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

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The buzz 2 Retail basics News roundup or some time now, retailers have been talking about Netwatch 6 Fthe need for an omni-channel strategy—essentially, delivering the same experience across all platforms, Beauty blogger review whether mobile devices, desktop or brick-and-mortar. However, as consumers don’t really think in terms of Interview 7 shopping channels, but more about where they can find Cosnova Beauty ceo the best products, prices and service, some say retailers Javier González should be paying more attention to these issues. This is especially the case if, in their efforts to be omni- Insight 9 channel, they end up replicating a poor experience in Japan newer selling platforms. Many suppliers bemoan the state of retail today. They are often heard saying Show review 14 that retailers rely far too much on discounting and go overboard in trying Duty Free Show of the Americas to maximize every square inch of store space (resulting in shops that are overcrowded with product) and that they don’t invest nearly enough in staff Store visit 17 training or new initiatives. Retailers are also criticized for copying the moves of Lane Crawford, Chengdu, leading players in the market, often resulting in a poor rendering of the original idea and a certain sameness of offer. Perhaps before perfecting their omni-channel strategies, retailers should look to add more value to what has become an increasingly commoditized category.

Oonagh Phillips Editor in Chief Meet the BW Confidential team at: [email protected] l Esxence, Milan, March 20-23 l In-cosmetics, Hamburg, April 1-3 l Cosmoprof, Bologna, April 2-7 l Luxe Pack Shanghai, April 16-17 l China Beauty Expo, Shanghai, May 7-9 l TFWA Asia Pacific, , May 11-15 l Luxe Pack New York, May 14-15

CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIA CONFIDENTIA L L The buzz Strategy News roundup Stay informedwithourdailynewsheadlinesonwww.bwconfidential.com has factoriesin SouthAfricaandKenya, may openathirdsiteinWest Africa. 2013, itsold120millionunits inSub-SaharanAfrica,a52%increaseover2012.L’Oréal Lovely brandaccountsforaround three-quartersofsalesthere.Thecompanysaidthatin Middle EastGeoffSkingsley.Anglo-Dutch groupUnileveristheleaderinregion. with no company commanding moreto than be wortha 15% €2.7bn,share, saysaccounts L’Oréal for player inSub-SaharanAfrica,withamarketshareofaround 8%.Themarket,estimated md3% ofof Africathe global & the industry andaccounts is highly for fragmented,less than 3% of L’Oréal’sL’Oréal is looking sales to andbecome the thegroup number-one claims to beauty be the group number-two in sub-Saharan animal testing,andistemporarilypullingtheproductsuntilit can“clarify”thesituation. Africa. Africa Body Shop is said to have consideredShop, whichproducts claims sold to in be duty against freethat animalexempt beauty testing,from products obligatory has sold not inyet the Choiceentered country that the be saysmarket. tested the Theongoods animals, could shops inBeijingandShanghai,China,followingareportbyAustralianconsumergroup whichbe subject is why to The animal Body testing.L’Oréal-owned TheBodyShop has China’s temporarily regulations withdrawn require its products from duty-free been backedbyChicago-basedprivate-equitygroupHCPandCompany. 1999, isnowpresentinalmost70countries.Forthepastfourandahalfyears,NYXhas the business, to fundit its ideally rapid isexpansion. looking forThe acompany, private-equity US-based make-upbrandNYXCosmeticsislookingforabuyer.Companysourcessay which was or foundedventure-capital in firm, preferably with interestssold intheUS,CanadaandAustralia,reportedsalesof$52.4m2012. in America. Until now the group’s home-shopping networkQVC.TheacquisitiongivesKoséastrongerpresenceinNorth expansion outside of Japan wasTarte focused Cosmetics on Asia. for Tarte $135m. is In theJapanese beautygroupKoséhasacquiredNewYork-basedmake-upandskincarebrand US, Tarte is sold at , Ulta and Macy’s, and on Some 60% of L’Oréal’s business in the region is through African lines and its Dark & n n n n n n n At aglance... n

Kosé buysTarteCosmeticsfor$135m Interparfums unveilsKarlLagerfeldfragrances Alibaba tolistinUS appointsNatalieBaderpresident French courtsuspendsPrintempssale Coty indealwithAvonBrazil The BodyShoppullsproductsfromChineseairports NYX seekingnewinvestor www.bwconfidential.com -March 20-April 2,2014 #89-Page 2 n News roundup

