CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL · years, including the merger of Brazilian chains Drogasil and Drogas Raia and US-based CVS’ purchase of Brazilian pharmacy retailer Drograria

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The inside view on the international beauty industry

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CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL

The buzz 2News roundup

Netwatch 6Beauty blogger review

Interview 7Parlux president & Perfumania evp Don Loftus

Insight 9Chinese brands

Show review 13TFWA Asia Pacific

Store visit 17Ikesaki, Osasco, Brazil

Oonagh PhillipsEditor in [email protected]

While there may be some concerns regarding business in Latin America, from the slowdown in Brazil to

currency devaluation in Argentina, there is a certain buzz about the pharmacy channel in the region.Health and beauty group Alliance Boots just signed an

agreement to acquire Latin American pharmacy chain Farmacias Ahumada. The acquisition comprises two main businesses: Farmacias Benavides, the third-largest retail pharmacy chain in Mexico, with 1,000 stores, and Farmacias Ahumada, one of the three largest retail

pharmacy chains in Chile, at around 400 stores. This comes on top of a few other M&A deals in the region over the past few

years, including the merger of Brazilian chains Drogasil and Drogas Raia and US-based CVS’ purchase of Brazilian pharmacy retailer Drograria Onofre in 2013.At the same time, more foreign companies are showing more interest in

pharmacies, given how difficult distribution can be in some of the markets in the region. Spanish group Puig, for example, has said that it may consider pharmacies in Brazil for its celebrity and lifestyle fragrance brands, such as Antonio Banderas, Shakira and Juliana Paes. M&A in the pharmacy sector, combined with many of these chains upgrading

their concepts and assortment, could well open up a host of new opportunities to prestige players in the region.

Latin America’s pharmacy plays

May 29-June 11, 2014 #93

l Beauty World Middle East, Dubai, May 27-29

l World Perfumery Congress, Deauville, June 10-12 l MakeUp in Paris, June 12-13

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At a glance...

US-based Elizabeth Arden said it is exploring potential strategic alternatives, confirming news that the group is considering a sale. The group has hired banker Goldman Sachs to work on a possible sale. In April, Korean group LG Household & Healthcare said it was interested in acquiring Arden. The news come as Arden reported weak sales and results for its third quarter. The group’s net loss came in at $26.9m for the quarter, compared with $1.3m in the same period last year, while sales fell 20.3% to $210.8m. It said it had seen a strong erosion of several fragrance brands, including Justin Bieber and Taylor Swift.The group will implement a turnaround plan that concentrates on four areas: cutting

costs, resulting in annual savings of $40-$50m; tightening distribution, especially internationally, with a greater focus on distributors and joint ventures with local partners, and more focus on gross margins and improving its innovation program.

US-based Procter & Gamble (P&G) is to launch its first make-up line for the Gucci brand in selected markets this September. The Gucci Cosmetics collection will include products for eyes, face, lips and nails, along with brushes and skincare preparation products.

UK-based Burberry said that its beauty infrastructure has now been built, and that the category is fully operational as the brand’s fifth product division.Burberry took its beauty business in-house in April 2013; it was previously operated by

France-based Interparfums. The company said that following a complex transition period, the supply chain and distributor network for beauty is now in place. Burberry highlighted its key pillars for growth as the Brit fragrance franchise, and the

development of channels that include e-commerce on burberry.com and with third-party digital players, as well as directly operated stores. In 2013, the company opened its own beauty retail store, Burberry Beauty Box, in London, and it plans to continue testing the concept both as a standalone boutique and a basis for beauty counters. The brand also plans to expand in travel retail.For the 2014 fiscal year, Burberry’s beauty business reported wholesale sales of £144m

($243.1m). Beauty retail/wholesale profit for the year was £10.8m ($18.2m). Burberry named Christopher Bailey ceo and director of the company on May 1. He

replaces Angela Ahrendts, who stepped down in April.

France-based skincare company Matis Paris acquired French spa and beauty institute brand Carole Franck, a move intended to reinforce Matis Paris’ position in the market and in the beauty institute channel. Carole Franck is sold in 220 doors in France (beauty

Strategy

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n Arden considering sale

n P&G to launch Gucci make-up line

n Burberry sets path for growth of beauty business

n Alliance Boots acquires Brazil’s Farmacias Ahumada

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Health and beauty group Alliance Boots is to acquire Latin American pharmacy chain Farmacias Ahumada. The acquisition comprises Farmacias Benavides, the third-largest retail pharmacy chain in Mexico, with 1,000 stores, and Farmacias Ahumada, one of the three largest retail pharmacy chains in Chile, at around 400 stores. Together, the two businesses do £835m ($1.42bn). The deal will also see Boots bring its own brand to Mexico and Chile.

Hong Kong-based retailer AS Watson Group is to invest $60m over three years to ramp up its digital customer relationship management (CRM) strategy for its health and beauty stores in Asia and Europe. The group says it has an average of 27 million customers shopping with it every week and that, in addition to in-store initiatives, it wants to focus on social media, mobile apps and e-commerce.The company’s Watsons chain will launch eight e-commerce-enabled websites this

year in mainland China, Hong Kong, Taiwan, Singapore, Malaysia, Thailand, Turkey and Ukraine. AS Watson will also re-launch its Superdrug and The Perfume Shop e-stores in the UK, as well as its e-commerce site for Kruidvat in the Netherlands this year.

