www.bwconfidential.com The inside view on the international beauty industry December 19, 2013-January 9, 2014 #84

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The buzz 2 It was the year that... News roundup t was another challenging, yet interesting year for beauty. The Netwatch 6 Iyear 2013 saw a rash of acquisitions, with L’Oréal standing out as a major player in the M&A scene. The French group Beauty blogger review announced six buys this year, including a fair share of emerging- market deals, from Kenyan company Interconsumer Products Interview 7 and Chinese mask specialist Magic Holdings to India’s Cheryl’s travel retail worldwide Cosmeceuticals and Brazil-based Emporio Body Store. director Philippe Guitelmann The retail front also saw a string of deals. In Europe, retailer Douglas announced it was taking over French perfumery chain Insight 9 Nocibé, a move that significantly strengthens its presence in that South Africa retail market and bolsters its overall international strategy. In North America, meanwhile, Neiman Marcus was sold to private-equity groups and Canada-based Hudson’s Bay Co announced Show review 12 a deal to take over Saks. Also in Canada, Loblaws said it would buy the Shoppers Drug Intercharm Moscow Mart chain. Analysts predict more M&A for 2014, but point out that deals to come will likely be on a Store visit 13 small scale, given the lack of major targets in the market. Macy’s Herald Square, New York It was another tough year for markets in Europe, with even more solid countries like France looking sluggish. There was still much talk over emerging markets, but it centered more on slower growth, especially when it comes to Brazil, and the impact of falling currencies in places like India. While these markets continue to command much of the industry’s attention, other emerging countries and regions, apart from the BRICs—for example, Africa—are featuring larger on brands’ radars. BW Confidential will be on hand to keep you informed about what the industry has in store for next year and beyond. We looking forward to bringing you more news, The next issue of commentary and analysis in 2014 and wish you a peaceful and prosperous New Year. BW Confidential will be published on January 9, 2014 Oonagh Phillips Stay informed with our daily news Editor in Chief service on bwconfidential.com [email protected] News roundup

Food group Nestlé is to sell its 10% share in flavor and fragrance company Givaudan for Sfr1.08bn ($1.21bn), a move that has given rise to speculation Switzerland-based travel- that it would also divest its 29.3% stake in L’Oréal next year. retail operator Nuance is Nestlé’s sale of its Givaudan shares is seen as an effort to focus on its core entering South America’s business and clean up its portfolio, which led some analysts to suggest that travel-retail market for the The buzz divesting its stake in L’Oréal could be the next step in this strategy. first time, with the signing An agreement between Nestlé and the Bettencourt family, who owns 30.5% of a concession at Viracopos of L’Oréal, includes a provision that gives each party first right of refusal on the International Airport in other’s shares. However, this agreement expires in April 2014, at which point Campinas, near São Paulo, the companies can offer to sell their shares to a third party. Brazil. The concession, to debut in spring 2014 in a terminal currently under Investment group Orlando Italy has acquired La Gardenia Beauty, Italy’s construction, will run for second-largest perfumery chain, from Bridgepoint Capital. Orlando already owns 10 years, with a possible 50% of Italian perfumery chain Limoni, which it purchased in 2012 (Bridgepoint extension of an additional owns the remaining 50%). Following the La Gardenia acquisition, a new entity, five years. The new retail Leading Luxury Group (LLG), was established, which will coordinate sales, space will initially cover marketing and strategy for La Gardenia Beauty and Limoni. Together, the two 2,600m2 (28,000ft2). retailers have €370m in annual sales and operate 590 stores in Italy, accounting for more than 53% of the market’s beauty retail landscape. In the next three years, LLG plans to invest more than €30m to develop the Hermès Parfums retail network, by opening new stores and revamping some 300 doors. It also announced that perfumer aims to strengthen La Gardenia Beauty and Limoni’s selective positioning. Christine Nagel is to join the Enrico Ceccato, founding partner of Orlando Italy, has been appointed company and work alongside chairman of LLG, while Fabio Pampani, managing director of La Gardenia the brand’s in-house nose Beauty, has been named managing director of the retail group. Jean-Claude Ellena. Nagel, who is currently vp creation fine fragrance at US-based beauty brand opened a new spa and beauty house Mane, will join boutique, The Red Door, in Union Square, New York City in November. The Hermès in March 2014. The location is a new take on The Red Door spas and is “laser targeted to the appointment is a move to urban professional,” according to Elizabeth Arden executive vice president and ensure a smooth transition chief marketing officer Kathleen Widmer. The company says it will spend six when the time comes for months perfecting the concept, at which point it will begin rolling it out to other Ellena to retire. markets. Asia is set to be a key region for the concept. The two-story, 10,000ft2 (929m2) spa-boutique in New York offers both traditional and speed spa and salon services, as well as a beauty bar for US-based skincare brand skincare and make-up. Express services are offered on the street level, where Erno Laszlo has named there is a beauty bar, blow dry bar, make-up Rochelle Weitzner ceo. and lash bar and nail salon. Weitzner has served as coo The lower level features 14 treatment rooms at the brand for the past (including two couples treatment rooms) for year and was previously chief customized and massages, eight styling/ financial officer of Gurwitch coloring stations and eight / Products. Current ceo stations. The Red Door is also home to what Charles Denton is to become the brand calls its beauty boutique, which sells executive chairman of the products from the Elizabeth Arden and Red company. Door Spa lines. n n n

