Reviewing Trends in the Global Fragrance Market August … · Reviewing Trends in the Global...
10
1 August 4, 2017 Deborah Weinswig, Managing Director, FGRT [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2017 The Fung Group. All rights reserved. 1) The traditional mass-market fragrance business is struggling as consumers seek fragrance brands that are more “upmarket.” Following a boom in celebrity and mass- market fragrance sales that lasted for several years, consumers are shifting away from these products. 2) We are seeing demand move toward prestige and niche fragrances, which are showing strong sales performance. 3) Foot traffic is declining in US department stores, traditionally the main fragrance retail channel, and beauty and fragrance sales continue to shift to specialist beauty retail chains Ulta and Sephora, as well as to off-price retailers and the online channel. 4) Other notable recent fragrance trends include growth in scented products for the home and green and aromatherapy scents and mists. Reviewing Trends in the Global Fragrance Market Deborah Weinswig Managing Director FGRT [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016
Transcript of Reviewing Trends in the Global Fragrance Market August … · Reviewing Trends in the Global...
1
August4,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
1) Thetraditionalmass-marketfragrancebusinessisstrugglingasconsumersseekfragrancebrandsthataremore“upmarket.”Followingaboomincelebrityandmass-marketfragrancesalesthatlastedforseveralyears,consumersareshiftingawayfromtheseproducts.
2) Weareseeingdemandmovetowardprestigeandnichefragrances,whichareshowingstrongsalesperformance.
3) FoottrafficisdeclininginUSdepartmentstores,traditionallythemainfragranceretailchannel,andbeautyandfragrancesalescontinuetoshifttospecialistbeautyretailchainsUltaandSephora,aswellastooff-priceretailersandtheonlinechannel.
4) Othernotablerecentfragrancetrendsincludegrowthinscentedproductsforthehomeandgreenandaromatherapyscentsandmists.
Reviewing Trends in the Global
Fragrance Market
Deborah Weinswig
Managing Director
FGRT
US: 917.655.6790
HK: 852.6119.1779
CN: 86.186.1420.3016
2
August4,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
IntroductionInthisreport,weanalyzetheglobalfragrancemarketintermsofmarketsize,salesgrowth,segmentationanddistributionchannels.Wealsodiscusscontinuingtrendsinthemarket,particularlyintheUSandtheUK.
FragranceIndustryOverviewAccordingtoEuromonitorInternational,theglobalfragrancemarketwasworth$48billionin2016.IntheUS,themarketgrewby2.6%lastyear,to$7.9billion.However,certaincategories,suchasprestigeandnichefragrances,performedbetter.
Mostscentsareproducedunderlicensebylarge,multinationalbeautyconglomeratessuchasShiseido,EstéeLauder,L’Oréal,Revlon,CotyandInterparfums.Afewluxurygoodscompanies,includingHermèsandBalmain,producefragrancesin-house.
Brandedandcelebrityfragrancesunderlicensearedevelopedbyperfumersatthemainglobalfragranceandflavoringredientcompanies.TheseincludeUS-basedInternationalFlavors&Fragrances(IFF),Switzerland-basedFirmenichandGivaudan,andIberchem,headquarteredinSpain.Theselargecompaniesdevelopscentsforbrandsatarapidpaceandsomeevenuseconsumerfocusgroupstodevelopscentsthatarecommerciallyviable.
Smallerprivatelyheldandindependentcompaniesproducemoreartisanal,nichefragrancesthattypicallytakelongertodevelop.Thefragrancemanufacturermarketisbecomingmoreconsolidatedovertimeasthelargeconglomeratesacquiresmallernicheandmoreartisanalbrands.
3
August4,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
DistributionChannelsIntheUSandtheUK,fragrancesaresoldthroughavarietyofchannelsthatofferaplethoraofproducts.Manycelebrities,cosmeticsbrandsandapparelbrandshavedevelopedtheirownfragrances,andperfumescanbepurchasedacrossstoreandonlineformats.However,fragrancedistributionchannelpatternsareevolving,withsomeformatsflounderingwhileotherstakeshare.Wenotethatitisdifficulttoobtainexactfragrancesalesfiguresformostretailers,asthosesalesaretypicallygroupedwithintheirbeautyoroverallmerchandisecategorysales.