L’Oréal has launched its first pop-up store in travel retail for its cleansing device brand, Clarisonic, in collaboration with operator Gebr Heinemann. The move marks Clarisonic’s expansion in the channel. The 40m2 (431ft2) store at Copenhagen Airport showcases

US-based Coty said that emerging markets and a strong performance from its power brands helped it return to growth in its third fiscal quarter. Net sales rose 1% to $1.01bn (+2% like for like). Sales in emerging markets were up 15%, helped by the company’s new joint ventures and subsidiaries in Southeast Asia, South Africa and the Middle East. However, Coty reported a net loss of $253.3m for the quarter, compared with a net profit of $20.4m for the same period last year, largely as a result of an impairment charge related to the TJoy company. Coty expects its fiscal fourth quarter to be flat, due to a comparison with a strong quarter in the prior-year period.

Retail

Results

institutes and pharmacies), as well as in 60 other countries. In 2013, it saw sales of €3.5m. The brand was sold to former Pierre Fabre executive Geoffroy de Rosamel and investment funds XAnge Private Equity and Bred Perspectives & Participations in 2012.

L’Oréal Paris has launched a beauty app that it says will be a game-changer in the mass-market segment. Makeup Genius uses the digital camera on a smartphone as a “virtual mirror”, showing consumers what the brand’s products would look like on their skin and allowing them to then purchase products online. Product bar codes can also be scanned in-store, allowing consumers to “test” before buying, something that has been impossible in most mass environments until now. Makeup Genius is the first product to come out of the company’s Connected Beauty

Incubator in California’s Silicon Valley, set up 18 months ago. US and Chinese versions will launch over the next month, with a rollout to 20 other

markets in 2015. An Android version will be launched within six months.

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the Clarisonic device, in conjunction with L’Oréal brands Lancôme, Kiehl’s and Biotherm. The store, which launched in April and will stay open for a period of three months, hosts demonstration bars and consultation tables. L’Oréal says the pop-up store is a starting point in what will be an ambitious rollout of Clarisonic at Heinemann Duty Free shops. Clarisonic launched in travel retail in September last year.

UK department store retailer Selfridges inaugurated The Beauty Project in early May, a six-week event at its three stores in London, Birmingham and Manchester, and online at Selfridges.com. The event is based around six themes: Men and Beauty, Age and Beauty, Adornment/Extreme Beauty, Global Beauty, Androgyny and Natural Beauty. A central feature is a space called The Salon at Selfridges, created in partnership with

Unilever-owned brand Dove, which holds debates on beauty-related issues. The Fragrance Lab, (a partnership with Givaudan) is an area where visitors can create

their own bespoke fragrance formula, based on olfactory preferences.Services are also on offer, including The Face Gym, where shoppers can do a facial

workout that promises anti-aging results. Debates from the event are being broadcast on Google+ platform Hangouts on Air.

Brazil-based DI Group, owner of Pharmacie Drogaria Iguatemi, is launching a new retail concept in Rio de Janeiro this month. Called Discover, the 195m2 (2,099ft2) store, located in the city’s Village Mall, is positioned to offer accessible luxury, and targets younger consumers. It carries more than 25,000 items in categories such as cosmetics, home spa, dermocosmetics, and alternative medicine. The company will also launch a new e-commerce site under a different name in July.

Given the group’s expansion, DI Group marketing director Leonardo Diniz says the company will grow its sales by 80% over the next five years. Pharmacie Drogaria Iguatemi opened in 1980 in São Paulo.

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PeopleTravel retailer DFS has appointed Ariel Gentzbourger svp general merchandise manager cosmetics and fragrances, effective this August. She replaces Linda Allario, who retired earlier this year. Gentzbourger is currently svp Europe at Shiseido.

L’Oréal has named Delphine Viguier-Hovasse md of the Decléor and Carita brands, which it recently acquired from Shiseido.

Leading Russian perfumery retailer L’Etoile has hired designer John Galliano as creative director, according to Russian media reports. Galliano, who was fired from Christian Dior in 2011, will work on L’Etoile’s private-label cosmetics line. n n n


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Sales of prestige beauty products in the US fell by 4% to $2.5bn in the first quarter of 2014, compared with the same period last year, according to NPD.Although make-up sales were down by 3%, it was the best-performing category, due to

strong sales from lip color, up 6% to $101m, and eyebrow products, which reported sales of $35m (+26%). Primers were also said to have performed well during the period. Although NPD did not provide prestige skincare figures, it noted that the category saw

double-digit sales growth from masks, which grew by 44% during the quarter to $18m.

The global natural beauty market was worth $30bn last year, according to Kline & Company, an increase of 10.6% on the previous year. The naturals market in Europe saw sales rise by 6.5%, while sales in the US grew by 7.7% last year.