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

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

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

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

Results German group Beiersdorf saw net profit increase 11.9% to €537m in 2013 on sales of €6.14bn. Sales saw growth of 1.7%, or 7.2% on an organic basis. The consumer business segment, which includes the , Eucerin and La Prairie brands, reported a 5.3% increase in EBIT to €638m. Sales at the division were up 1.1% (+7% on an organic basis) to €5.10bn. Nivea saw growth of 7.5%, Eucerin’s sales were up 11.5%, while La Prairie reported a 7.5% increase in revenues. For the first time, the share of the consumer division’s sales in emerging markets BW Confidential 4 avenue de la Marne reached 52%. Beiersdorf expects group sales to increase by 4-6% this year and to deliver 92600 Asnières sur Seine, France [email protected] a slight improvement in EBIT margin compared to 2013. Tel: +33 (0)1 74 63 49 61 Fax: +33 (0)1 53 01 09 79 www.bwconfidential.com reported a net loss of $5.8m for 2013, compared with a net income of $51.1m ISSN: 2104-3302 Publisher: Nicolas Grob in 2012, due in part to costs related to pulling out of China. For the full year 2013, Editorial Director: Oonagh Phillips [email protected] discontinued operations, mainly due to exiting China, resulted in a loss of $30.4m. Deputy Editor: Alissa Demorest Sales for the year were up by 7% to $1.49bn, which includes the business of nail [email protected] Editorial Coordinator & Assistant: and hair company The Colomer Group, which Revlon acquired in 2013. Excluding this Darlene Lim [email protected] business, net sales were down 1.3%. Contributors: Tina Clark, Alex Wynne, Renata Ashcar, Mayu Saini, Raphaëlle Choël, Corinne Blanché France-based Interparfums SA said it continued to see growth in 2013, despite the loss Subscriptions 1 year: electronic publication (20 issues) + of the Burberry fragrance license. Growth was driven primarily by the Montblanc, Jimmy print magazine (4 issues): €499 or US$699 [email protected] Choo and Repetto brands. Advertising The company said it saw an operating margin of almost 15% for the year and a net [email protected] BW Confidential is published by Noon Media margin of 10%, despite ramped-up marketing and advertising in the second part of the 513 746 297 RCS Nanterre Copyright © 2014. All rights reserved. year. Net income however, was down by 4% to €34.8m. As of December 31, 2013, the Reproduction in whole or in part without permission is strictly prohibited. company had net cash of €222m. n n n