Source:iStockphoto
ShoppertraffichasbeendeclininginUSdepartmentstores,whichhavetraditionallybeenthemainfragranceretailchannel.Meanwhile,beautycategorytraffichascontinuedtoshifttospecialistbeautyretailchainssuchasUltaandSephora,aswellastooff-priceretailersandtheonlinechannel:
• Ultamanagementstatedonthecompany’slatestearningsconferencecallthatitisseeingstrongperformanceinfragrances.Theretailerhasofferedexclusiveproductlaunches,suchasactressSarahJessicaParker’snewscent,Stash.
• Off-pricerssuchasT.J.Maxx/T.K.MaxxandBurlingtonareofferingmoredesignerfragrancesthaninthepast.Burlingtonreportedstrongbeautycategorysalesinthefourthquarterof2016,andmanagementexpectsongoingstrengthinthecategory,drivenbyimprovedfragrancesales.Burlington’sCEOstatedonthecompany’slastearningscallthattheretailerwillfocusonincreasingthebreadthofitsdesignerandprestigefragranceofferingin2017.
DrugstoressuchasWalgreensarealsostrivingtodrivemorefragrancecategorysales:
• WalgreenshasestablishedafragrancesectioninmanyUSstoresandthecompanyistestingnewmerchandisingoptionsforfragrances.Walgreenswillalsoadd2,100beautyadvisorstostoresin2017.
• WalgreenshasalsolaunchedexclusivecollectionssuchasInstylefragrances.
BeautycategoryfootfallcontinuestoshifttospecialistbeautyretailchainssuchasUltaandSephora.
4
August4,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
TheFragranceShop,aUK-based,privatelyheldcompany,reporteda9.4%year-over-yearsalesincreasein2016.
Drivenbyever-risingconsumerdemandforairtravel,travelretailhasemergedasastrongdistributionchannelforluxuryfragrancesinthelastfewyears.EstéeLauderbelievesthatitshigh-endfragranceportfoliowillbeanimportantfactorindrivingitstravelretailproductgrowthinthefuture.
Manyspecialtyapparelretailershavedevelopedbeautyandpersonalcareproducts,bodymists,andfragrancestosellexclusivelyintheirretailstores.Theseinclude:
• Abercrombie&FitchandHollister(thenewAbercrombie&Fitchstoreconcepthasafragrance“apothecary”)
• Victoria’sSecret
• Gap,BananaRepublicandOldNavy
• Reiss
USmassmerchantssuchasWalmartandTargetcarrylower-pricedmass-marketandcelebrityfragrances,whilecosmeticsretailchainssuchasTheBodyShop,YvesRocherandBath&BodyWorksalsocarrytheirownfragrancesandscentedmists.
SpecializedFragranceShops• TheFragranceShop,aUK-based,privatelyheldcompany,reported
thatsalesincreasedby9.4%yearoveryearin2016,to£105million,andthatcomparablestoresalesincreasedby5.5%yearoveryear.Thecompanyhaslaunchedanewdeliveryservice,whichallowsdeliverieswithin90minutes.
OnlineUKonlinesalesoffragrancesgrewby20%in2016,to£162million,accordingtoTheNPDGroup.AndInternetgiantAmazonisagrowingsellerofcosmetics,includingfragrances.
Source:Amazon
Mass-marketandcelebrityfragrancesarealsosoldthroughTVshoppingnetworkssuchasHomeShoppingNetwork(HSN)andQVCintheUS.TVshoppingnetworkshavefrequentlyofferedexclusivecelebrityfragrancelaunches,suchasParisHiltonperfume.
5
August4,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
ConsumerTrendsDeclineofMass-MarketandCelebrityFragrancesThetraditionalmass-marketfragrancebusinessisstrugglingasconsumersseekfragrancebrandsthataremoreupmarket,andprestigeretailersareenjoyingarenaissanceinfragrance,accordingtoTheNPDGroup.Mass-marketfragrancessalesinNorthAmericahavebeendeclining,andEuromonitorInternationalexpectssuchsalestodeclinebyaCAGRof2.5%from2016through2021.Thefirmprojectsthatmass-marketfragranceswillregisterflatgrowthinWesternEuropeoverthesameperiod.