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Estée Lauder-owned Clinique is launching a new serum that it says delivers customized solutions to skin. Called Smart Custom-Repair Serum, the product is said to use precision repair technology to deliver the ingredients the skin needs, while those not needed remain on standby, resulting in a treatment customized to every user. The formula contains 37 patents and targets uneven skin tone, dark spots, lines and wrinkles. Smart Custom-Repair Serum launches globally in June and will retail for $59.50 (30ml) and $89 (50ml).

Yves Saint Laurent (L’Oréal) is launching a new women’s fragrance called Black Opium, which it calls a modern urban reinterpretation of the company’s classic Opium fragrance. Created by Firmenich perfumers Nathalie Lorson, Marie Salamagne, Honorine Blanc and Olivier Cresp, the oriental gourmand scent features notes of coffee, pear, pink peppercorn and white flowers.Black Opium launches exclusively in the UK this month,

and will roll out globally in August. The EdP will retail for €56 (30ml), €80 (50ml) and €105 (90ml).

Italian company Euroitalia is launching a fragrance duo for its John Richmond brand, called Richmond ‘X’. With the new launch, the company aims to reposition the brand to address a younger customer; the scents are described as modern and avant garde.Composed by Firmenich perfumers Marie Salamagne and

Olivier Cresp, Richmond ‘X’ Woman is a woody, fruity floral, while Richmond ‘X’ Man, created by Givaudan’s Alexandra Kosinki, is an oriental citrus.The fragrances are now launching in Italy, and will roll out

internationally over the next few months. The fragrances retail for €45 (40ml EdT) and €62.50 (75ml EdT). n

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BW Confidential reports on what the bloggers are saying about beauty

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ch Beauty blogger review

In light of the growing number of cosmetotextile launches this spring, reviews on slimming and moisturizing products have been on the rise. Although the clothing, which includes leggings and pants, is said to be comfortable and to soften skin, bloggers note that the accuracy of its slimming claims is debatable. The products’ high price tags are also seen as a weak point.

In line with the trend for product customization, Illamasqua’s new Skin Base Mixers has been a hit in the blogosphere. The product features a highly pigmented formula available in four shades, which is to be mixed with the Skin Base foundation to create the right foundation color. Described as a ‘genius’ idea, bloggers like the idea of being able to adjust their foundation shade. The Skin Base Mixer is also free with the purchase of the foundation.

Stila’s Magnificent Metals Foil Finish is garnering rave reviews from bloggers. The product, which comes with a Stay All Day Liquid Eye Primer, can be worn alone or mixed with the primer, for a different effect. Bloggers are intrigued by the product’s texture and how the foil finish catches the light.

Bloggers have expressed curiosity over L’Oréal’s acquisition of the Carita and Décleor brands. They are particularly interested in L’Oréal’s ambitions in the professional and spa channels, and how the group intends to leverage the expertise of the iconic brands, especially in the aromatherapy segment, which is Decléor’s specialty.

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Skincare insightFigures, retail initiatives & trends

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Market watch China, Japan, Korea

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

Insight: Haircare How prestige is set to develop

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Make-up insightWhat’s next for the category?

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Parlux at a glancel Brands:

Tommy Bahama, Vince Camuto Women and Men, Kenneth Cole, Paris Hilton,

Rihanna, Sean John, Jessica Simpson, Jay Z

Parlux president & Perfumania evp Don Loftus ”

My number-one priority is to build strong partnerships with retailers. They need to feel confident in their partnerships and see that both sides are working together to improve the [current] situation

Parlux president & Perfumania evp Don Loftus

Beauty industry veteran Don Loftus was named president of US fragrance company Parlux and evp of retailer Perfumania in April 2013. He tells BW Confidential about his plans and gives his views on what the industry needs to do to grow the fragrance business

Time for change

What is your focus for developing Parlux? My number-one priority is to build strong partnerships with retailers. I want to show them that we are committed to delivering a consistent growth plan season after season.The industry has been a little rocky for the past 10 years and retailers need to feel

confident in their partnerships and see that both sides are working together to improve the situation through growth plans that are credible. We are a small, relatively new company playing in a world of giants. We don’t have the

big groups’ levels of advertising or their huge staff, so we play the game differently. But we are agile, can see an opportunity, make a decision, go after it and execute.

What is the main challenge facing the fragrance market? Consolidation means a loss of artistry—the conglomerates pump out product after product and the offer is disappointing. There is a lot of mediocrity, which is a result of finance guys leading some of these businesses, instead of marketing people. Our portfolio sets us apart. Retailers and wholesalers have put such a focus on very high

end, couture, mainly French fashion house-related brands, which is great for a certain customer, but it’s not for everybody. For middle America, and the consumer who buys her clothes at Wal-Mart or JC Penney’s, designers like Vince Camuto or Kenneth Cole are reaching up. Our fragrances are 20 to 30% less expensive than what our competitors are doing, and yet our quality is right at the top. The money we are willing to spend on a product is higher than the amount the former owners of our brands were investing. The industry is spending $30-$50 per kilo on fragrance, but at Parlux, we go up to $200.