www.bwconfidential.com - March 20-April 2, 2014 #89 - Page 3 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIA CONFIDENTIA L L The buzz People News roundup locations foraflagshipstoreinParisandalsohasplanstoopenboutiqueSingapore. brand’s diagnostic tools, product range and a skincare treatment area. Ioma is scouting president. EricBouvier wasmostrecentlypresident andceoofBGMedicine . managing director. He will take France-based contractmanufacturer StrandCosmeticshasappointedEricBouvier over from Dominique Bouvier, who will become company its NewJersey,USfacility.Inthe past,FowlerKrellworkedforFlorasynthandGivaudan. Fragrance houseCPLAromas has appointed Gail Fowler Krell as perfumer, based out of management planning division, haschief operatingofficer,isalsosteppingdown.Toru been Yamamoto, named managingpart of Poladirector Orbis’ an advisortoPolaOrbisHoldings’overseasbusiness.TakafumiTakezawa,thebrand’s of Jurlique. be replaced by Mark Whyman, a newPola Orbis-ownedJurlique president recruit andto theceo company.Sam Mckay Mckay is stepping will stay down on andas will previously svp,RevlonProBrandsfortheUSandCanada. and SennenPamichasevpglobalpresidentofitsprofessionaldivision. group appointed Gianni Pieraccioni as its evp and global president of its consumer division Revlon executive vp and chief operating officer Chris Elshaw has leftmost recentlyceoofPradaFranceandpreviouslyworkedatChanelSephora. the company. The Beauty group formerly mdoftechnologycompanyValtechFranceandpreviouslyworkedforMicrosoft. executive committee,reportingtochairmanandceoJean-PaulAgon.Rochet,36,was L’Oréal hasappointedLubomiraRochetchiefdigitalofficerandmemberofthegroup’s Seibu inJakarta,Indonesia.The70m French anti-agingskincarebrandIoma opened its first concept store at department store name and 688 shop-in-shops. The company aims to have 1,000 storesopportunities toopenshop-in-shopsandcountersindepartmentstoresthecountry. by 2020. France, which it plans to open Dutch beautybrandRitualsCosmetics inis thescouting first locationsquarter of for 2015. a flagship The brand store is alsoin Paris, looking at Investments finalizedthePrintempsacquisitioninJuly2013. flagship store on Paris’ boulevardinformation. Haussmann Unions goes through.fear 226 jobs to resumetalkswithlaborunionsopposedthesaleandprovideemployeesmore could be lost if a program Printemps toQatariinvestmentfundDivineInvestments.Thecourtordered to reorganize the retailer’s The French court of appeals has suspended the sale of French department store chain n Pieraccioni was most recently evp chief commercial officer for airline Alitalia. Pamich was As of the 2014 first quarter, Rituals is sold through 301 stores under the Rituals brand The court’s decision does not change the ownership of the Printemps group. Divine Retail has named Natalie Bader president of the Clarins brand. Bader was Clarins has named Natalie Bader president of the Clarins brand. Bader was 2 (753ft 2 ) boutique, called Revelation, features the www.bwconfidential.com -March 20-April 2,2014 #89-Page 4 n CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIA CONFIDENTIA L L The buzz n Launches News roundup cream forurban consumersinMay,calledCity Miracle;itwillcomeinthree shades.n Lancôme launched the first Visionnaireproducts, cream according in 2011. to theLancôme brand. designed forEuropeanconsumers withashortskincareregimen,wholikeusingall-in-one is Thealso 50ml introducing cream launches a CC in AdvancedMay and willMulti-Correcting retail for €79. Cream L’Oréal-owned Lancôme isboasts launching anti-wrinkle a new cream and radiancefor its Visionnaireproperties, range.and was Visionnaire EdP retailsfor€59;50ml(€84);and75ml(€105.50). The floralscenthasaheartofgardenia,andcyprus, and muskaccord.The30ml re-imagined versionofthefirstCartierfragrance,whichoriginally launchedinthe1980s. La Panthère.Thefragrance,composedbyin-houseperfumer MathildeLaurent,isa French jewelrybrandCartierislaunchinganewfragrancethismonthcalled EdP), whilethemen’scosts€39(30mlEdT),€55(50mlEdT) and€72(100mlEdT). March, with the women’s retailingcampaign at €39 that (25ml includes EdP), €59downloadable (45mland EdP) a Lagerfeldspicy and €85base. (85mlemoticons. The line Thewill scent,fragrances be supported created launch byby aJeanin print Christophe ad campaign, Mane, includesnotesoflemon,rose,magnoliaandanamberwoodybase.Themen’s Herault as wellfrom asIFF, a digitalfeatures fern, lavender, mandarin, fragrance license was formerly soughtheld by to Coty. create a more upscale offering than the designer’s Benacin. Thecompanyistargetingretailsalesof€60-€70mfortherangeinitsfirstyear. previous scents; Lagerfeld’s could be an important pillar forwith the Karl future,” Lagerfeld, says Interparfumswe were alsofirst lineforfashiondesignerKarlLagerfeld. “At chairmanclose the totime andstopping we ceo were Philippe Burberry signing France-based Interparfumsislookingtobuildanewfragrancepillarwiththelaunchofits andthe welicense felt that Lagerfeld specialist productsgrewby4%intheperiod,whileeyetreatmentitemsaleswereup4%. to $3.6bn. products, representing 78% of the business,average saw $2.8bn selling in pricesales. of Age prestige while eye mascara, make-up eyeshadowwas 3% higher and eyeliner inmarket-research groupNPD.Eyebrowproductsledgrowthwithsalesup29%to$115m, 2013. all saw sales increase Prestige eyemake-upsalesintheUS bygrew 7% 9%last to year.$1.1bn The in 2013, according to Russian travelers’averagespendis€356. transaction. However, Russian travelersChinese shoppers clock more are transactionsthe biggest-spending tax-free shoppingtransactions.Thecompanysaidthatforthesixthconsecutiveyear, than other nationality, nationalities. spending Chinese andRussiantravelers accounted an average for ofmore €815 than per 40% ofwhile Global Russian Blue’s spend was up 13%, Chinese travelersspent20%moreontax-freeshoppingin2013,comparedwith2012, according to tax refund group Global Blue. Together, The women’s fragrance, composed by Christine Nagel and Serge Majoullier from With theline,whichisamenandwomen’sduocalledKarlLagerfeld,Interparfumshas Prestige skincare sales in the US were up 3% in the 12 months ending January 2014 Data www.bwconfidential.com -March 20-April 2,2014 #89-Page 5

Beauty blogger review BW Confidential reports on what the bloggers are saying about beauty

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

Netwatch Carey, the imminent launch of a partnership with Coca-Cola is generating curiosity.

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

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

An offshoot of the natural cosmetics trend, food-grade formulas and ‘raw’ plant ingredients in beauty products are becoming popular claims, appreciated for their supposed non-toxic aspects. This has prompted reviews on brands boasting raw, vegan, or food-grade ingredients,

The views expressed in this section are those of bloggers and do not represent the opinions of BW Confidential like The Body Deli’s raw food-based skincare and 100% Pure’s fruit-pigmented cosmetics.