Celebrityfragrancesalesboomedforseveralyears,andperformingartistsChristinaAguilera,TaylorSwift,NickiMinaj,MariahCarey,BeyoncéandJustinBieberhavealllaunchedtheirownfragrances.However,consumerpreferencesintheUSandtheUKhaveshifted,accordingtoTheNPDGroup:
• UKsalesofprestigecelebrityfragrances,suchasBritneySpears,declinedby22%yearoveryearin2016,to£56.5million.
• US-basedcosmeticscompaniesCotyandElizabethArdenhistoricallybuiltthemassfragrancecategory,butbothhaveunderperformedoflate.ElizabethArdenwasacquiredbyRevlon,abeautycompanywithitsownshareofoperatingissues,in2016.
Coty’smassfragranceorganicsaleshavecontractedmaterially,reflectingcelebrityandlifestylebrandsinstructuraldecline.Cotyisplanningtodisposeofmostofitsmass-marketandcelebrityfragrancebrandsandfocusonthepremiumendofthemarket.
RiseofCoutureBrandFragrancesUKpremiumfragrancesalesincreasedby8.0%yearoveryearin2016,to£1.6billion.Bycomparison,theremainderoftheoverallfragrancecategorysawsalesdeclineby2.5%yearoveryear,accordingtoEuromonitorInternational.
Manyluxurybrandshaveexpandedintofragrancesasentrypointsforcustomers.Fragrancesareoftenmoreaffordablethanluxurygoodssuchasbagsorshoes,allowingthesebrandstotapintomiddle-andlower-incomeconsumersegments.
Paris-basedluxuryandaspirationalbrandperfumeportfoliocompanyInterparfumshasreportedstrongsalesgrowthinthelastfewyears.ThecompanyproducesfragrancesunderlicenseforbrandssuchasDunhill,JimmyChooandLanvin,andunderitsownownership.SalesofInterparfumsfragrancebrandsincreasedataCAGRof11%from2011through2016.
US-basedIFF,whichproducesluxuryfragrancesunderlicense,statedthatitisseeinggoodgrowthandprofitabilityinitsfinefragrancesbusiness.Inearly2017,IFFacquiredFragranceResources,akeyplayerinthefast-growingspecialtyfinefragrancecategory.
Givaudan,aSwissmanufacturerofflavors,fragrancesandcosmetics,isthemarketleaderinfinefragrances.Thecompany’sfinefragrancesdivisiongrewsalesby7.2%yearoveryearin2016.
Withintheprestigefragrancecategory,“flankers”arebecomingmorepopular.Flankersaremodernspinsonclassicfragrances,suchastheChanelNo.5spin-off,No.5L’eau,whichwaslaunchedinthefallof2016.Flankers
Thetraditionalmass-marketfragrancebusinessisstruggling.
6
August4,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
generated21%oftotalfragrancesalesin2016,accordingtoTheNPDGroup.Newandlighterreimagineddesignerclassicsareparticularlypopularwithmillennials.
However,theprestigefragranceindustryhasalsobecomehighlypromotional.LVMH-ownedSephora,whichfirstenteredtheParisianmarketin1970asaperfumerychain,statedthattheprestigecategoryhasbeen“commoditizedbydiscounts”andthatconsumersaremainlyprice-driven.
Source:Sephora
RiseofNichePerfumesArtisanal,nichefragrancesarethefastest-growingsegmentofthefragrancecategory.Theseproductsarenotassociatedwithanyfashionlabels,designersorcelebrities.Manyaremadewithnaturalandexoticingredientsinsteadofsyntheticelements.Theyareproducedinsmallerquantitiesbysmallcompaniesandnotdistributedwidely,butsoldthroughlimitedretailformats.IFFhasnoticedabifurcationinthefragrancemarket,withtheverypremium,artisanalbrandsshowinghighergrowththanmiddle-marketbrands.Bigbrandsarenolongeronlyfocusingondevelopingone-scent-fits-allblockbusterperfumes.