Will this be passed on to the consumer? No, management expectations on our bottom line are more flexible than some of the big corporations and we don’t have huge overheads, nor the same media spend. We bank on the consumer—when she comes to the counter and compares us to what is beside our product and looks at our price point, she’ll pick us. So far, this strategy is working. We are the fastest-growing fragrance supplier to any of the US department stores. On average, in our first quarter of this year, our sales were up 65%.

How do you explain your growth in a dwindling celebrity fragrance market? Celebrity fragrance retail sales came to $100m in 2013, according to NPD, down about 30% from 2012. Some of this was due to shockingly bad product being put out there.We have a lot of celebrities in our portfolio: Jay Z, Rihanna, Pitbull, and also Sean John

and Jessica Simpson, but they are a bit different, as they have clothing and accessories businesses in these stores. We launched Jay Z last year and reached number 12 n n n



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Parlux president & Perfumania evp Don Loftus

Parlux president & Perfumania evp Don Loftus ”

In the past, buyers purchased for 35 stores at the very most. Now Macy’s buyers are buying for more than 600 stores in cities they’ve never seen and for customers they’ve never met. It’s become a commodity business, but we’re charging a lot of money for it

[NPD], and we’re only in department stores (excluding Saks, Neiman Marcus, Bergdorf, Barney’s and Bloomingdale’s), so there is a whole layer we haven’t touched, and we continue to rank high nationally. We are about to present our first project for Sean John and retailers are excited about it. When we ask about their negative reactions to celebrity fragrances, they say Jay-Z and Sean John aren’t celebrities, they are “icons”.

What could be done to counter falling sales? The industry needs to raise the bar and retailers need to be more selective. If the industry offers mediocre product, it’s up to retailers to push back. The market has become a math game. When I was a buyer 30 years ago, we used to smell the fragrance and handle the bottle and packaging. Today when you launch a fragrance, it’s about how many catalogs you’ll be dropping, how many scent pieces, how many samples, we need you to pay for this, the visual will cost this much—but no question of actually smelling the scent.In the past, buyers purchased for 15 to 35 stores at the very most. Now, Macy’s buyers

are buying assortments for more than 600 stores in cities they’ve never seen and for customers they’ve never met. Retailers’ staff hasn’t gone up though, so there isn’t time to be selective. It’s become a commodity business, but we’re charging a lot of money for it.

What is your view on pricing? Prices have gone insane. Gift sets are over $100 now, which is a lot of money. If we are going to charge these kinds of prices, we need to improve the entire experience. Years ago, every company had fairly large training departments, and the salesperson was a true specialist. There’s nobody behind the counter that can do that now—just one person standing in front of 200 fragrances that she’s never been trained on. This is a direct result of consolidation. Promotions have also suffered. If the manufacturing side isn’t going to improve things on its own, then the retailer needs to get tougher.

What is your strategy for international growth? We’re just starting to introduce our brands internationally. Kenneth Cole was already doing strong business in Germany, but American brands usually have a hard time in Europe. One of our challenges is to make the American fashion brands resonate there. Vince Camuto is building a lot internationally, so that’ll come easier for us, and the celebrity brands seem to be doing fine. Long-term, we need to add some European or internationally known fashion houses and lines that resonate with high-end specialty stores around the world. We’re missing a strong European component. The profit in our industry is made outside of the US; it’s hard to make a big profit in US department stores. Internationally, we have giant increases on a percentage basis, but we’re nowhere near where we need to be.

What is your strategy for Perfumania? Perfumania does a shocking amount of business—an almost equal split between European designer, American designer and celebrity/sports fragrances. Up to now, it was known as a place where you could find any fragrance and probably get it cheaper than anywhere else. The opportunity is to make it more fun to shop there, and we’re looking at ways to do this. n

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s Parlux is looking to add European designer brands to complement its celebrity and American fashion brand lineup, which includes Jay Z and Vince Camuto



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Local brands still have a ways to go before they start competing with their international counterparts in the real sense of the word

Chinese cosmetics brands are gaining ground. BW Confidential analyzes their performance and how they are impacting the market

Chinese risingChinese brands

China has become a key market for Western beauty players, but more questions are being asked about the emergence and potential of local brands in the country. There

are currently hundreds of Chinese cosmetics brands in the market, mainly in tier-two and tier-three cities, and predominantly in the mass or mid-market segments. Local brands are primarily found in the skincare sector (including masks) and also in make-up. The main Chinese groups are Shanghai Jahwa, which has a 1.8% share of the market;

Jala Group, with a 1.5% market share; Jiangsu Longliqi Group, with a 1.2% share; and Shanghai Inoherb Cosmetics, which claims a 1.1% share (all market share figures from Euromonitor International). Another local player to watch out for is the Vaqua Group (owned by Grandway International Cosmetics), which is strong in the water-based concept category.In terms of distribution, most local brands tend to do better in lower-tier cities. Price-

wise, these mass and masstige brands are more affordable than their international counterparts like Olay, L’Oréal Paris or Maybelline, and are therefore better adapted to consumer spending power in lower-tier cities. Also, given that distribution of international brands is more concentrated in higher-tier cities, consumers there tend to favor foreign lines.Local brands are mainly sold through supermarkets, hypermarkets, beauty stores and

beauty salons. They also do a strong business over the internet. Most of these brands are not yet premium enough to be sold at department-store counters or in personal-care stores like Watsons.

