seeking new investor

nKosé buys Tarte Cosmetics for $135m

n The Body Shop pulls products from Chinese airports

n Coty in deal with Avon in Brazil

n French court suspends Printemps sale

n Clarins appoints Natalie Bader president

n Alibaba to list in US

n Interparfums unveils Karl Lagerfeld fragrances

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BW Confidential4 avenue de la Marne92600 Asnières sur Seine, [email protected]: +33 (0)1 74 63 49 61Fax: +33 (0)1 53 01 09 79

www.bwconfidential.comISSN: 2104-3302Publisher: Nicolas GrobEditorial Director: Oonagh Phillips [email protected] Editor: Alissa [email protected] Coordinator & Assistant: Darlene Lim [email protected]: Tina Clark, Alex Wynne,

Renata Ashcar, Mayu Saini, Raphaëlle Choël, Corinne Blanché

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ResultsGerman group Beiersdorf saw net profit increase 11.9% to €537m in 2013 on sales of €6.14bn. Sales saw growth of 1.7%, or 7.2% on an organic basis. The consumer business segment, which includes the Nivea, Eucerin and La Prairie brands, reported a 5.3% increase in EBIT to €638m. Sales at the division were up 1.1% (+7% on an organic basis) to €5.10bn. Nivea saw growth of 7.5%, Eucerin’s sales were up 11.5%, while La Prairie reported a 7.5% increase in revenues.For the first time, the share of the consumer division’s sales in emerging markets

reached 52%. Beiersdorf expects group sales to increase by 4-6% this year and to deliver a slight improvement in EBIT margin compared to 2013.

Revlon reported a net loss of $5.8m for 2013, compared with a net income of $51.1m in 2012, due in part to costs related to pulling out of China. For the full year 2013, discontinued operations, mainly due to exiting China, resulted in a loss of $30.4m. Sales for the year were up by 7% to $1.49bn, which includes the business of nail

and hair company The Colomer Group, which Revlon acquired in 2013. Excluding this business, net sales were down 1.3%.

France-based Interparfums SA said it continued to see growth in 2013, despite the loss of the Burberry fragrance license. Growth was driven primarily by the Montblanc, Jimmy Choo and Repetto brands. The company said it saw an operating margin of almost 15% for the year and a net

margin of 10%, despite ramped-up marketing and advertising in the second part of the year. Net income however, was down by 4% to €34.8m. As of December 31, 2013, the company had net cash of €222m.

Coty is to sign a deal with direct-seller Avon to sell some of its fragrances in Brazil. Details are still being finalized, but Avon will likely carry a collection of Coty’s celebrity and lifestyle fragrances in Avon’s brochure in Brazil. Avon has 1.5 million sales representatives in Brazil, and the deal would give Coty an important presence in the market, where it is seen as weak.

US-based Elizabeth Arden is launching Elizabeth Arden Rx, a new skincare line to be sold exclusively in physicians’ offices. The move is part of its multi-channel distribution strategy to sell Arden products through prestige retail, spas and professional outlets. The brand is a result of Arden’s investment in skincare company US Cosmeceutechs, which develops and sells skincare products through professional dermatology and spa channels.

China’s biggest online retailer, Alibaba Group, is to launch an IPO in the US, which analysts say could raise up to $15bn. The company’s valuation could reach more than $140bn. The group was unable to list on the Hong Kong stock exchange, due to its partnership structure. Alibaba runs B2B website Taobao and B2C site Tmall in China.

Fragrance house Givaudan has entered into exclusive talks to acquire French ingredients supplier Soliance and its subsidiaries. Soliance develops active ingredients derived from vegetal sources, and has two sites in France. Givaudan has also signed a joint venture to produce fragrance ingredients in China with manufacturer Xinhua Chemical Co.

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L’Oréal has appointed Lubomira Rochet chief digital officer and member of the group’s executive committee, reporting to chairman and ceo Jean-Paul Agon. Rochet, 36, was formerly md of technology company Valtech France and previously worked for Microsoft.

Beauty group Clarins has named Natalie Bader president of the Clarins brand. Bader was most recently ceo of Prada France and previously worked at Chanel and Sephora.

Revlon executive vp and chief operating officer Chris Elshaw has left the company. The group appointed Gianni Pieraccioni as its evp and global president of its consumer division and Sennen Pamich as evp and global president of its professional division.Pieraccioni was most recently evp chief commercial officer for airline Alitalia. Pamich was

previously svp, Revlon Pro Brands for the US and Canada.