www.bwconfidential.com - December 19, 2013-January 9, 2014 #84 - Page 2 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL News roundup

n n n US-based direct seller Avon is to cut 650 jobs globally as part of its strategy to US-based Coty has appointed reduce $400m in costs by 2016. The job cuts will cost the company between $35m and Patrice de Talhouët cfo, effective $45m before taxes, with around $35m to be booked in the fourth quarter of 2013. The early 2014. De Talhouët is cuts will result in savings of $40m-$45m. currently corporate finance officer Avon has also decided to put an end to its service model transformation (SMT) project, Americas and a member of the The buzz which was intended to improve how its sales representatives interact with the company. finance executive committee for The project was piloted in Canada earlier this year, causing business disruption there, and confectionary group Mars Inc. He did not show a clear return on investment. However, Avon says it remains committed to replaces Sergio Pedreiro, who will updating its IT infrastructure and improving systems for its representatives. stay on at Coty until March 2014 Stopping the project will result in a pre-tax non-cash impairment charge of $100m to to ensure a smooth transition. $125m in the fourth quarter of 2013, reflecting the write-down of capitalized software. French department-store retailer Groupe Beaumanoir has Japanese retail group Seven & i Holdings Co is to acquire a 49.9% stake in opened two new stores in department-store operator Barneys Japan. Seven & i is purchasing the shares from northern France, in Rennes and private-equity fund Tokio Marine Captial. Following the transaction, which is to close in Dinan, which feature shop-in- January 2014, the retail group will be the second-largest shareholder of Barneys Japan shops for the Flormar beauty after Sumitomo Corporation, which owns the remaining shares. The acquisition is part of brand. The 30m2 (323ft2) shop- Seven & i’s strategy to create “new department stores” in Japan, with a focus on private- in-shops offer Flormar’s entire label, retailer-managed merchandise. range of accessibly priced color Barneys has 10 stores in Japan, including five outlets. It reported sales of ¥19.5bn and accessories, and a ($191.2m) for the fiscal year ending February 2013. selection of skincare items. The Seven & i owns department-store retailers Sogo and Seibu, as well as convenience-store areas will have a dedicated BA chain 7 Eleven. and will feature a small area for makeovers. Flormar is based in Turkey. French cosmetics group Beauty and fashion group Burberry opened a took a 51% stake in boutique called Burberry Beauty Box in London’s Covent the brand in August. Garden this month. The opening is part of its strategy to make beauty a fifth division at the company, after Market research group L2’s women’s, men’s and children’s fashion and accessories. annual Digital IQ Ranking, The boutique concept aims to create synergies between which judges beauty brands’ its beauty and fashion offers; the store carries the performance in the digital brand’s entire make-up and fragrance ranges, limited- space, released its list of top edition beauty items and an edited selection of fashion performers for this year. Lancôme accessories, namely purses, sunglasses and scarves. In topped the ranking of the six terms of fashion, a ready-to-wear capsule collection brands that attained “Genuis” inspired by its latest fragrance, Brit Rhythm, will be on sale at the store. status: Kiehl’s, L’Oréal Paris, Burberry is launching the beauty component of its Runway Made to Order service at the , boutique, which allows shoppers to order a “look” from the women’s fashion show—in and Estée Lauder. Runners-up this case, the color cosmetics worn by the models. in the “Gifted” category were, Burberry Beauty Box has a strong digital component that includes a five-meter screen in order of ranking, , displaying the latest beauty looks and product launches. A digital nail bar allows browsers , Bare Escentuals, MAC, to try on nail colors from the runway show using virtual RFID technology. Services include Clarins and Smashbox. Brands mini- and Beauty Refresh makeovers. There will not be any cash registers in the were judged on four facets of store and all purchases will be made via iPad and iPhone. their digital strategy: website, The Beauty Box format may also launch internationally. Burberry took its beauty license digital marketing, mobile and back from French group Interparfums in April 2013. n n n social media.

