Reviewing Trends in the Global Fragrance Market August … · Reviewing Trends in the Global...

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August4,2017

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS: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

deborahweinswig@fung1937.com

US: 917.655.6790

HK: 852.6119.1779

CN: 86.186.1420.3016

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August4,2017

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS: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.

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August4,2017

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS: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.

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August4,2017

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS: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.

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August4,2017

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS: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,FGRTdeborahweinswig@fung1937.comUS: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.

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August4,2017

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS: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.

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August4,2017

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS: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.

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August4,2017

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS: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.

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August4,2017

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS: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

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