Pola Orbis-owned Jurlique president and ceo Sam Mckay is stepping down and will be replaced by Mark Whyman, a new recruit to the company. Mckay will stay on as an advisor to Pola Orbis Holdings’ overseas business. Takafumi Takezawa, the brand’s chief operating officer, is also stepping down. Toru Yamamoto, part of Pola Orbis’ management planning division, has been named managing director of Jurlique.

Fragrance house CPL Aromas has appointed Gail Fowler Krell as perfumer, based out of its New Jersey, US facility. In the past, Fowler Krell worked for Florasynth and Givaudan.

France-based contract manufacturer Strand Cosmetics has appointed Eric Bouvier managing director. He will take over from Dominique Bouvier, who will become company president. Eric Bouvier was most recently president and ceo of BG Medicine.

People

The French court of appeals has suspended the sale of French department store chain Printemps to Qatari investment fund Divine Investments. The court ordered Printemps to resume talks with labor unions opposed to the sale and provide employees with more information. Unions fear 226 jobs could be lost if a program to reorganize the retailer’s flagship store on Paris’ boulevard Haussmann goes through. The court’s decision does not change the ownership of the Printemps group. Divine

Investments finalized the Printemps acquisition in July 2013.

Dutch beauty brand Rituals Cosmetics is scouting locations for a flagship store in Paris, France, which it plans to open in the first quarter of 2015. The brand is also looking at opportunities to open shop-in-shops and counters in department stores in the country. As of the 2014 first quarter, Rituals is sold through 301 stores under the Rituals brand

name and 688 shop-in-shops. The company aims to have 1,000 stores by 2020.

French anti-aging skincare brand Ioma opened its first concept store at department store Seibu in Jakarta, Indonesia. The 70m2 (753ft2) boutique, called Revelation, features the brand’s diagnostic tools, product range and a skincare treatment area. Ioma is scouting locations for a flagship store in Paris and also has plans to open a boutique in Singapore.

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France-based Interparfums is looking to build a new fragrance pillar with the launch of its first line for fashion designer Karl Lagerfeld. “At the time we were signing the license with Karl Lagerfeld, we were also close to stopping Burberry and we felt that Lagerfeld could be an important pillar for the future,” says Interparfums chairman and ceo Philippe Benacin. The company is targeting retail sales of €60-€70m for the range in its first year. With the line, which is a men and women’s duo called Karl Lagerfeld, Interparfums has

sought to create a more upscale offering than the designer’s previous scents; Lagerfeld’s fragrance license was formerly held by Coty. The women’s fragrance, composed by Christine Nagel and Serge Majoullier from

Mane, includes notes of lemon, rose, magnolia and an amber woody base. The men’s scent, created by Jean Christophe Herault from IFF, features fern, lavender, mandarin, and a spicy base. The line will be supported by a print ad campaign, as well as a digital campaign that includes downloadable Lagerfeld emoticons. The fragrances launch in March, with the women’s retailing at €39 (25ml EdP), €59 (45ml EdP) and €85 (85ml EdP), while the men’s costs €39 (30ml EdT), €55 (50ml EdT) and €72 (100ml EdT).

French jewelry brand Cartier is launching a new fragrance this month called Cartier La Panthère. The fragrance, composed by in-house perfumer Mathilde Laurent, is a re-imagined version of the first Cartier fragrance, which originally launched in the 1980s. The floral scent has a heart of gardenia, and a cyprus, floral and musk accord. The 30ml EdP retails for €59; 50ml (€84); and 75ml (€105.50).

L’Oréal-owned Lancôme is launching a new cream for its Visionnaire range. Visionnaire Advanced Multi-Correcting Cream boasts anti-wrinkle and radiance properties, and was designed for European consumers with a short skincare regimen, who like using all-in-one products, according to the brand. The 50ml cream launches in May and will retail for €79. Lancôme launched the first Visionnaire cream in 2011. Lancôme is also introducing a CC cream for urban consumers in May, called City Miracle; it will come in three shades. n

Launches

Chinese travelers spent 20% more on tax-free shopping in 2013, compared with 2012, while Russian spend was up 13%, according to tax refund group Global Blue. Together, Chinese and Russian travelers accounted for more than 40% of Global Blue’s tax-free shopping transactions. The company said that for the sixth consecutive year, Chinese shoppers are the biggest-spending nationality, spending an average of €815 per transaction. However, Russian travelers clock more transactions than other nationalities. Russian travelers’ average spend is €356.

Prestige eye make-up sales in the US grew 9% to $1.1bn in 2013, according to market-research group NPD. Eyebrow products led growth with sales up 29% to $115m, while mascara, eyeshadow and eyeliner all saw sales increase by 7% last year. The average selling price of prestige eye make-up was 3% higher in 2013. Prestige skincare sales in the US were up 3% in the 12 months ending January 2014

to $3.6bn. Facial products, representing 78% of the business, saw $2.8bn in sales. Age specialist products grew by 4% in the period, while eye treatment item sales were up 4%.