The premier show for creative packaging

16-17 APRIL 2014 www.luxepack.com

NEW YORK I MONACO I SHANGHAI ! VENUE NEW Cosnova Beauty ceo Javier González

Budgeting beauty

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

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

What impact has the recession in Europe had on your business? We launched in 2002 with the Essence brand and later introduced Catrice, when the European economy was doing okay, but the German economy was suffering. The We aren’t the first recession in the past four or five years has definitely helped attract newcomers to our choice for prestige brands, as the economic situation means more consumers turn to a brand like ours for the “ first time. We now see Europe slowly coming out of the crisis, but consumers won’t stop retailers, but we buying our products just because the recession is over. can help them Which markets are you focusing on? widen their base In Europe, we are neither in the UK, nor in Scandinavia, and we have a small presence in France. This year, we will make inroads into the UK. We are testing the waters there now to middle-income with Wilkinson, and are in talks with several retailers there. In France, we are in a few shoppers, and reach [hypermarket] Auchan doors, and we aim to move more aggressively in that market. Two or three years ago, we started expanding outside Europe, and while it’s still small- younger consumers scale expansion, we’re doing very well in Latin America, the Middle East and even in Asia. We are now launching in Libya, Algeria and Iraq. In Southeast Asia, we are mainly in Cosnova Beauty ceo drugstores and pharmacies. Javier González In terms of the BRIC markets, we are not present in China, but we have been in Russia for several years, and are doing very well there. We entered India last year, and are ” about to launch Essence in Brazil. In Latin America, our strongest market is Chile and we have also moved into Uruguay, Bolivia, Peru, Ecuador and Paraguay. We’ve launched in Venezuela, but it’s a very tricky market right now. Brazil has a lot of potential, especially in the category—it’s the biggest in volume and in the top-three in value, so our brand could do very well there. We’re currently testing a few retailers in the pharmacy channel. Cosnova Beauty l 2013 sales: Do you plan to enter new product segments or launch new brands? €248m (+17% vs 2012) We entered fragrance last year and are very satisfied with the results, and we’re looking l Brands: to other categories, but none that will launch this year. We’re happy with Essence and Essence, Catrice Catrice, and while we have ideas for the next three to five years, we have no concrete l New markets 2014: plans at the moment. n n n UK, Brazil (Essence)

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

Interview need to pick your side of the court, and we’ve chosen to be a supplier.

What impact are budget beauty brands having on the prestige market? Brazil has a lot of We don’t believe that we have an impact on the prestige side—those consumers potential, especially will pretty much always have the means to continue buying prestige. We’ve entered “ several prestige retailers, including Douglas in Germany. Before we came onboard, the in the nail polish management at Douglas were concerned about our brand cannibalizing their more prestige offer, but we were both pleased to see that there was no cannibalization at category—it’s the all with more expensive brands. The price gap between the two offers is so wide that biggest in volume the high-income consumers shopping there would not stop buying from other, more expensive brands to buy from us, but they may make a purchase for their daughters, and in the top-three for example. Also, consumers that have less spending power and who normally in value, so we think wouldn’t enter those kinds of shops might, because our brand is sold there. our brands could do Is there more of a demand from prestige retailers today to stock lower- very well there. We’re priced brands? entering the market in When we enter prestige outlets, we know that we aren’t the first, most natural choice for that channel, but we can help them address certain strategic objectives—to the next few weeks widen their base of consumers to middle-income shoppers and to reach younger consumers, for example. Prestige retailers need a brand portfolio that can attract those consumers. Cosnova Beauty ceo Javier González What impact do budget brands have on retailers’ private-label offer? ” Our brands compete with several private-label offers, but rather than cannibalizing each other, we tend to build on each other. If you look at [drugstore chain] DM in Germany, for example, the company has roughly half of the German market in volume in color cosmetics. Around 12 years ago, they launched their own offer along with our brand and both have been doing extremely well. DM has come out stronger, as they have two lower-priced offers. It creates a dynamic cycle of development and growth.