• EstéeLauderstatedonitslatestresultscallthatartisanalfragranceswereoneofthegrowingsubcategoriesthecompanyhadidentifiedwithinfragrances.Thecompanyalsostatedthatitsdesignerfragranceportfoliohadbecomemuchmorecommoditizedandpromotional.Accordingly,thecompanypurchasedseveralleading,smallerartisanalfragrancebrandssuchasByKilianin2016,high-endEditionsdeParfumsFrédéricMallein2015andLeLaboin2014.EstéeLauderreportedthatitsfragrancesalesincreasedby24%yearoveryearinitsmostrecentfiscalquarter.
• Otherlargeglobalbeautyandcosmeticscompaniesarealsofocusingontheboutiquefragrancetrendbyacquiringsmaller,nichefragrancecompanies.JapanesefirmShiseidopurchasedindependentperfumerSergeLutensin2015andL’OréalpurchasedAtelierColognein2016.LVMHrecentlyacquiredamajoritystakeinMaisonFrancisKurkdjian,aFrenchperfumerwithapresenceinmorethan500retaillocationsinmorethan40countries.
Artisanal,nichefragrancesarethefastest-growingsegmentofthefragrancecategory.
7
August4,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
• SpanishfashionandfragrancelicensecompanyPuigacquirednichebrandsL’ArtisanParfumeurandPenhaligon’sin2015.
Furthermore,technologyisenablingthecustomizationoffragrances,movingcustomblendingfromanoveltytoamainstreamservice.Bespokeandpersonalizedscentsarenolongerthepreserveofthehyperrich.Goingforward,weexpecttoseeongoingsalesgrowthinsmaller,moreartisanalandtailor-madefragranceproducts.
OtherMarketTrendsOthertrendsinthefragrancemarketincludemorenaturalandeco-friendlyproducts,growthinfragrancesforthehome,andrisingdemandforcollectionsofsmallerfragranceofferings.
GreenFragrancesThegreenmovementissweepingacrossthefragrancecategory.AccordingtotheannualGreenBeautyBarometersurveyconductedin2016byHarrisPollonbehalfofbeautybrandKariGran,33%ofAmericanwomenpolledclaimedthatpurchasingall-naturalfragranceswasimportanttothem.
Source:iStockphoto
Retailersandproducersarealsostrivingforproductingredienttransparencyinbeautycategories,includingfragrances.Forexample,Targethassetanobjectiveofprovidingfullproductingredienttransparencyforitsbeautysuppliersby2020,includingforfragranceproducers.
Inaddition,manycompaniesarerespondingtoconsumerdemandforaromatherapyproducts,whichareclaimedtohavehealingandde-stressingproperties.Theherbalandfloralscentscommonlyusedinaromatherapyproductsaresaidtoproducefeelingsofcalmnessandrelaxation.
Approximately33%ofAmericanwomenpolledsaidthatpurchasingall-naturalfragranceswasimportanttothem.
8
August4,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
ManywomenintheUSpurchaseanewfragranceasoftenasonceamonth.
HomeandRoomScentsAnotherrecentfragrancetrendisthegrowthinsalesofscentedproductsforthehome.Theseincludescentedcandles,automaticsprays,plug-inscentedoils,waxmeltsandroomsprays.
• Interiorfragranceswereakeygrowthdriverforthefragrancecategoryin2016,accordingtoTheNPDGroup.Diffusersalesincreasedby19%,candlesalesby16%andhomeancillariesgiftsetsalesby75%.
• IntheUK,Aldisoldoutof£3.99scentedcandlesthatsmelledlikeJoMaloneversions,inMarch2017.Aldi’smanagementstatedthatdemandforthecandleshadbeen“particularlystrong.”Followingthecandles’popularity,Aldire-releasedthecandlesinJuly2017.
• Victoria’sSecrethasseenstronggrowthinhomefragrances,andthecategoryremainsakeygrowthdriver.
• Newtechnologiesareemergingthatallowpeopletouseanapptoturnonelectronicfragrancediffusersbeforetheyreturnhome,sotheirhomesmellspleasantwhentheyarrive.
• Likewise,anincreasingnumberofretailersareusingscentsystemsinstorestoenhancethesensorialcustomerretailexperience.