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BW Confidential reports on what the bloggers are saying about beauty

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ch Beauty blogger review

Interest in nail art innovations has not subsided, with motifs now a big novelty. Highlighted innovations include colorful and quirky glue-on designs by House of Holland and cuticle tattoos from Ciaté. Celebrity collaborations are also popular—after OPI collections with Gwen Stefani and Mariah Carey, the imminent launch of a partnership with Coca-Cola is generating curiosity.

The growing number of limited-edition collections has prompted some writers to discuss the format’s downside. Although there are ways to obtain out-of-season shades, mainly online, consumers would like to see some limited editions made available on a permanent basis or for brands to systematically create seasonal shades for their catalog collection.

Bloggers are praising the strategies of online retailers, such as Amazon and Net-à-Porter, as they build their beauty offer. Fashion retailer Asos garnered interest after the exclusive launch of Anna Sui Cosmetics on its website, as the brand is not widely distributed in Europe, and the launch of Charlotte Tilbury cosmetics also delighted bloggers when it became available on Net-à-Porter.

An offshoot of the natural cosmetics trend, food-grade formulas and ‘raw’ plant ingredients in beauty products are becoming popular claims, appreciated for their supposed non-toxic aspects. This has prompted reviews on brands boasting raw, vegan, or food-grade ingredients, like The Body Deli’s raw food-based skincare and 100% Pure’s fruit-pigmented cosmetics.Th

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Cosnova Beauty l 2013 sales:

€248m (+17% vs 2012)l Brands:

Essence, Catricel New markets 2014:

UK, Brazil (Essence)

Cosnova Beauty ceo Javier González ”

We aren’t the first choice for prestige retailers, but we can help them widen their base to middle-income shoppers, and reach younger consumers

Cosnova Beauty ceo Javier González

Javier González, ceo of Germany-based Cosnova Beauty, discusses the development of its Essence and Catrice brands and the budget beauty market

Budgeting beauty

How did Cosnova perform last year? The year 2013 was great for us, as we saw growth of 17%, to reach sales of €248m. We are present in more than 70 markets, but are basically a European company, and Europe is our benchmark. Last year, the market in Europe was flat, and even in this context, we reported double-digit growth.

What impact has the recession in Europe had on your business? We launched in 2002 with the Essence brand and later introduced Catrice, when the European economy was doing okay, but the German economy was suffering. The recession in the past four or five years has definitely helped attract newcomers to our brands, as the economic situation means more consumers turn to a brand like ours for the first time. We now see Europe slowly coming out of the crisis, but consumers won’t stop buying our products just because the recession is over.

Which markets are you focusing on?In Europe, we are neither in the UK, nor in Scandinavia, and we have a small presence in France. This year, we will make inroads into the UK. We are testing the waters there now with Wilkinson, and are in talks with several retailers there. In France, we are in a few [hypermarket] Auchan doors, and we aim to move more aggressively in that market.Two or three years ago, we started expanding outside Europe, and while it’s still small-

scale expansion, we’re doing very well in Latin America, the Middle East and even in Asia. We are now launching in Libya, Algeria and Iraq. In Southeast Asia, we are mainly in drugstores and pharmacies.In terms of the BRIC markets, we are not present in China, but we have been in Russia

for several years, and are doing very well there. We entered India last year, and are about to launch Essence in Brazil. In Latin America, our strongest market is Chile and we have also moved into Uruguay, Bolivia, Peru, Ecuador and Paraguay. We’ve launched in Venezuela, but it’s a very tricky market right now. Brazil has a lot of potential, especially in the nail polish category—it’s the biggest

in volume and in the top-three in value, so our brand could do very well there. We’re currently testing a few retailers in the pharmacy channel.

Do you plan to enter new product segments or launch new brands?We entered fragrance last year and are very satisfied with the results, and we’re looking to other categories, but none that will launch this year. We’re happy with Essence and Catrice, and while we have ideas for the next three to five years, we have no concrete plans at the moment.



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s Cosnova is gradually expanding its presence in Latin America, the Middle East and Southeast Asia

Cosnova Beauty ceo Javier González ”

Brazil has a lot of potential, especially in the nail polish category—it’s the biggest in volume and in the top-three in value, so we think our brands could do very well there. We’re entering the market in the next few weeks

Other budget brands are developing standalone stores. Is this something you would consider?We had a store in Frankfurt, Germany that we closed last year, but it was more of a marketing and learning laboratory than a sales outlet. We believe that we can’t be both a supplier to our retail partners, and their competitor. It’s a strategic choice—you need to pick your side of the court, and we’ve chosen to be a supplier.