Local brands up their gameLocal beauty brands are still perceived by Chinese consumers as being of inferior quality to foreign lines. Broadly speaking, there is a general lack of trust in local products, and there is still the perception that international brands are better. As one expert puts it: n n n



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“local brands still have a ways to go before they start competing with their international counterparts in the real sense of the word.”However, this could change much sooner than expected. “We are seeing certain

consumer segments becoming a lot more positive about using Chinese beauty brands. We call this the ‘China rising’ sentiment,” explains market research firm IFOP Asia director head of quantitative Manohar Balivada. At the same time, local brands are upping their game. Many are looking to

adapt their strategies and emulate what Western players are doing. This means more effort is being made in brand building, advertising and communication. For example, Vaqua is currently working with consulting company Creative Capital on the “premiumization” of its range as a way to better position itself in this increasingly competitive market. “Until recently, the focus of local players had not been on brand building. But given that the market is maturing, and with the influx of more international players, local brands have started to emphasize this area. Local players are spending money on both below-the-line, as well as above-the-line, initiatives [such as in-store promotions, investing in qualified beauty advisors, store layout, TV, print and outdoor advertising]. Increasingly, the internet is also being used as a medium to convey brand messages,” comments IFOP’s Balivada.Local prestige brands such as Herborist or Shanghai Vive (both owned by

Shanghai Jahwa) are also looking to improve their branding. For example, Herborist has begun opening its own branded stores as a way to increase its visibility and accessibility, especially in lower-tier cities. This has given the brand strong awareness in lower-tier cities, where international players are less prominent, and confined to a handful of premium department stores. Other local brands may also take this route to build their brands. Shanghai Jahwa, meanwhile, has been testing the waters of the premium segment with its Shanghai Vive brand, which was launched in 2012. The group’s men’s brand GF is also said to be in a position to compete with major international players like L’Oreal. According to Euromonitor, the GF brand had a 5.4% share of the men’s grooming market in China in 2012.

International players look locallyWhile local brands look to improve their offer, more foreign companies are expressing interest in Chinese companies. This is perhaps in response to the ‘Chinese rising’ sentiment, outlined by IFOP, where foreign companies foresee more Chinese consumers wanting to buy locally for reasons of national pride, and as they feel Chinese brands will offer products better adapted to their skin. French group L’Oreal recently acquired Chinese mask specialist Magic Holdings, Coty bought Chinese group T-Joy in 2010 (although the acquisition has not gone as smoothly as hoped, due in part to much of the management team leaving T-Joy after the deal), while Johnson & Johnson bought Chinese company Daboa in 2008. Another strategy is for foreign companies to create brands for the Chinese market, which is what Estée Lauder Companies did when it launched Osiao in 2012. More M&A in China could be in the cards. But whether local beauty companies

are seen as potential acquisition targets or rising competitors, it is likely that foreign companies will begin to keep a closer eye on Chinese brands.

”IFOP Asia director head of quantitative Manohar Balivada

We are seeing certain consumer segments becoming a lot more positive about using Chinese beauty brands. We call this the ‘China rising’ sentiment

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Main local Chinese players Shanghai Jahwa United Co., LtdShanghai Jahwa United is China’s largest domestically owned manufacturer of daily-use personal products, including bath and shower, color cosmetics, fragrances, haircare, men’s grooming, skincare, suncare and perfumes. It owns several brands: Liushen, Maxam, Jia An, Herborist, Chinflie, Shanghai Vive and GF. It is the only domestic company that ranks among China’s top-10 beauty and personal-care players. In 2013, the group reported sales of Rmb4.47bn ($717.55m) and a net income of Rmb800.15m ($128.44m).Price range: From mid range to high endMarket penetration: The group targets the men, women and children segments, and had a 1.8% market share in 2013 (Euromonitor International).Distribution: The company’s distribution is broadening, thanks to international cooperation (with Kao for non-cosmetic products) and joint ventures (Sephora). In China, its products are distributed through department stores, supermarkets and franchised cosmetics stores. Shanghai Jahwa exports its Herborist brand overseas to markets such as France, Italy and Spain, thanks in part to its collaboration with Sephora.

Jala GroupJala owns the Chando, Maysu and Aglaia brands. Chando (original English name: CHCEDO), founded in 2001, represents 90% of its total business. Jala’s brands are mainly in skincare and make-up.Price range: Mid rangeMarket penetration: In its first five years of business, between 2009 and 2013, Chando focused on the Asian market, with the aim of becoming China’s leading domestic brand. Jala had 1.5% market share in 2013 (Euromonitor International).Distribution: Jala’s brands are sold in 23,000 sales outlets, covering the major distribution channels, including department stores, supermarkets and pharmacies.

Shanghai Inoherb Cosmetics Shanghai Inoherb Cosmetics was set up in 2000 and today claims to be the leading company in natural-based skincare. Inoherb was ranked one of China’s top-10 cosmetics companies in 2009 and 2010. The group has several Traditional Chinese Herbology-based (TCH) skincare products. It offers a range of masks that use TCH, which aims to combine beauty with health benefits.Price range: Entry-segment pricing. For example, masks are priced at Rmb69 ($10.90) per box of six. Its accessible pricing makes it popular with middle-income city dwellers and students.Market penetration: The company had a 2% share of the skincare market in China in 2011 and a 1.1% share of the total market in 2013 (Euromonitor International).Distribution: The company’s products are mainly sold through retailers like Watsons. It also operates an online store and advertises its products online.