SmallFragranceCollectionsThereisalsoagrowingtrendofmillennialsveeringawayfromsignaturefragrancesandtowardsmallervialswithdifferentscentsfromthesameluxurybrand,accordingtotheFragranceFoundation.Perfumecompaniesarealsopushingthesecollections,astheyaresoldathighermarginmarkups.
AccordingtoTheNPDGroup,manywomenintheUSpurchaseanewfragranceasoftenasonceamonth.So,smallerbottlesizesmaybeparticularlyappealingtotheseconsumers,allowingthemtotrymorenewscentswithouthavingtopurchasethemoreexpensive,full-sizebottles.
• SalesofUSperfumeslessthanoneounceinsizehaveincreasedby16%inthelasttwoyears,morethantwotimesfasterthantheoverallwomen’sfragrancemarket,accordingtoTheNPDGroup.USrollerballandtravelspraysalesjumpedby28%duringtheperiod.
• ChristianLouboutin,BottegaVeneta,JoMaloneandRalphLaurenhaveallofferedcollectionsoftheirdesignerfragrances.
• ScentTrunk,aUSe-commercefragrancecompany,offerscustomizedscentsbasedonpersonalpreferencesandsellsthemthroughasubscriptionmodel.ScentTrunksendscustomersasamplingkitorscenttestthatcontainssixcorescents,representingdifferentfragrancetypes.Customersfilloutanonlineformaboutthescenttest,andthenthecompanycreatesacustom-blendedfragranceusingrawingredientssourcedfromsmall-batchproducers.Theperfumesaredispersedin5mlbottlesandshippedeverymonthfor$11.95.Thecompanystatedthatittargetsmillennials.
9
August4,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
MarketingofFragrancesModernbeautycompaniesareproductinnovatorsandmediastorytellingcompanies.Fragrancelaunchesoftenrequirehighmarketingandpromotionalbudgetstopushtheproducts,andthelaunchesoftenrelyonsampling.Newproductlaunchesdrivenbylavishmarketingandbrandstorytellingtendtoincreasesalesandearnings.
Inordertodrivehigherperfumesales,manyretailersholdeventsorstageexhibitsthatshowcasescentsandencourageconsumerstointeractandconnectwithfragrancesinamoreuniqueandexperientialway.Theseinclude:
• Producingeventsthateducateconsumersonthedifferentaspectsofafragranceinaninteractiveandsocialmedia–friendlyway.
• Playingvideointerviewswithmasterperfumers,whoexplainhowtheybecameacquaintedwiththeirprofessionandhowtheyapproachcreatingascent.
• Explainingwhatthecomponentsandingredientsofaperfumeareandwhatregionoftheworldtheingredientscomefrom.
• Introducingdigitaltoolstocreatepersonalizedperfumeprofilesforcustomers,asSephorahas.Thecompanyhasalsocreatedonlinebuyingguidesandsetupin-storedemonstrations.Sephoraevenhasatouchscreenwithafanthatletsconsumerssmellthescentsthatcharacterizemostfragrances.
• Usingdiagnostictoolssuchasappswithsoftwarethatrecommendscentsbasedonwhatconsumersusuallywear.ThePerfumeShop’sFragranceFinderisanexampleofsuchatool.
KeyTakeaways
• Prestigeandnichefragranceshaveseenstrongsalesperformanceasconsumerinterestinmass-marketandcelebrityfragranceshasdeclined.
• Artisanal,nichefragrancesarethefastest-growingfragrancecategory.Otherrecentfragrancetrendsincludegrowthinscentedproductofferingsforthehome,andgreenandaromatherapyscentsandmists.
• Technologyisenablingthecustomizationoffragrances,movingcustomblendingfromanoveltytoamainstreamservice.
Newproductlaunchesdrivenbylavishmarketingandbrandstorytellingtendtoincreasesalesandearnings.
10
August4,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
DeborahWeinswig,CPAManagingDirectorFGRTNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comEvaKubickaSeniorResearchAssociateHongKong:2ndFloor,HongKongSpinnersIndustrialBuildingPhase1&2800CheungShaWanRoad,KowloonHongKongTel:85223004406London:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NewYork:1359Broadway,18thFloorNewYork,NY10018Tel:6468397017
FungGlobalRetailTech.com