www.bwconfidential.com - December 19, 2013-January 9, 2014 #84 - Page 3 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIA CONFIDENTIA L L The buzz News roundup n 2013 for its plastic tube activity,Albéa whichceo François represents Luscan. 38% ofHe Albéa’saddsproduce that salesone the billion worldwide.group istubes forecasting per year,in the double-digit and world represents in Sainte growth an Ménehould, investmentin Franceof €20m,” this comments month. “The new site has the capacity to decreases with the onset of menopause.extract, whichThe cream the companyalso includes claimshormonal hyaluronichelps changesboost acid, in sheathe skin followingits skincare menopause. range aimedIt contains at women French beautybrandClarinshasaddedanewdaycreamtoitsSuperRestorativeline, organic aged 50harungana and over. Super Restorative Day targets available inFranceasofDecember2013andeachlipstickretails at€29. Babassu andMurumurubutters,containnoparabens.TheMonRougecollectionis claims that the are composedcosmetics of with 50% Monnatural , ingredients, a lipstickAmore Pacific-ownedfragrancebrandLolitaLempicka is making includingcollection its first moisturizing that foray comes into in 10color shades. The company five years. The sector has seen double-digit growth since 2008 and a CAGRwhile inEurope,themarketwasupby6%. of 11.3% over the past 85% shareofthemarket. by localcompanies,withdomesticplayersNaturaandOBoticáriotogetherclaimingan consumers, astheyareconsideredtobeofhigherquality.InBrazil,growthisalsodriven market. However, international sales wereup24%in2013anddomesticbrandsclaimedamorethan80%shareofthe natural brands are becoming moreChina accepted were the by fastestChinese growing manufacturers’ levelin2013,accordingtoresearchcompanyKline&Co.Braziland markets for natural beauty products Global salesofnaturalpersonal-careproductsroseby10.6%to$29.5bnatthe this year. In China, It willopenanewfactoryinBrazil2014,aswellmascaraproductionsiteItaly. compared totheformersites. sustainable development goals, siteswith thein theaim regionof reducing that haveits energybeenalso closed.launching use by It20%, aemploys small fillinga staff sample sizes)and“premium”plastictubesdestinedfortheprestigebeautymarket.Itis activityof 600 and at hasthe ambitioussite. The factory production lines:plasticcaps,laminatedtubes,smalldiametertubes(including replaces two manufacturing The SainteMénehouldplantcovers22,000m Kline predicts that the natural personal-care market will reachGrowth sales was ofalso $46bn strong in 2018.in mature markets this year, with sales in the US rising 7%, Albea reported sales of $1.5bn in 2012, and operates 45 industrial sites in 14 countries. France-based packagingsupplierAlbéa inaugurated its biggest plastic tube factory in September. It will retail for €97.65. the product will also be availableone forat Clarinsvery dry Institutes. skin and one for all skin types with SPF20.butter andVitaminCtolimittheproductionofmelanin minimize agespots. A new that uses The cream launches in Europe and Russia in mid-January, and in the US and UK ThecreamlaunchesinEurope andRussiainmid-January,theUSUK Super RestorativeDaycomesin threedifferentformulas:oneforallskintypes, www.bwconfidential.com -December 19,2013-January 9,2014 #84-Page 4 n 2 fi (237,000ft broblast activity in the skin, which 2 ) and operates four specialist ) andoperatesfourspecialist It retailsat€89for60ml. at SpaceNK and QVC in the UK. most of Europe and in February inJanuarythroughout It willlaunchexclusivelywith with microalgae oil and collagen. formula combinesalguronicacid as theappearanceofwrinkles.Its skin radianceandtone,aswell the anti-agingcreamimproves 50 andover.Thebrandclaims product targeting women aged launch Genius,anewskincare US-based brandAlgenististo March andwillretailat€38. and beige.BigEasylaunchesin fair, light/medium, medium cream comesinfourshades: and oilypatches.TheSPF35 complexion and evens out dry hydrates skin, creates a uniform is ‘BiggerthanBB’andsaysit company claimsthattheproduct BB Cream, next spring. The to launchBigEasy,itsfirst LVMH-owned Benefit is Alex Wynne, Renata Ashcar, Mayu Saini, AlexWynne,RenataAshcar,MayuSaini, www.bwconfidential.com printmagazine(4issues):€499orUS$699 Subscriptions NadiaDiMartino Raphaëlle Choël, Corinne Blanché, Raphaëlle Choël,CorinneBlanché, Tina Clark,LouiseDury, Contributors: [email protected] Darlene Lim Editorial Coordinator&Assistant: [email protected] Deputy Editor:AlissaDemorest [email protected] Editorial Director:OonaghPhillips Publisher: NicolasGrob ISSN: 2104-3302 Fax: +33(0)153010979 Tel: +33(0)174634961 [email protected] 92600 AsnièressurSeine,France 4 avenuedelaMarne BW Confidential permission isstrictlyprohibited. Reproduction inwholeorpartwithout Copyright ©2013.Allrightsreserved. 513 746297RCSNanterre BW ConfidentialispublishedbyNoonMedia [email protected] Advertising [email protected] 1 year:electronicpublication(20issues)+