What impact are budget beauty brands having on the prestige market?We don’t believe that we have an impact on the prestige side—those consumers will pretty much always have the means to continue buying prestige. We’ve entered several prestige retailers, including Douglas in Germany. Before we came onboard, the management at Douglas were concerned about our brand cannibalizing their more prestige offer, but we were both pleased to see that there was no cannibalization at all with more expensive brands. The price gap between the two offers is so wide that the high-income consumers shopping there would not stop buying from other, more expensive brands to buy from us, but they may make a purchase for their daughters, for example. Also, consumers that have less spending power and who normally wouldn’t enter those kinds of shops might, because our brand is sold there.

Is there more of a demand from prestige retailers today to stock lower-priced brands?When we enter prestige outlets, we know that we aren’t the first, most natural choice for that channel, but we can help them address certain strategic objectives—to widen their base of consumers to middle-income shoppers and to reach younger consumers, for example. Prestige retailers need a brand portfolio that can attract those consumers.

What impact do budget brands have on retailers’ private-label offer?Our brands compete with several private-label offers, but rather than cannibalizing each other, we tend to build on each other. If you look at [drugstore chain] DM in Germany, for example, the company has roughly half of the German market in volume in color cosmetics. Around 12 years ago, they launched their own offer along with our brand and both have been doing extremely well. DM has come out stronger, as they have two lower-priced offers. It creates a dynamic cycle of development and growth.

How do you see the beauty market performing this year?We are forecasting another year of double-digit growth for Cosnova. We see southern Europe slowly stabilizing, although these problems won’t go away quickly. The global cosmetics market will continue to grow roughly at the same level, while Europe will see slower growth. n

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”Kanebo head of international corporate communications Shinji Yamada

The market is still far from where it was in 2008 [before the crisis]. We’ll have to keep a close watch on its development in coming months, before proclaiming a smooth recovery

BW Confidential analyzes the state of Japan’s beauty market and looks at the changes in the country’s distribution sector

Recovery in sight?Japan

In tandem with the slight uptick in the economy, Japan’s beauty market saw sales growth last year of just more than 1% to reach ¥1.29bn ($12.6bn) in the January

to November period, according to figures from METI, Japan’s Ministry of Economy, Trade and Industry. Euromonitor forecasts put the market growth at +0.2% in 2013 with sales of $47.33bn (these figures include the personal-care category). This growth comes after several years of decline. Local players are more upbeat for 2014 and remark that prices have increased

since the beginning of 2013, another sign of recovery. “We assume that the rising prices reflect both the comeback of the Japanese economy, as well as signs that

the consumer has tired of years of penny-pinching during the last deflation-ridden years,” Kanebo head of international corporate communications Shinji Yamada tells BW Confidential. “Due to the stagnant domestic economy

over the past 10 years, sales volumes of mid-priced brands (in the ¥1,000 - ¥3,000 range/$9.75-$29.24) declined, while those of low-priced brands (under ¥1,000/$9.75) increased. However, we now see the mid-priced brands starting to recover. Low-priced brands have bottomed out and mid-priced brands are growing,” explains Shiseido director, corporate office and chief financial officer Yoshinori Nishimura. The growth of mid-priced beauty brands, which account for around 40% of the beauty market, is also n n n

Japan beauty & personal care sales* 2013Category $bn* % change

2013 vs 2012Skincare 19.53 +0.5%

Haircare 7.99 -0.9%

Make-up 7.64 +0.2%

Men’s grooming 2.26 -0.1%

Fragrance 0.50 -6.5%

Suncare 0.48 +1.9%

Mass cosmetics 25.03 +0.3%

Premium cosmetics 18.14 -0.2%

Total beauty & personal care**

47.33 +0.2%

Source: Euromonitor International *Retail sales forecast** Categories may not add up to total as all segments have not been included

credit: stock.xchng



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good news for drugstores, Japan’s largest channel for beauty, at nearly 29% of sales.The major issues in Japan are the declining birthrate and the aging population.

