The New Scent Surge
AFTER THREE YEARS OF SLUGGISH GROWTH, FRAGRANCE SALES ARE STARTING TO PICK UP AS MILLENNIALS DISCOVER THE CATEGORY’S APPEAL.
WHEN INDUSTRY EXECUTIVES GATHER at Alice Tully Hall in Lincoln Center tonight for the annual rite of doling out Fragrance Foundation Awards, the mood will be more than hopeful.
The $4 billion U.S. fragrance business is headed into fall at the fastest clip in three years. The sales surge that was triggered in December with a 6 percent jump remains solid. The Mother's Day selling period posted a 9 percent gain, putting sparkle back in the U.S. shopping scene in stores that are loaded with newness.
A new world is forming as niche and artisanal brands gain more prominence and Millennial shoppers come into their own at the fragrance bar. “Millennials all over the world are the highest consumers of fragrances,” said Edgar Huber, president of Coty Inc.'s Luxury division, pointing to data showing young customers leading the penetration in the U.S. and emerging markets. “[They] are fragrance lovers and consume much more fragrance than what people thought.”
“New world, new dynamic, new everything,” remarked John Demsey, executive group president of the Estée Lauder Cos. Inc. “There's a lot of launches and a generation that's arrived...and their influence and buying power is there now.”
The Lauder-owned brands Jo Malone London and Tom Ford were leaders of the early indie fragrance movement and remain among the top ranked brands of artisanal fragrances, according to The
NPD Group. The niche lines, also called collection brands because of the olfactive variety most offer, are highly favored by Millennials for their freedom of choice and transparency. The segment notched its sixth year in a row of double-digit gains by scoring a 14 percent increase for 2017, while deepening their penetration of the overall fragrance market to 7 percent.
In contrast, the huge designer category, which commands a 74 percent share of the fragrance market, posted a 3 percent gain in 2017, with what observers call a reawakening of interest in the designer category, thanks to brands like Tory Burch, Marc Jacobs and Coach.
There is also a newcomer in the mix: Natural fragrances, occupying only a sliver of less than 1 percent of the fragrance market, chalked up a 32 percent sales gain for 2017 and flew past the artisanal scents, although its market share is much smaller.
No matter the category, the overall picture is clear. This was the year fragrance came out of the doldrums, parlaying the momentum of December into an 8 percent jump for first-quarter prestige scent sales, double the 4 percent increase for all of 2017, according to NPD Group. In comparison, the first quarters of 2016 and
2017 were flat. The NPD figures are based on a broad swath of the prestige market, including department and specialty stores, specialty beauty chains and e-commerce.
While all segments of the market are growing, one conspicuous fact is that the American fragrance market is being driven by European brands, which occupied the top five slots in the women's and men's fragrance rankings for this year through March. That reality has raised a few eyebrows. “We need to reinvigorate the men's and the women's U.S. market with fragrances that have a distinct point of view and appeal to a global audience,” said Ann Gottlieb, who is being inducted into the Fragrance Foundation Hall of Fame after 50 years of helping develop numerous winners of the past.
American-made fragrances have shot up into the top 10, Gottlieb acknowledged, but they generally have not sustained their momentum from one year to the next, except for a few exceptions like Ralph Lauren Polo Blue, Marc Jacobs Daisy, Philosophy's Amazing Grace and Viva La Juicy from Juicy Couture. Likewise, there have been top-selling private label brands from companies like Bath & Body Works and Victoria's Secret, but they are not included in the ranking system. Linda Levy, president of the Fragrance Foundation, asserted that the American industry has plenty of creative potential and a deep bench. Although it takes a broad distribution to land in the top 10, “I really feel there are many fragrances coming up through the niche or artisanal channels.”
Levy pointed out Calvin Klein with designer Raf Simons should “develop into a top brand again,” adding, “Tory Burch and Aerin Lauder are gaining momentum as lifestyle brands and Tom Ford continues to come out with more brands within his collection, and they are winners out of the gate.”
Regardless of country of origin, fragrance edged up in the rankings with an 8 percent increase versus a 7 percent gain for color cosmetics in the first quarter. Skin care still led the pack with a 14 percent sales gain for the quarter. “The strongest performance we have seen in the past three years,” was how the results were characterized by executive director and beauty industry analyst Larissa Jensen at NPD.
Moreover, the strong Valentine Day's and Mother's Day sales are proof positive that fragrance gift giving is back in vogue for the holidays—particularly with newer categories like home scents. Mother's Day of 2017 had sunk with a 1 percent decline, according to NPD. “The areas that are outpacing the market are juices and home scents,” said Jensen, who said items like candles are small but gaining.
Launch activity is also up, rising 36 percent in the first quarter and pumping newness into the U.S. prestige market, Among the standouts were Chanel's Coco Mademoiselle Intense, Coach Floral Eau de Parfum and Ralph Lauren's Ultra Blue. What NPD classifies as “fine department stores,” such as Saks Fifth Avenue and Nordstrom, gained 6 percent for the quarter. That performance compares with a flat showing for the same period in 2017 and a meager 2 percent gain in 2016.
Saks hopes to continue the momentum with the unveiling of its new second-floor ►
beauty department in the Fifth Avenue flagship. The retailer regards itself as a niche pioneer, starting in 2003 and amassing names like Jo Malone, By Kilian, Frédéric Malle, Le Labo and Creed. Now it's added a half-dozen brands with their own custom counters, such as EB Florals, Ex Nihilo and Francis Kurkdjian, plus a number of small brands, like Roja Dove, in an Artisan Collection area. The floor space devoted to fragrance overall was doubled. Kate Oldham, senior vice president and general merchandise manager, said Saks had been adding about one brand a year but decided to step up the pace when its competitors began to ramp up their assortments, particularly with perfumer-led lines.