How do you see the beauty market performing this year? We are forecasting another year of double-digit growth for Cosnova. We see southern Europe slowly stabilizing, although these problems won’t go away quickly. The global cosmetics market will continue to grow roughly at the same level, while s Cosnova is gradually expanding its presence in Latin America, the Middle East Europe will see slower growth. n and Southeast Asia

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credit: stock.xchng Japan Recovery in sight? BW Confidential analyzes the state of Japan’s beauty market and looks at the changes in the country’s distribution sector

n tandem with the slight uptick in the economy, Japan’s beauty market saw sales Igrowth last year of just more than 1% to reach ¥1.29bn ($12.6bn) in the January to November period, according to figures from METI, Japan’s Ministry of Economy, Trade and Industry. Euromonitor forecasts put the market growth at +0.2% in 2013 with sales of $47.33bn (these figures include the personal-care category). This growth comes after several years of decline. The market is still far Local players are more upbeat for 2014 and remark that prices have increased since the beginning of 2013, another sign of recovery. “We assume that the rising from“ where it was prices reflect both the comeback of the Japanese economy, as well as signs that in 2008 [before the the consumer has tired of years of penny- Japan beauty & sales* 2013 pinching during the last deflation-ridden crisis]. We’ll have to Category $bn* % change years,” Kanebo head of international keep a close watch 2013 vs 2012 corporate communications Shinji Yamada on its development Skincare 19.53 +0.5% tells BW Confidential. “Due to the stagnant domestic economy in coming months, Haircare 7.99 -0.9% over the past 10 years, sales volumes of Make-up 7.64 +0.2% mid-priced brands (in the ¥1,000 - ¥3,000 before proclaiming a Men’s grooming 2.26 -0.1% range/$9.75-$29.24) declined, while those smooth recovery of low-priced brands (under ¥1,000/$9.75) Fragrance 0.50 -6.5% increased. However, we now see the mid- Suncare 0.48 +1.9% priced brands starting to recover. Low-priced Mass cosmetics 25.03 +0.3% brands have bottomed out and mid-priced Kanebo head of international Premium cosmetics 18.14 -0.2% brands are growing,” explains corporate communications director, corporate office and chief financial Shinji Yamada ” Total beauty & 47.33 +0.2% officer Yoshinori Nishimura. The growth of personal care** mid-priced beauty brands, which account for Source: Euromonitor International *Retail sales forecast n n n ** Categories may not add up to total as all segments around 40% of the beauty market, is also have not been included

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

Insight According to industry figures, by 2015, more than 50% of Japanese women will be over the age of 55. While this is hardly good news, some see opportunity in the figures. “This means that we still have plenty of opportunities, in terms of developing products with higher added value, as well as a new market segment for the senior demographic,” explains Shiseido’s Nishimura. Beauty companies are looking to provide more product ranges and services New store concepts targeting the fifty and over consumer. Kanebo says it is further strengthening its position in the market by focusing on consumers in their forties and fifties, as well haven’t“ managed as the “senior generations”. In November, the brand launched Coffret d’Or Gran, to revolutionize the a make-up line for women 50 and older that addresses mature skin concerns, such as dullness, pigment spots and uneven skin tone. The brand says that the line has market. The bottom been well received by consumers, which it also attributes to the clear age target line is that if the in its advertising and in-store communication. Shiseido, meanwhile, now operates a website, www.shiseido.co.jp/successful-aging, for women over 50 featuring consumer wants skincare tips, videos and a dedicated online magazine. Kao-owned Sofina also runs to buy cosmetics a website conceived for older consumers. The aging population is a boon for skincare, the market’s largest segment, with without a beauty anti-aging and brightening products continuing to be strong performers. Haircare, advisor, which is what the second-largest segment, is also seeing growth coming from anti-aging haircare items. Other categories seeing strong sales are suncare products, following the many of these stores introduction in January 2013 of a new labeling system regarding UVA protection, are offering, she does which was well publicized in the media. so online Retail changes, retail challenges Department stores’ share of beauty sales continue to erode, albeit slowly. According to industry sources, the channel’s share was 8.3% in 2009, while in 2012, it was Information & Inspiration 8%. Yet, some believe there is a turnaround in sight for the channel. “Japan is founder Florence Bernardin a very expert market and up to now, the economy has been quite depressed. ” Department stores have been having a hard time for years, but we’re seeing signs that they are now struggling a bit less,” remarks Sisley ceo Philippe d’Ornano. There is also talk that the improving Japan beauty market share economy will see department-store by company % 2012 operators embark on store revamps. Isetan renovated its Shinjuku store and Company Market share unveiled a new Beauty Apothecary % area in 2012, which doubled the Shiseido 20.9 store’s beauty area, for example. Kanebo 16.7 Department stores have not been Kosé 10.3 sitting still. In a move to modernize Pola 8.6 their offer and draw in younger consumers, several operators have Kao 6.5 invested in standalone, open-sell Others 34.6 beauty concepts in the past few years. Source: Industry sources Isetan was one of the first with its n n n