According to industry figures, by 2015, more than 50% of Japanese women will be over the age of 55. While this is hardly good news, some see opportunity in the figures. “This means that we still have plenty of opportunities, in terms of developing products with higher added value, as well as a new market segment for the senior demographic,” explains Shiseido’s Nishimura. Beauty companies are looking to provide more product ranges and services

targeting the fifty and over consumer. Kanebo says it is further strengthening its position in the market by focusing on consumers in their forties and fifties, as well as the “senior generations”. In November, the brand launched Coffret d’Or Gran, a make-up line for women 50 and older that addresses mature skin concerns, such as dullness, pigment spots and uneven skin tone. The brand says that the line has been well received by consumers, which it also attributes to the clear age target in its advertising and in-store communication. Shiseido, meanwhile, now operates a website, www.shiseido.co.jp/successful-aging, for women over 50 featuring skincare tips, videos and a dedicated online magazine. Kao-owned Sofina also runs a website conceived for older consumers.The aging population is a boon for skincare, the market’s largest segment, with

anti-aging and brightening products continuing to be strong performers. Haircare, the second-largest segment, is also seeing growth coming from anti-aging haircare items. Other categories seeing strong sales are suncare products, following the introduction in January 2013 of a new labeling system regarding UVA protection, which was well publicized in the media.

Retail changes, retail challengesDepartment stores’ share of beauty sales continue to erode, albeit slowly. According to industry sources, the channel’s share was 8.3% in 2009, while in 2012, it was 8%. Yet, some believe there is a turnaround in sight for the channel. “Japan is a very expert market and up to now, the economy has been quite depressed. Department stores have been having a hard time for years, but we’re seeing signs that they are now struggling a bit less,” remarks Sisley ceo Philippe d’Ornano.

There is also talk that the improving economy will see department-store operators embark on store revamps. Isetan renovated its Shinjuku store and unveiled a new Beauty Apothecary area in 2012, which doubled the store’s beauty area, for example.Department stores have not been

sitting still. In a move to modernize their offer and draw in younger consumers, several operators have invested in standalone, open-sell beauty concepts in the past few years. Isetan was one of the first with its n n n

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”Information & Inspiration founder Florence Bernardin

New store concepts haven’t managed to revolutionize the market. The bottom line is that if the consumer wants to buy cosmetics without a beauty advisor, which is what many of these stores are offering, she does so online

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Japan beauty market share by company % 2012Company Market share

%Shiseido 20.9Kanebo 16.7Kosé 10.3Pola 8.6Kao 6.5

Others 34.6Source: Industry sources



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“Due to the stagnant domestic economy over the past 10 years, sales volumes of mid-priced brands declined, while those of low-priced brands increased. However, we now see the mid-priced brands starting to recover

”Shiseido director, corporate office and chief financial officer Yoshinori Nishimura

Isetan Mirror stores. Other retailers, including Takashimaya and Hankyu have also launched small-format beauty stores (see box). Several mass retail conglomerates are also testing the waters of prestige beauty.

Japanese group Aeon, for example, introduced its open-sell beauty boutique Cosmême in 2011, while retail group Sumitomo’s drugstore division Sumisho Drugstores opened a retail concept called Inclover last year.“These stores attract a different generation of consumer—the over-fifty

shopper still prefers the department-store counter to buy her cosmetics—while the twenty- and thirty-somethings like choosing their products on their own and are generally not very brand loyal,” explains Ubifrance Japan trade advisor Mikako Shiina. However, there are question marks over the viability of these new concepts, given the stalled expansion plans for most of them. Florence Bernardin, founder of consultancy Information & Inspiration, says that these retail initiatives are performing below expectations. “These new stores haven’t managed to revolutionize the market. They are seeing traffic, but not necessarily the sales to go with it. The bottom line is that if the consumer wants to buy cosmetics without a beauty advisor, which is what many of these stores are offering, she does so online. A lot of Japanese women go to the department store to get service and advice and maybe a few samples, but they then make their purchase on the web,” she comments. It seems that the most successful retail concepts are those that provide an

‘experience factor’ and are located in high-traffic areas, such as malls or near train stations. Retailer Cosme Kitchen, for example, specialized in natural and organic beauty products, opened its first store in 2004 and now operates 26 points-of-sale in the country. Products are merchandised in the same way as in a food market, and the atmosphere is lively. “The consumer shops in stores that have a strong storytelling factor and that offer a real atmosphere,” Bernardin explains.

Web connectionsBrands and retailers are looking to forge a stronger connection with the consumer online. Shiseido’s Beauty & Co, which launched in 2012, is a website operated in conjunction with lifestyle companies, where the brand operates an e-commerce boutique and offers services such as beauty counseling via webcam. “In addition to our established base of middle-aged consumers, this e-commerce initiative has effectively gained market share among the younger generation. We’ve seen cases where new customers visit local stores, which may have had difficulty recruiting customers, thanks to the internet [presence]. We have increased the number of new customers, while managing to avoid cannibalization with existing channels,” explains Shiseido’s Nishimura. Kanebo is also investing more in digital personal counseling, according to the company. Analysts forecast that Japan’s beauty business will remain stable, but there are

few expectations for significant growth, given the market’s maturity. “The market is still far from where it was in 2008 [before the economic crisis]. We’ll have to keep a close watch on its development in the coming months, before proclaiming a smooth recovery,” remarks Kanebo’s Yamada. Industry analysts are also being cautious in light of the sales tax increase (from 5 to 8%) that goes into effect in April. The market may be in the midst of a turnaround, but it will be a slow one.