“These brands mean something in a different way to our customers than a single fragrance,” she said. “We've always gone for authentic, so we wanted to have a perfumers' story behind it.”
To whet the appetites of those shoppers who crave product storytelling and transparency, Saks has recruited three influencers and stepped up its marketing efforts across Facebook, Instagram and YouTube. The retailer has also increased staff training and the number of dedicated beauty associates to some lines. “When you're selling 12 fragrance, it's a lot more difficult than just selling one,” Oldham said. Early results are promising. Oldham said customers have given the store “an overwhelming enthusiastic response” and that fragrance sales remain strong.
The artisanal spirit is also driving category sales at Nordstrom. “Niche collections continue to drive our growth in fragrance,” according to Gemma Lionello, executive vice president and general merchandise manager for accessories and beauty at the store. She ticked off Le Labo, Byredo and Diptyque as among the top sellers. Mon Paris Couture from YSL and Valentino Donna Rosa Verde were spring exclusives and the store launched the new Clean Reserve line Avant Garden, with an exclusive to Nordstrom scent — Nude Santal & Heliotrope.
Camille McDonald, the retired president of brand development at Bath & Body
Works who is now consulting, sees continuing growth in the niche dwellers. “You have got to manage a portfolio of brands to offset losses from the cosmetics company brands,” she said. “They are smaller in volume but perhaps higher in profit. They make you pay for quality and don't have to market the next 12-piece blockbuster that goes with the launch promotion.” As examples, McDonald cited “scaling” brands at Lauder — Tom Ford, By Kilian and Le Labo — and suggested that perhaps in the future the company should buy more similar brands.
On the department store front, Macy's — historically dominant in fragrance with an estimated share of around 50 percent
— is looking to grow its constituency as well. While developing programs to lure Millennials, Nata Dvir, senior vice president and general manager, is also at work getting passersby engaged in the store's fragrance offerings and mysteries of the perfume bar. “As customers get more engaged with ingredients and want to know more about products, they are starting to circle into the fragrance category,” she said. “People used to be really loyal to one or two fragrances. They are now getting more comfortable trying new things. We're starting to see existing customers shop more broadly and new customers getting attracted to fragrance. It's an exciting time. There's a lot of opportunity for new customers.”
Dvir gets particularly excited when talking about the interrelationship between newness, classic brands and the gift business and how they resonate. She noted that several launches from last fall continue to resonate, including Chanel's Gabrielle and Coco Mademoiselle Intense, a flanker from Carolina Herrera's Good Girl and Giorgio Armani Si Passione. “Gift sets are always good for us,” said Dvir, “but what is even more exciting is that some of our basic business is beginning to outpace gifting.”
One example is the larger sized 5 oz. fragrances that Macy's started emphasizing late last year. Gradually customers got into it and developed enough trust to buy the bigger bottle, instead of a more modest size. There's also a subtle shift in the bedrock gifting business. “We see a healthier day in and day out business because [customers] are using it for all types of gifting — not just the traditional Mother's Day, Father's Day — and we are starting to see it happen throughout the season,” said Dvir.
In addition to the growing clout of Millennials, there are plenty of other factors driving and complicating the fragrance market. One looming opportunity awaits a half a globe away — in China — and it's full of eager, aspirational customers. Roughly 20 years ago, fragrance was of little interest there, perhaps 5 to 10 percent of the market. But China has now exploded as a fragrance market. In 2016, it was estimated that 24 percent of Chinese women had used fragrance, a figure Coty estimates will rise to 26 percent this year.
The boom seems to be fueled by gift-giving. “The gifting business, in Asia and especially in China, is really taking off,” Huber said, adding that over 65 percent of fragrances bought in the Chinese market are purchased to be given as gifts. When the Chinese buy gift items, they pay as much as 30 percent more than they do on self purchases. They tend to prefer floral fragrances, Huber said, noting that the Coty Luxury division has been the most successful in China with the Gucci, Tiffany & Co., Miu Miu, Marc Jacobs, Chloé, Calvin Klein, Philosophy and Lancaster brands.
Huber analyzed the worldwide growth of the fragrance business as being driven by four forces: an innovation pipeline, an e-commerce explosion, a new trend in gifting and promotion and product premiumization. His division, which posted net revenues of $752.5 million — an 18.6 percent increase compared to the prior year and 11.8 percent on a prior currency basis — just launched Marc Jacobs Daisy Love for Mother's Day in the U.S., which hit a chord with the Millennials. A new Calvin Klein, developed with Raf Simons, will be launched for Back to School, he said, adding that Coty has newness for Tiffany and Gucci Bloom, and continues to do well with Chloé Nomade. In terms of retail strategy, Huber said he is concentrating on the two fastest-growing retail channels — e-commerce and travel retail. To that end, the company recently opened boutiques for Calvin Klein and Hugo Boss on Amazon's luxury beauty section.
The growth of fragrance sales online is a key driver that Felix Mayr-Harting, global head of fine fragrances at Givaudan Fragrances Corp., has also been tracking. “Consumers now have access to more and more information to research and make better informed decisions,” he said. “In addition, away from traditional fine fragrances, we have continued to see the growth of categories like bath and body and home fragrances.”
Online and off, the momentum is expected to continue into the second half of the year. “Fall is going to be fabulous,” said Levy. “There's a lot of newness and a lot of reestablishment of some great brands.” ■