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

Insight Japanese group Aeon, for example, introduced its open-sell beauty boutique Cosmême in 2011, while retail group Sumitomo’s drugstore division Sumisho Drugstores opened a retail concept called Inclover last year. “These stores attract a different generation of consumer—the over-fifty shopper still prefers the department-store counter to buy her cosmetics—while the twenty- and thirty-somethings like choosing their products on their own Due to the stagnant and are generally not very brand loyal,” explains Ubifrance Japan trade advisor Mikako Shiina. However, there are question marks over the viability of these new “domestic economy concepts, given the stalled expansion plans for most of them. Florence Bernardin, over the past 10 founder of consultancy Information & Inspiration, says that these retail initiatives are performing below expectations. “These new stores haven’t managed to years, sales volumes revolutionize the market. They are seeing traffic, but not necessarily the sales to of mid-priced brands go with it. The bottom line is that if the consumer wants to buy cosmetics without a beauty advisor, which is what many of these stores are offering, she does so declined, while those online. A lot of Japanese women go to the department store to get service and of low-priced brands advice and maybe a few samples, but they then make their purchase on the web,” she comments. increased. However, It seems that the most successful retail concepts are those that provide an we now see the mid- ‘experience factor’ and are located in high-traffic areas, such as malls or near train stations. Retailer Cosme Kitchen, for example, specialized in natural and organic priced brands starting beauty products, opened its first store in 2004 and now operates 26 points-of-sale to recover in the country. Products are merchandised in the same way as in a food market, and the atmosphere is lively. “The consumer shops in stores that have a strong storytelling factor and that offer a real atmosphere,” Bernardin explains. Shiseido director, corporate office and chief financial officer Web connections Yoshinori” Nishimura Brands and retailers are looking to forge a stronger connection with the consumer online. Shiseido’s Beauty & Co, which launched in 2012, is a website operated in conjunction with lifestyle companies, where the brand operates an e-commerce boutique and offers services such as beauty counseling via webcam. “In addition to our established base of middle-aged consumers, this e-commerce initiative has effectively gained market share among the younger generation. We’ve seen cases where new customers visit local stores, which may have had difficulty recruiting customers, thanks to the internet [presence]. We have increased the number of new customers, while managing to avoid cannibalization with existing channels,” explains Shiseido’s Nishimura. Kanebo is also investing more in digital personal counseling, according to the company. Analysts forecast that Japan’s beauty business will remain stable, but there are few expectations for significant growth, given the market’s maturity. “The market is still far from where it was in 2008 [before the economic crisis]. We’ll have to keep a close watch on its development in the coming months, before proclaiming a smooth recovery,” remarks Kanebo’s Yamada. Industry analysts are also being cautious in light of the sales tax increase (from 5 to 8%) that goes into effect in April. The market may be in the midst of a turnaround, but it will be a slow one. n n n

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

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

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

www.bwconfidential.com - March 20-April 2, 2014 #89 - Page 12 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Make-up CONFIDENTIAL Beauty insight

CONFIDENTIAL Insight China, Japan, Korea Market watch CONFIDENTIAL CONFIDENTIA

L CONFIDENTIAL n Japan what’s tocome? What’s changedand Luxury insight CONFIDENTIA Japan’s latestretailconcepts L trends andnewopportunities An analysisofmarket data, Fragrance

insight

Color makes acomeback Make-up insight Figures, retailinitiatives&trends Skincare insight Distribution atalltheindustry’s majorinternational events In-depth coverag eoftheglobalbeautymarket Luxe Pack Monaco • Beyond Beauty Paris • TFWA Asia Pacific Singapore Florence Make Pacific UpinParis •HBA GlobalExpoNew FragranzeYork... Pitti Asia Shanghai Pack • Luxe • Paris TFWA Beauté Kong Spa Mondial York• New Hong • Showcase Elements Asia Paris Cosmoprof • Beauty York New Beyond Pack Luxe • Monaco Pack Milan Luxe Esxence • Moscow Intercharm • Orlando Americas the of Show Free Duty ParisCosmetics Cosmoprof In • Shanghai Expo Beauty ParisChina Worldwide• Bologna PCD • Dubai East Middle World Beauty • Cannes Exhibition World ...TFWA How prestige is set to develop How prestigeissettodevelop Insight: Haircare

Boost yourinternationalbusinesswithBWConfidential Data, trends&retailerviews Fragrance insight Mirror Beauté. niche namesaswellprivate-labelcolorbrandIsetan 28 brandsrangingfromYSL,SisleyandClarinstomore is saidtobeperformingbest.Thestoreoffersaround country. Ofallthenewstandaloneconcepts,thisone opened in2012andnowhassixlocationsthe Isetan Mirror:Isetan’sfirstprestigebeautystandalone The secondstoreopenedinMarch2013. prestige brandssuchasClarins,LancômeandDiptyque. in 2013,MillionDoorscurrentlyhastwostoresthatsell partnership withdepartment-storeretailerTakashimaya Million Doors:Apremiumbeautyconcept,openedin What’s nextforthecategory? Make-up insight What’s nextforthecategory? Skincare insight Trends, opportunities&challenges Insight: Fragrance Creation