News roundup

n n n Sephora France is to sell new special-edition fragrances from four major brands next spring. The chain will distribute a new art limited- edition collection for Yves Saint Laurent. The YSL brand collaborated Gloss’UP, a beauty bar with Norwegian artist Gardar Eide Einarsson to decorate the packaging located in the Marais district for three of its men’s fragrances: L’Homme, La Nuit de L’Homme and in Paris, France, is launching The buzz L’Homme Libre. Called Edition Art by Gardar Eide Einarsson, each of Nail Truck, an airstream the scents will retail at €78.50 for 100ml. Meanwhile, LVMH-owned trailer that will provide Kenzo is to add a new scent to its Couleur Kenzo range, which is sold nailcare services throughout exclusively at Sephora, and launched with two fragrances (Pink and the city. The trailer is fitted Yellow) in March this year. The new scent, Violet, is a fruity floral created with four manicure stations by perfumer Jean Jacques from Takasago. It goes on sale in March and and will be parked in different retails at €59 for 50ml. spots in Paris; its locations Also exclusive to the chain in March is a limited-edition scent from Roberto Cavalli called will be communicated via Exotica and a limited edition from Jimmy Choo’s Flash franchise called London Club. the company’s Facebook For Sephora’s own brand, the chain has revamped its anti-aging skincare range. Also page. Services include in skincare, it will introduce a new Liquid Moisturizing Skin Concentrate, a -serum, polish application, French which it says is inspired by Asian skincare trends, and a sachet of 15 mono-dose shower manicures, quick manicures cream capsules for travel purposes. and nail art and prices range In make-up, it has come out with Upside Down Mascara, a mascara with a dual brush from €9 to €40. The trailer in tweezer-like format that is said to enable users to create three different lash looks— can also be rented for private volume, curl and length—as well as providing lower-lash definition. use and transformed into a “Make-up Truck” or “Beauty Truck” that provides services UK retailer Boots is looking to boost its Boots beauty brand in France by expanding tailored to specific events. distribution and new product initiatives. Boots aims to rank in the top six to eight brands in skincare in the pharmacy channel within the next year in France; it is currently ranked in the top 12 to 15. To this end, it will expand the number of pharmacies where it is sold from 3,000 to 5,000 over the next 12 months. Boots will also focus on new products to reinforce its position in the market and has just come out with a range for Serum 7 aimed at mature consumers. Called Serum 7 Renew, the new line targets problems associated with the menopause such as dry skin, age spots and sagging skin. The range combines two technologies: a renewal complex containing gluconolactone and natural actives like kiwi, and an anti-aging complex that includes vitamins A and C, and ginseng. Serum 7 Renew consists of a serum (€39), day cream (€36), night cream (€36) and eye cream (€25). Renew is the third line in the Serum 7 franchise, after Serum 7, which launched in 2008, and Serum 7 Lift, which was introduced in 2010. n Beauty blogger review The products they’re talking about