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Japan’s latest retail concepts Cosmême: An initiative backed by Japanese retail conglomerate Aeon, the open-sell beauty boutique opened in 2011 offering less than 10 prestige brands. The retailer had projected opening between 20 and 30 locations within two years, but development plans appear to have stalled, as there are currently only three stores in the Tokyo suburbs.

Hankyu Fruit Gathering: A prestige cosmetics and bodycare retail concept launched by department-store operator Hankyu in February 2013. The store aims to roll out 20 to 30 locations in malls near train stations within five years. Industry watchers say it is too early to gauge the success of the chain.

Inclover: Opened in October 2012 by retail group Sumitomo’s drugstore division, Sumisho Drugstores, beauty and bodycare concept Inclover (short for “international cosmetic lover”) is housed in a shopping area adjacent to JR Kawasaki train station. Inclover offers around 30 brands, some arranged by product category, rather than brand. Sumisho originally said it would open between 10 and 20 more stores within five years, but the chain has yet to expand.

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...TFWA World Exhibition Cannes • Beauty World Middle East Dubai • PCD ParisCosmoprof Worldwide Bologna • China Beauty Expo Shanghai • In Cosmetics ParisDuty Free Show of the Americas Orlando • Intercharm Moscow • Esxence Milan Luxe Pack Monaco • Beyond Beauty Paris • TFWA Asia Pacific SingaporeLuxe Pack New York • Cosmoprof Asia Hong Kong • Pitti Fragranze FlorenceElements Showcase New York • Mondial Spa Beauté Paris • Luxe Pack ShanghaiMake Up in Paris • HBA Global Expo New York...

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Skincare insightFigures, retail initiatives & trends

Fragrance insight An analysis of market data, trends and new opportunities

Make-up insightColor makes a comeback


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Make-up


Market watch China, Japan, Korea

Luxury insightWhat’s changed and what’s to come?

Insight: Haircare How prestige is set to develop

Fragrance insightData, trends & retailer views

Make-up insightWhat’s next for the category?

Skincare insightWhat’s next for the category?

Insight: Fragrance Creation Trends, opportunities & challenges

Insight: Fragrance Ups, downs & new directions

Make-up insightWhat’s in store for 2013?

Japan’s latest retail concepts Isetan Mirror: Isetan’s first prestige beauty standalone opened in 2012 and now has six locations in the country. Of all the new standalone concepts, this one is said to be performing best. The store offers around 28 brands ranging from YSL, Sisley and Clarins to more niche names as well as private-label color brand Isetan Mirror Beauté.

Million Doors: A premium beauty concept, opened in partnership with department-store retailer Takashimaya in 2013, Million Doors currently has two stores that sell prestige brands such as Clarins, Lancôme and Diptyque. The second store opened in March 2013. n

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Beauty players at the Duty Free Show of the Americas, which took place in Orlando from March 9-12, expressed caution about the state of the travel-retail and

the domestic market in Latin America, in the face of falling growth rates, currency devaluations and social issues. “The market has been difficult in Latin America since the year started. In January and February, sell-out was negative and business in Argentina, Brazil and Chile was down by high single digits,” distributor Essence Corp president Jean-Jacques Bona told BW Confidential.On a more positive note, executives reported that Colombia, Mexico and, to some

degree, Peru, are seeing solid growth rates.As for the show itself, there were mixed views on attendance: while major brands said

business was brisk, some smaller players and distributors said that traffic in the aisles was slower than in previous years, which they attributed to fewer buyers attending from challenged markets, such as Venezuela, Argentina, and even Brazil. However, show organizer IAADFS executive director Michael Payne says that the quality of buyers was good. “The feedback we’ve gotten from exhibitors has been quite positive. The show hosted 48 fragrance and cosmetics exhibitors, or four more than in 2013,” Payne explained. In total, 195 companies exhibited at the show. Newcomers included Clarins and distributors GMP Cosmetics and Kosta. The show’s 2015 edition will be held from March 22-25.