Ups, downs &newdirections Insight: Fragrance

[email protected] What’s instorefor2013? Make-up insight n Duty Free Show of the Americas Caution ahead BW Confidential reports on what was seen and heard at the 46th edition of the Duty Free Show of the Americas

Show review eauty players at the Duty Free Show of the Americas, which took place in Orlando Bfrom March 9-12, expressed caution about the state of the travel-retail and the domestic market in Latin America, in the face of falling growth rates, currency devaluations and social issues. “The market has been difficult in Latin America since the year started. In January and February, sell-out was negative and business in Argentina, Brazil and Chile was down by high single digits,” distributor Essence Corp president Jean- The situation in Brazil, Jacques Bona told BW Confidential. On a more positive note, executives reported that , Mexico and, to some with“ its unstable degree, Peru, are seeing solid growth rates. economy and the As for the show itself, there were mixed views on attendance: while major brands said business was brisk, some smaller players and distributors said that traffic in the aisles devaluation of the was slower than in previous years, which they attributed to fewer buyers attending real, had a big from challenged markets, such as Venezuela, Argentina, and even Brazil. However, show organizer IAADFS executive director Michael Payne says that the quality of buyers impact. The gray was good. “The feedback we’ve gotten from exhibitors has been quite positive. The market is also an show hosted 48 fragrance and cosmetics exhibitors, or four more than in 2013,” Payne explained. In total, 195 companies exhibited at the show. Newcomers included Clarins increasingly important and distributors GMP Cosmetics and Kosta. problem in the region The show’s 2015 edition will be held from March 22-25.

Heard in show Clarins Fragrance Group is embarking on a major relaunch of its Azzaro fragrance Puig Panama brand manager brand this year, with a strong focus on Latin America. The brand will take on more luxury Alexandre Klein ” codes, with revamped packaging, and will be backed by a new advertising campaign for the Azzaro pour Homme fragrance, starring American actor Ian Somerhalder. “It’s the year of the relaunch for Azzaro. We are investing strongly in Brazil and the surrounding markets and we are building a for the brand’s growth for the next 20 years,” Clarins Group Americas president and ceo Jonathan Zrihen explained. Although the group’s fragrance business has taken a hit in the past year in Brazil, it is aiming for 20% growth in 2014 for Azzaro in the country. Duty Free Show of Beauty group Puig said Americas travel retail in 2013 was disappointing, although the the Americas company managed to register 5% growth. “The situation in Brazil, with its unstable Took place: March 9-12, 2014 economy and the devaluation of the real, had a big impact. Venezuela, meanwhile, is N° of exhibitors: 195 pretty much blocked and we can no longer import our products there. The gray market N° of fragrance and is also an increasingly important problem in the region,” Puig Panama brand manager cosmetics exhibitors: Alexandre Klein explains. 48 vs 44 in 2013 However, he notes that Mexico, Colombia and the US are seeing better results. This N° of registered year, the Carolina Herrera brand, which accounts for 54% of Puig’s travel-retail n n n attendees: 2,850