Yuan Skincare. This Taiwanese brand, which is known for its soaps, has introduced a skincare range based on natural ingredients and herbal extracts such as willow grass, plantain and burdock root, suitable for

Netwatch Asian skin types. Although the writer liked the products under review, she points out that the paraben-free formula still includes preservatives methylisothiazolinone and Iodopropynyl butylcarbamate, which can cause allergic reactions. The steep price also surprised the blogger. [From: www.vivawoman.net ]

Made From Earth Three Berry Daily Face Serum. This brand is praised for using the highest quality organic ingredients and fruits, which are not watered down, are farmed in the US and cruelty free. Products are also free from synthetic dyes, fragrance, paraffin, petroleum products and parabens. The Three Berry Daily Face Serum contains vitamin C, raspberry and blueberry and is praised for its light fresh berry fragrance and lightweight serum texture. [From: www.glamourgirlreviews.com ]

Restorsea Retexturizing Body Butter. Described as one of this blogger’s favorite beauty products of all time, the Retexturizing Body Butter has a smooth texture which is said to be immediately absorbed into the skin and provide hydration for 24 hours. Restorsea products contain a proprietary complex called Vibransea, which includes a naturally derived enzyme from salmon eggs. The product is said to gently exfoliate the skin and remove dead cells so ingredients like brown algae and vitamin C can better penetrate it. [From: www.snobessentials.com ]

Eraclea Pure Hydration Serum/Zinc. The Eraclea brand is noted for offering a solution for skin suffering from harsh winters. The serum was said to give windburned, irritated and red cheeks a “radiant glow” and was therefore dubbed a “must-have” in the winter beauty regimen. The brand uses a proprietary HylaSponge technology, which is said to hydrate the skin’s surface layer while allowing active ingredients and small water-soluble molecules to penetrate the skin’s deeper layers. [From: www.outblush.com ]

Their comments & conversations l Sparked by celebrity blogger Michelle Phan’s claim that she didn’t wash her face in the morning, cleansing rituals have been a topic of conversation, with some bloggers agreeing that water can be harsh and drying to the skin. Cleansing innovations, however, are still important, with bloggers looking to new launches in the cleansing device segment, a category that seems to have won over a number of fans.

l Interest in traditional cold creams has been building in the blogosphere, in response to the number of new products in the category. Cold creams are hailed as a classic remedy for cleansing and moisturizing dry skin and beauty brands across the board, notably drugstore brands like Boots and Pond’s, have been spotlighted. Bloggers appreciate the simplicity of a , as well as the price. They also point out, however, that a cold cream does not replace an anti-aging product. The views expressed in this section are those of bloggers and do not represent the opinions of BW Confidential

www.bwconfidential.com - December 19, 2013-January 9, 2014 #84 - Page 6 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Guerlain travel retail worldwide director Philippe Guitelmann

Interview Flying high Guerlain travel retail worldwide director Philippe Guitelmann talks to BW Confidential about his vision of today’s global travel-retail market