Jiangsu Longliqi Co, LtdJiangsu Longliqi specializes in manufacturing and marketing a wide range of personal-care products (toothpaste, soap, shampoo, bath lotion, body lotion, talcum powder and skincare products, along with products for babies and men). It has two major brands: Longliqi and Evergreen.Price range: Mid range. The company claims to guarantee high quality at low prices.Market penetration: The group had a 1.2% market share in 2013. (Euromonitor International).Distribution: Its brands are sold in a wide range of mass outlets, including Carrefour.

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ght Chinese brands

Bawang InternationalBawang International owns several brands: Bawang, Herborn, Litao, Royal Wind and Smerry. It spotlights “herbal culture” and traditional Chinese medicine, focusing on Chinese haircare, skincare, home and personal-care products, including herbal shampoo, toothpaste, shower gel and liquid soap.Price range: Mid range.Market penetration: Good penetration, thanks to multi-faceted advertising and marketing strategies (focus on TV commercials, sponsoring TV programs, advertising in newspapers, magazines, online, public transportation, billboards, banners and kiosks). The company also organizes regular in-store marketing operations and road shows, and attends Chinese herbal-related events to market its products. It is the fourth most popular shampoo manufacturer in China, with movie star Jackie Chan as brand ambassador. The group claimed a market share of 0.2% in 2013 (Euromonitor International).Distribution: Diverse retailers in China, Hong Kong, Macau and Singapore.

Bai que lin (Pechoin in English)Pechoin is a skincare brand, known as the first generation of skincare goods in China (it first launched in 1931). The brand focuses on skin nutrition. Price range: Masstige brandPenetration: Pechoin long had the position of one of the few local skincare brands, but competition has increased since 2000, and the brand has lost market share.Distribution: Mainly online. n

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T estament to the importance of Asia Pacific for the travel-retail industry, this year’s TFWA show for the region was bigger than ever, with an additional 60 exhibitors

at the event, for a total of 261 companies. The TFWA added an extra floor to the show (separate from the main trade show floor, which some exhibitors complained about) bringing the total exhibition space to 8,400m2 (90,417ft2). The show also reported a solid increase in visitor numbers this year, up 9.4% to 2,683.While Asia, particularly China and Chinese travelers, are still singled out as the growth

engine for beauty, most companies say they are seeing a slowdown in China. And while there is increased interest in the region’s other emerging countries, such as Indonesia, Thailand, Vietnam and Myanmar, many pointed out that factors like poor infrastructure and political events (especially in Thailand) are hampering growth. One industry player reported that consumers in the region are generally “just not as confident as before”.Changes in Chinese traveler behavior were a topic of discussion at the show. These

include a shift from group to individual travel, a rise in travelers from lower-tier cities, increased demand for more original brands and products, rather than just big luxury names, and a stronger desire for value for money. The Chinese are also traveling to a wider range of countries, such as Thailand, a trend that is expected to continue, due to the boom in low-cost carriers. Another talking point at the show was the change in retail concessions in the region,

from Singapore Changi to Hong Kong. While some see this as positive and say it will give stores a shake up, many others, particularly smaller brands, were worried about possible changes in assortment.

BW Confidential reports on what was seen and heard at travel retail show TFWA Asia Pacific, held in Singapore from May 11-15

Changes afootTFWA Asia Pacific

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TFWA Asia Pacific Held from: May 11-15 in Singapore Exhibitors: 261, +4% vs 2013 New exhibitors or exhibitors returning after absence: 61Fragrance and cosmetic exhibitors: 63 (24% of stands)Visitor numbers: 2,683, up 9.4% from last year

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Asia travel retail in figures • Global duty-free and travel-retail sales reached $60bn in 2013. The Asia-Pacific region made up $22.29bn, or 37.2%, of the total, up 12% from 2012 (Generation).• Fragrances and cosmetics is by far the biggest category by value in Asia Pacific, recording a 14% increase in sales in 2013 to reach $6.6bn. The category accounts for 30% of travel-retail sales in the region (Generation).• The airport channel accounts for 54% of duty-free and travel-retail sales in Asia Pacific. Of the world’s top-10 airports for travel-retail sales, six are in Asia, led by Incheon International Airport in South Korea.• Indonesia is forecast to become the world’s seventh largest economy by 2030—two years ago, it was 16th, today it is 10th, with a GDP of $890bn, which represents 2.3% of global economic output. The passenger growth rate reached 19.3% in 2012-2013, while the average growth rate in the past 10 years was 13%. • There has been a 100% increase in travelers visiting Japan from 2003—visitor numbers reached 10 million in 2013, up from 5.2 million in 2003. A growing number of visitors to Japan are from Thailand—500, 000 more than last year, according to Mike Gamo, president and ceo of NAA Retailing.