www.bwconfidential.com - March 20-April 2, 2014 #89 - Page 14 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Show review on USArmybasesworldwide.The100mlscentswilleachretailfor$30. distribution inglobaldomesticmarketsandtravelretail.Thefragranceswillalsobesold Camo Green and Silver Star—willBeauty2Market. launch in May. A Thefirst brand range is comprised aiminga five-yearfragrancelicensewiththeUSArmy,inpartnershipbeautycompany for of masstige four skus for men—BlackUS-based AtlasBeautyGroup, owner Ops, of Goldthe BeFine& Bold, bodycare brand, has signed York andinAtlanta,islookingtoopenastandalonestoreatMiamiairport. points-of-sale,” he says. Crabtreediscounting. & Evelyn Weis areopening reducing at DFA our“It’s airport number been storesof a doorschallenging at andJFK remainingin year. New ofPart in266 moreof stores, the premium brand’s according revamp to entailsmd Beauty companyCrabtree&Evelyn Latinis continuing getting America away andto revampfromCaribbean the JuanCarlosbrand and itsDelgado. network inflight and,asofApril,willbelistedonAlitaliaflightsandBrazilianairlineTam. US, the brand is in negotiations and PalermoairportsinApril,istalkswithretailoperatorsatNaplesairport.Inthe to enter Pittsburgh airport.manager Pupa is Rossano also making Muraro inroads says is in Italian make-upbrandPupaismakingapushintotravelretail,channelwhichexport underdeveloped. Pupa is launching in Venice, Treviso this year,andwilllaunchinJune. line. PacoRabanne’sLadyMillionEauMyGoldisalsoamajorinitiativeintheAmericas n Duty FreeShowoftheAmericas Michael Gebrael Shiseido travelretailAmericas md pessimistic outlookforthemarket.” and unrestitmakesfora very purchasing power.Addpolitical shifts heavy inflation rates, which willdeclining affect and the middle class theis facingboom years and so consumptionalso is paying off their credit cardhas debtbeen froma big challenge. Consumersframework. are In Brazil, the exchangeto happen rate and there is a strongago legal have enabled a lot of good asthings government reforms a few yearsThe big winner in the region is out. PeruandColombiaareverysolid. Mexico, ago, and we’re afraid of how itto will what play we saw in Venezuela 10 Whatyears we’re seeing in Argentina Americais close and a correction is on “It’sits way. the calm before the storm in Latin The industryonLatinAmerica business in the Americas, will launch CH 212 VIP Rosé, a new addition to the VIP business intheAmericas,willlaunchCH212VIPRosé,anewadditionto n Duty Free Show of the Americas

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

“Travel retail in Latin America is totally blocked by currency devaluations, which vary between 15-20%. We haven’t made huge media investments in the region, but this year we are putting more muscle behind Calvin Klein in Latin America. Interest rates are growing in Brazil, the investors have fled and retailers are under pressure. It’s very hard to forecast what is going to happen. As for the World Cup, it won’t have an impact on our business in particular, but will be good for the overall economy.” Coty Prestige regional director Americas travel retail & export Tanguy de Buchet

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

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

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

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

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

www.bwconfidential.com - March 20-April 2, 2014 #89 - Page 16 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Store visit

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

ong Kong-based high-end department store Lane Crawford has opened its third store in Hmainland China in Chengdu, an economic hub in the west of the country. The retailer has invested Rmb300m ($48.7m) in the new 82,000ft2 (7,618m2) store, which is located in the new Chengdu International Finance Square. The idea for the store was to have an open, flexible floor plan, to create visibility through each department and to provide opportunities for pop-ups featuring artwork. There are pivoting panels and screens that can change the shape of presentation spaces and two large LED screens for digital content. The beauty area, covering 17,300 ft2 (1,608m2), features glass-cube pivoting panels for displays. It offers more than 40 brands, such as Clarins, Christian Dior, La Mer, La Prairie, Sisley and SK-II, as well as exclusive fragrance and gadget brands, including Acqua di Parma, Atelier Cologne and GHD. There is also a Franck Provost hair salon and nail bar and Merci Beauty Lounge, as well as six treatment rooms. Lane Crawford The Beauty + reception area offers complimentary skin and make-up consultations, while The Chengdu Edit area presents highlights from niche brands. The store also hosts a 5,700ft2 (530m2) suite l Opened: for personal styling and private events. March 2014 The retailer says it is unique in Greater China for its “buyer model”, as other multi-brand l Size: 82,000ft2 retailers operate concession models, essentially renting space to brands. Merchandise for (7,618m2) Lane Crawford Chengdu was selected by a buying team of 85 and some 40% (all categories l Beauty area: combined) of brands are exclusive to the market. 17,300 ft2 (1,608m2) “We’ve seen first hand the appetite for designer fashion and lifestyle through the increasing l Special features: number of Chengdu residents coming to Lane Crawford in Hong Kong and our online store Glass-cube pivoting […] So we’re very excited about creating a dynamic shopping destination here,” says Lane panels for displays; Franck Crawford president Andrew Keith. Provost hair salon and Keith added that its stores are connected to its digital flagship, in terms of product and service, nail bar; beauty lounge; which enables it to cover all of China. Customers in Chengdu can take advantage of same- six treatment rooms; day delivery for online orders, or collect or return their online order at the Online Shopping complimentary skin and Concierge, a 1,000ft2 (92.9m2) space that features fitting rooms and mobile devices. make-up consultations; In addition to the new Chengdu store, Lane Crawford operates two stores in Beijing and a area showcasing flagship in Shanghai, which opened in October 2013, as well as an online store. n niche brands

www.bwconfidential.com - March 20-April 2, 2014 #89 - Page 17 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Store visit

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

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

www.bwconfidential.com - March 20-April 2, 2014 #89 - Page 18 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL BW Confidential The inside view on the international beauty industry

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