How do you see the state of the travel-retail market? Globally, it’s a very dynamic market. All indicators show that the business will continue to progress for several years to come—passenger numbers are up, infrastructure is being improved in key markets and brands and operators are investing to grow the business. We don’t give growth figures for our brand. Today the passenger is ready to spend at Which markets are performing best? “ Asia, without a doubt, due to the strength of Chinese travelers. There has been the airport. If retailers somewhat of a slowdown coming from China, which is due to a combination of economic and political factors, such as the government’s attempt to put a stop are able to create an to the tradition of giving ostentatious gifts [to government officials]. There were environment that is in also new regulations brought in to prevent tour operators from organizing trips where passengers were ‘encouraged’ to shop, and the Chinese government line with a premium has made moves to keep sales inside the country, which has had an impact on product, there is really travel retail. Despite all of this, growth rates remain strong. But growth isn’t just limited to Asia; airports worldwide are benefitting from Asian passengers. no barrier to purchase

How is the market in the Americas performing? Latin America covers a lot of territory, and it’s a bit harder to plan for, as the Guerlain travel retail worldwide director Philippe Guitelmann retail network isn’t just about airports, but also other venues, such as border shops. We’ve seen a real slowdown when it comes to the number of Brazilian ” passengers, due to the sluggish Brazilian economy and currency fluctuations. Unfortunately, we don’t have figures that tell us about passenger numbers in specific airports, but we are seeing a lower spend per passenger—not just for Brazil, but also for markets like Argentina. The motor that had been revving up for several years has slowed down considerably. Historically, travel retail in North America presented real challenges, with an infrastructure that wasn’t adapted to duty-free, and the channel wasn’t as much of a priority for operators. But today, with the latest openings in New York and Los Angeles, we’re seeing that operators now have much higher standards. Guerlain There are also strong growth perspectives in the region, with the development l N° of travel-retail of Chinese, as well as Brazilian, travelers. This region can really be an engine for doors worldwide: growth for the business. n n n 1,000

www.bwconfidential.com - December 19, 2013-January 9, 2014 #84 - Page 7 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Guerlain travel retail worldwide director Philippe Guitelmann

n n n What shifts have you seen in the channel’s product offer? There is a global trend towards premiumization—every time a store is revamped, it takes on a more premium positioning. The product offer is also going more upscale; retailers are looking to offer more higher-priced products than in the past. There has been a

Interview Guerlain’s Collection Exclusives fragrance range is just one example. These offers slowdown from are increasing the average basket spend. At the other end of the spectrum, we are “ seeing a move to offer more accessibly priced products. China due to factors Today, passengers are ready to spend at the airport. If retailers are able to create including new an environment that is in line with a premium product, there is really no barrier to purchase. There was a certain reluctance on the part of brands and retailers to regulations to prevent embark on luxury concepts, but tests have shown that this is a successful strategy. tour operators from Airports are also the perfect space to allow passengers who might not naturally go into a premium store environment in the domestic market, to come into organizing trips contact with a prestige product. In travel retail, the brand comes to the consumer. where passengers Retailers and airports now realize that we have to create the right environment, so they are making efforts to offer more space [for beauty]. were ‘encouraged’ to shop, and the Chinese Are retailers giving brands more opportunities for animations at the point of sale? government’s moves There is, of course, more demand than supply, and it’s become very competitive; to keep sales inside but it’s up to the brands to be innovative and offer different models. At Istanbul airport, for example, we did an animation with [Guerlain fragrance] La Petite the country Robe Noire and Moët & Chandon champagne. We are working on concepts that integrate the notion of travel and when we come up with interesting ideas, retailers are supportive. So things are changing. The competition also keeps us on Guerlain travel retail worldwide our toes in terms of coming up with new ideas. director Philippe” Guitelmann How can you target different passenger profiles in the same airport? It’s difficult, especially because there are few statistics available. In addition, passenger flow in an airport is not static—airlines change their schedules and of course, brands and retailers don’t have a say in those decisions. We would like to go more in the direction of offering the right product to the right passenger at the right time, but there are a lot of constraints. There is also the challenge of language—we’d love to have more BAs that speak Chinese, for example. Our goal is to find a simple and efficient way to speak to the biggest number of passengers possible.