www.bwconfidential.com - May 29-June 11, 2014 #93 - Page 14CONFIDENTIAL CONFIDENTIAL CONFIDENTIALCONFIDENTIAL CONFIDENTIAL CONFIDENTIAL


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“The premium part of the travel-retail business is growing strongly. The make-up category is also booming, although not as much as the premium segment.”Shiseido travel retail managing director Asia Pacific Philippe Lesne

“All destinations where the Chinese go become huge—they completely transform the vision and structure of travel retail. Lancôme is already doing a big part of its business with Chinese pax, so we have to adapt most of our points of sale to this change and be able to serve them properly, with Chinese-speaking BAs or visuals in Mandarin. The Asian continent’s dynamic is clearly driven by the Chinese, but the market is also very diverse, which means we have to tackle business with a bespoke approach to each market.”Lancôme/Clarisonic travel retail Asia Pacific general manager Morgan Cohen

“The Chinese, with their burgeoning middle class, are more mobile than ever, and still represent the biggest spenders in travel retail. However, recent anti-corruption laws have had a major impact on the buying habits of some Chinese travelers. The laws have mainly affected sales of luxury goods and other premium categories, such as high-end spirits.”Puig global travel retail managing director Patrick Bouchard

“All major airports in Asia are renovating and changing operators: Changi in Singapore, Seoul Incheon, Sidney—are opening up for tenders. Retailers are changing because of the evolution of the tenders and who is managing the stores. More attention is being paid to the point of sale: how to animate it, how to attract consumers, and product displays. Retailers are open to a more creative approach to retailtainment.”Puig vp travel retail & regional offices Oscar Luna

“China has really slowed down: domestic growth was 7.3% last year and this year, it will be 5%. Clarins saw 15% growth for the first quarter, so we are doing twice as well as the market, but we expect a slowdown. Digital has become huge and we are very present with Weibo and Wechat. As for emerging countries, we are doing well in Indonesia but India is difficult, as retail there is old and sluggish. In Vietnam, the market is negative. Thailand experienced good growth last year, especially in travel retail, but this year is harder; there is potential there, but we have to wait until the political situation improves.”Clarins regional marketing manager travel retail Olivier Tallot

“The Chinese traveler had quite a few hurdles to jump in the past year, from ever-changing government regulations on travelers to domestic policy changes in China. Nevertheless, in the first quarter, we continued to experience significant double-digit retail sales growth in Asia, predominantly driven by the PRC traveler. The landscape is definitely changing, but the long-term trend will continue to be dominated by PRC travelers.”La Prairie vp Asia Peter Stockdale

“China is a growth engine and remains the key growth driver. Chinese travelers are making their presence felt everywhere, not only in Hong Kong, but also in Southeast Asia. There are many changes in travel-retail concessions in Singapore and Hong Kong and this period of change is exciting.”L’Occitane president Asia Pacific André Hoffmann n n n




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“Despite the softness of the Chinese economy, there is no real decrease in Chinese traveling. Based on the latest traveler information, Chinese consumer arrivals to Korea rose by 45% in the first quarter of 2014 and they now represent more than 36% of all visitors there. China Southern, China Eastern and Air China, for example, offer more than 50 direct routes from China to Phuket, Male, Jeju and St Petersburg. Chinese consumers are the highest spenders among travelers and are key for beauty. Emerging countries are also driving growth, not just as travelers purchasing abroad,

but also as destinations for travelers from other countries. This is the case in Thailand, where more Chinese and Russians are traveling, compared to a few years ago. Of course, growth also depends on several factors, like infrastructure development, the political situation and exchange rates. Myanmar, Vietnam and Cambodia are emerging markets that have a small base, but they are a focus for us, due to their high growth potential.”Coty marketing director travel retail & export worldwide Markus Stauss

“We launched Toni & Guy in travel retail last year. We are very new, but have had a good response. In Bali, for example, we had a style bar for the opening. Haircare is an incremental business and we are not cannibalizing anything, as it is new. We have created a category and there is keen interest [from travel retailers] in having a haircare section. There are some discussions about this, especially in airports that are being renovated. What is holding back growth is the lack of familiarity with the concept of buying shampoo in airports. We need to communicate to be accepted.” Unilever International business manager travel retail Rosalyn Frayna

“Over the past five years, Chinese consumers have increased their purchasing power tremendously, and they want to buy, even if they don’t necessarily know much about the brand or the product. Wherever they travel, they will buy a product that is well known in their own country, so it is important to invest a lot in the Chinese local market. Business in China is all about finding the right distributor.”Groupe Jacques Bogart export manager Frédéric Chapel

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Heard in showJapanese group Shiseido is forging ahead with its multi-brand strategy in travel retail. The group says it is seeing strong results with Nars and the clé de peau Beauté brand, whose sales in Macau have grown fivefold between December 2011 and 2013. The brand is in 15 travel-retail doors in Asia and this number is set to reach 20 by the end of the year. “Chinese travelers know the brand from the local market or discover it in travel retail. Clé de peau Beauté ranks number one in Japan, and is also very strong in Hong Kong and Taiwan; there is clearly a great deal of potential, which has been underexploited until now,” comments Shiseido travel retail managing director Asia Pacific Philippe Lesne. France-based Interparfums is focusing on the Lanvin and Karl Lagerfeld brands for Asia, following the loss of the Burberry license last year. “This year is important, as it is our first without Burberry, which represented half our sales in Asia. We are feeling the slowdown and are a little below our objectives for the beginning of the year, but are still doing better than the overall market,” explains Interparfums Singapore md Renaud Boisson. “We have a lot of new brands: Karl Lagerfeld is now launching in Asia and we are counting on n n n




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it. Lanvin is our first brand in the region and we have a new product launching now called Me L’eau, that targets Asia and Russia. In China, we are growing, even though the market is negative or flat. We see a lot of potential with Montblanc there,” he adds.