BW Confidential reports on what was seen and heard at the 46th edition of the Duty Free Show of the Americas

Caution aheadDuty Free Show of the Americas

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Heard in showClarins Fragrance Group is embarking on a major relaunch of its Azzaro fragrance brand this year, with a strong focus on Latin America. The brand will take on more luxury codes, with revamped packaging, and will be backed by a new advertising campaign for the Azzaro pour Homme fragrance, starring American actor Ian Somerhalder. “It’s the year of the relaunch for Azzaro. We are investing strongly in Brazil and the surrounding markets and we are building a foundation for the brand’s growth for the next 20 years,” Clarins Group Americas president and ceo Jonathan Zrihen explained. Although the group’s fragrance business has taken a hit in the past year in Brazil, it is aiming for 20% growth in 2014 for Azzaro in the country.

Beauty group Puig said Americas travel retail in 2013 was disappointing, although the company managed to register 5% growth. “The situation in Brazil, with its unstable economy and the devaluation of the real, had a big impact. Venezuela, meanwhile, is pretty much blocked and we can no longer import our products there. The gray market is also an increasingly important problem in the region,” Puig Panama brand manager Alexandre Klein explains. However, he notes that Mexico, Colombia and the US are seeing better results. This

year, the Carolina Herrera brand, which accounts for 54% of Puig’s travel-retail

Duty Free Show of the Americas Took place: March 9-12, 2014 N° of exhibitors: 195N° of fragrance and cosmetics exhibitors: 48 vs 44 in 2013N° of registered attendees: 2,850n n n

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”Puig Panama brand manager Alexandre Klein

The situation in Brazil, with its unstable economy and the devaluation of the real, had a big impact. The gray market is also an increasingly important problem in the region

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business in the Americas, will launch CH 212 VIP Rosé, a new addition to the VIP line. Paco Rabanne’s Lady Million Eau My Gold is also a major initiative in the Americas this year, and will launch in June.

Italian make-up brand Pupa is making a push into travel retail, a channel which export manager Rossano Muraro says is underdeveloped. Pupa is launching in Venice, Treviso and Palermo airports in April, and is in talks with retail operators at Naples airport. In the US, the brand is in negotiations to enter Pittsburgh airport. Pupa is also making inroads in inflight and, as of April, will be listed on Alitalia flights and on Brazilian airline Tam.

Beauty company Crabtree & Evelyn is continuing to revamp the brand and its network of 266 stores, according to md Latin America and Caribbean JuanCarlos Delgado. “It’s been a challenging year. Part of the brand’s revamp entails getting away from discounting. We are reducing our number of doors and remaining in more premium points-of-sale,” he says. Crabtree & Evelyn is opening at DFA airport stores at JFK in New York and in Atlanta, and is looking to open a standalone store at Miami airport.

US-based Atlas Beauty Group, owner of the BeFine bodycare brand, has signed a five-year fragrance license with the US Army, in partnership with beauty company Beauty2Market. A first range comprised of four skus for men—Black Ops, Gold & Bold, Camo Green and Silver Star—will launch in May. The brand is aiming for masstige distribution in global domestic markets and in travel retail. The fragrances will also be sold on US Army bases worldwide. The 100ml scents will each retail for $30.

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The industry on Latin America “It’s the calm before the storm in Latin America and a correction is on its way. What we’re seeing in Argentina is close to what we saw in Venezuela 10 years ago, and we’re afraid of how it will play out. Peru and Colombia are very solid. The big winner in the region is Mexico, as government reforms a few years ago have enabled a lot of good things to happen and there is a strong legal framework. In Brazil, the exchange rate has been a big challenge. Consumers are also paying off their credit card debt from the boom years and so consumption is declining and the middle class is facing heavy inflation rates, which will affect purchasing power. Add political shifts and unrest and it makes for a very pessimistic outlook for the market.”Shiseido travel retail Americas md Michael Gebrael n n n


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The industry on Latin America

“A slowdown in the fragrance market is affecting our business in South America. We began seeing [this] mid last year and so far this year, business has not been good. There is a real uncertainty about where the economy will go in Brazil. The market is suffering from exchange rate issues, but that doesn’t mean we will stop investing. I see Brazil as evolving into a more prestige market. Brazilians are traveling less, but are still traveling. The domestic market is seeing a slowdown, with a big impact on travel retail in the region.”Clarins Groupe Americas president & ceo Jonathan Zrihen

“Travel retail in Latin America is totally blocked by currency devaluations, which vary between 15-20%. We haven’t made huge media investments in the region, but this year we are putting more muscle behind Calvin Klein in Latin America.Interest rates are growing in Brazil, the investors have fled and retailers are under

pressure. It’s very hard to forecast what is going to happen. As for the World Cup, it won’t have an impact on our business in particular, but will be good for the overall economy.”Coty Prestige regional director Americas travel retail & export Tanguy de Buchet

“This is the first time in six years that I’ve been truly worried about the state of the market in Latin America, especially when it comes to Brazil, Venezuela and Argentina. Brazil is starting to see a serious slowdown. It isn’t going to fall apart, but from double-digit growth, we’re moving to anything from flat to +5%. Even Chile is showing signs of weakness. We have no visibility; the market is at the mercy of socio-political events.”BPI general manager for the Americas Gérard Pichon-Varin

“Travel retail in the region was flat for us last year, and so far this year, we’ve seen small growth. I predict that it’s going to be a very tough year for travel retail in the region.”Euroitalia export manager Christiano Marotta

“The spend per passenger in Latin America is declining, but this is a readjustment—from 2010 to 2012, the market was strong, but 2013 was flat, and 2014 has started out on a negative note. This year will have either flat or very slight growth. Brazilian consumers are spending less, the economy is slowing down, and the country is beginning to feel the toll of its protectionist measures. During the World Cup, there will be more border controls and our retail partners in Paraguay and Uruguay believe it will put a brake on business.”Essence Corp president Jean-Jacques Bona

“The crises in Argentina and Venezuela are dramatic. We are looking to re-enter Brazil, which we left around 10 years ago, but today, retailers aren’t very enthusiastic when it comes to investing in premium brands.”Orlane international division business manager Thomas Hellström

“There is a lot of market volatility. We’ll stay away from Argentina and Venezuela for now and we’re tired of seeing little profit from Brazil. The good news is that there is a growing middle class in Brazil, Mexico, Colombia and Peru.”Crabtree & Evelyn md Latin America and Caribbean JuanCarlos Delgado n

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Lane Crawford Chengdu

l Opened: March 2014

l Size: 82,000ft2 (7,618m2)

l Beauty area: 17,300 ft2 (1,608m2)

l Special features: Glass-cube pivoting

panels for displays; Franck Provost hair salon and

nail bar; beauty lounge; six treatment rooms;

complimentary skin and make-up consultations;

area showcasing niche brands

Hong Kong-based high-end department store Lane Crawford has opened its third store in mainland China in Chengdu, an economic hub in the west of the country. The retailer has

invested Rmb300m ($48.7m) in the new 82,000ft2 (7,618m2) store, which is located in the new Chengdu International Finance Square.The idea for the store was to have an open, flexible floor plan, to create visibility through each

department and to provide opportunities for pop-ups featuring artwork. There are pivoting panels and screens that can change the shape of presentation spaces and two large LED screens for digital content.The beauty area, covering 17,300 ft2 (1,608m2), features glass-cube pivoting panels for

displays. It offers more than 40 brands, such as Clarins, Christian Dior, La Mer, La Prairie, Sisley and SK-II, as well as exclusive fragrance and gadget brands, including Acqua di Parma, Atelier Cologne and GHD. There is also a Franck Provost hair salon and nail bar and Merci Beauty Lounge, as well as six treatment rooms. The Beauty + reception area offers complimentary skin and make-up consultations, while The

Edit area presents highlights from niche brands. The store also hosts a 5,700ft2 (530m2) suite for personal styling and private events. The retailer says it is unique in Greater China for its “buyer model”, as other multi-brand

retailers operate concession models, essentially renting space to brands. Merchandise for Lane Crawford Chengdu was selected by a buying team of 85 and some 40% (all categories combined) of brands are exclusive to the market. “We’ve seen first hand the appetite for designer fashion and lifestyle through the increasing

number of Chengdu residents coming to Lane Crawford in Hong Kong and our online store […] So we’re very excited about creating a dynamic shopping destination here,” says Lane Crawford president Andrew Keith.Keith added that its stores are connected to its digital flagship, in terms of product and service,

which enables it to cover all of China. Customers in Chengdu can take advantage of same-day delivery for online orders, or collect or return their online order at the Online Shopping Concierge, a 1,000ft2 (92.9m2) space that features fitting rooms and mobile devices. In addition to the new Chengdu store, Lane Crawford operates two stores in Beijing and a

flagship in Shanghai, which opened in October 2013, as well as an online store. n

Luxury department store Lane Crawford has opened its third store in mainland China in Chengdu, with an edited assortment and a focus on services

A luxury approach



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s The store features an open, flexible floor plan with pivoting panels and screens that can change the shape of presentation spaces

s There are more than 40 beauty brands on sale at the store, and a range of services are on offer, including a hair salon, nail bar beauty lounge and complimentary skin and make-up consultations

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www.bwconfidential.com N°17 March-April 2014

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