Italian brand Collistar is launching in Indonesia and the Philippines this summer. In Indonesia, the brand will be sold through Sogo department stores, and the aim is to open eight to 10 counters in the country over the next two years. Collistar is also rolling out a nine-sku whitening line in Asia this year, claiming to be the only brand to market a whitening offer for the body, as well as the face.

Italy-based Euroitalia is looking to enter developing markets in Asia such as Myanmar, while consolidating its China business. “Versace is in the top-five in China, and we will launch new lines next year, such as Eros Femme, as well as a new line for Moschino, called Moschino Stars. We will also soon be announcing the addition of a new brand to our portfolio,” comments Cristiano Marotta from Euroitalia’s export department.

German company ArtDeco expects to double business for its ArtDeco and Misslyn brands in China this year. The group is also expanding in other markets in the region, and is rolling out its Misslyn brand in Indonesia, where it plans to have 20 counters by the end of 2014. “So far the feedback has been good—65% of the population is under the age of 25, so there is a huge potential there. The launch of ArtDeco is also in the pipeline for this market,” comments ArtDeco international marketing director Christian Käfer. France-based Yves Rocher is moving into travel retail in China in July at Beijing Airport’s Terminal 3. “We opened a Shanghai flagship in May, so this will be a good base for us to succeed in travel retail. Asia is a key priority for us; our joint venture with Luxasia will help us penetrate this channel,” says Yves Rocher gm travel retail François Xavier Luquet. Fragrance spray specialist Travalo is looking to change its strategy to focus on selective distribution. “We are actively looking for selective distribution and want our products to be sold alongside prestige fragrances. We are moving from mass-market distribution to selective everywhere, except in the US and South America, where we will remain in mass,” explains Travalo head of global business development Michael Scott.

US-based skincare brand Erno Laszlo entered travel retail in Asia this year with a focus on inflight. It is now listed with Taiwan’s Eva Air, China Airlines, Dragon Air, Cathay Pacific, Hong Kong Air and Singapore Airlines, and is present in Taiwan airport with Everich. “We plan to launch in China in department stores this August, which will drive growth for us in the region. Our group sales doubled last year and we aim to do the same this year,” says Erno Laszlo executive chairman Charles Denton. Erno Laszlo is rolling out a new product for Asia this month, Rapid Renewal Cell Protocol, which retails at $550. Skincare brand Nuxe says Asia has become its second-biggest region, after Europe. “After introducing the brand in North Asia over the past two years, we started opening Southeast Asian countries, including emerging markets like Malaysia, Myanmar and Indonesia. We have started initiating contact with travel retail players in Asia, which we intend to actively pursue in 2014,” explains Nuxe group gm Sébastien Lucot. n

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Ikesaki, Osasco,

São Paulol Size: 2,000m2

(21,528ft2) l Assortment: 20,000

items, including nail polish, cosmetics,

fragrance and personal-care products l Special features:

Sampling spaces

Brazilian beauty retailer Ikesaki opened its eighth store in the city of Osasco in São Paulo state in April. The retailer is seen as a pioneer in Brazilian distribution, as

it offers a wide range of products for both beauty professionals and consumers. The assortment counts around 20,000 items, including nail polish, cosmetics, fragrance and personal-care products. It also sells equipment for professionals.The store covers 2,000m2 (21,528ft2) and is divided into sections devoted to each

product segment, such as hair, nails and skincare. It also includes spaces called “compre e aplique” (buy and use), where customers are encouraged to try products in the store.The retailer has been in business for 50 years and claims to have more than one

million clients. This new store is said to consolidate the retailer’s position in São Paulo state.“With the opening of the Osasco store, Ikesaki brings its presence to a total of eight

stores in São Paulo, each one in a strategic location,” says Ikesaki general director Ricardo Ikesaki.Osasco is an important choice for Ikesaki, given the city’s growing middle class. The

city is one of São Paulo state’s major urban centers and ranks number-10 among Brazilian cities in terms of GDP. n

Brazilian retailer Ikesaki opens a new store in a strategic new location in São Paulo state

Ikesaki builds presence in São Paulo



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s Ikesaki offers a wide assortment of products for both professionals and consumers, merchandised by category

s The store encourages product sampling and has special areas devoted to ‘buy & use’

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CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL · years, including the merger of Brazilian chains Drogasil and Drogas Raia and US-based CVS’ purchase of Brazilian pharmacy retailer Drograria