How do you see the travel-retail market developing in 2014? On the basis of the solid growth we’ve seen in the past two years, we’re forecasting another positive year in 2014, hopefully with double- digit growth. We still have to be somewhat cautious, given that Europe remains uncertain and we aren’t sure what will happen with the slowdown in Chinese travelers. So the situation is a bit volatile. In the medium term, the business is progressing and we’ll adapt s Guerlain launched an animation for La Petite as quickly as possible in the case of any unforeseen events, but we Robe Noire in collaboration with Moët & Chandon champagne at Istanbul airport, illustrating the remain optimistic. n brand’s efforts to be more innovative at point of sale

www.bwconfidential.com - December 19, 2013-January 9, 2014 #84 - Page 8 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Insight

South Africa retail

Changes to come credit: stock.xchange South Africa’s retail scene may be in for a shake-up

ompetition is fierce among beauty retailers in South Africa, given the tough economic Csituation, growing unemployment and increasing constraints on purchasing power. While South Africa is often given emerging-market status and all the growth prospects that go with it, including a rising middle class, it also bears many of the signs of a more mature country going through an economic crisis; indeed, business confidence is said to be at its lowest level in 10 years. South Africa is considered by some as a two-speed market. “It’s a market that is both in full expansion due to consumers’ high purchasing power, but it is also somewhat mature,”explains Lionel Durand, managing director of French ethnic make-up brand Black Up. The South African The beauty business has also been hit by the volatility of the South African rand. “The rand is constantly South African rand is constantly fluctuating, so brands and retailers need a lot of financial “ muscle to deal with the constant changes,” comments François Nicollier, manager at fluctuating, so distribution company Ciscoprod. Wilfrid Moulin, founder of niche retailer Metropolitain brands and retailers Cosmetics, agrees, citing the rand as the “biggest challenge” the market faces today, and says that in the past 12 months, the rand has seen a 32% devaluation against the euro. need a lot of financial In addition, the retail scene is dominated by one strong player—Edcon, with its muscle to deal with department store Edgar’s and Red Square beauty standalone concept, which commands a 50% share of the prestige cosmetics market, according to industry sources. Some see the changes this dominance of one player as having created a certain sameness of offer. Add to that the strong position of major brands in the market, from Estée Lauder to L’Oréal-owned brands and Clarins, and competing retailers end up sharing a very similar assortment. Ciscoprod manager However, the retail market may be in for an injection of innovation. Edcon’s Edgar’s and François Nicollier Red Square are in the midst of implementing “strategic changes”, according to Edcon ” executives (although the retail group refused to provide specifics on these changes). Edgar’s revamped some 40 to 50 stores this year. “Edgar’s is extremely driven when it comes to developing its beauty business,” explains Black Up’s Durand. Industry players believe that it will only be a matter of time before its rivals Stuttafords and Woolworths embark on renovations of their own. In addition, there are some niche retail outlets that continue to offer an alternative beauty format, such as Metropolitain Cosmetics, which specializes in exclusive niche brands. n n n

www.bwconfidential.com - December 19, 2013-January 9, 2014 #84 - Page 9 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL South Africa retail n n n South Africa’s main beauty retailers Edgar’s N° stores: 186 Insight Department store Edgar’s is said to hold a 50% share of the prestige beauty market in South Africa (including retailer Red Square, which is also owned by retail conglomerate Edcon). According to Edcon executives, the group’s beauty business is currently undergoing “significant strategic changes”. Industry sources report that Edgar’s began revamping its store network about two years ago. This year, the retailer was aiming to renovate around 70 stores, but in the end, only between 40 to 50 underwent a revamp. Edgar’s is said to be looking to give its beauty brands more prominence in its stores and to create more services. Edgar’s does not currently operate its own e-commerce website for beauty, but links to Red Square’s boutique, which went live this year. Sources believe that Edgar’s may launch its online beauty boutique in 2014.

Red Square N° stores: 39 Like Edgar’s, open-sell format perfumery chain Red Square is undergoing a change in strategy (the company would not give additional information). Red Square operates 39 stores in the country and offers a range of traditional masstige and prestige brands, accessories and men’s products. It launched its e-commerce website in the second half of this year, along with a free sampling program on its e-boutique allowing customers to choose up to three free samples with every order. The retailer recently added make-up brands GOSH, Smashbox, Bobbi Brown and CK Colour to its offer. Each Red Square store features a treatment counter, where shoppers can receive a complementary skin analysis.

Foschini N° stores: More than 200 With more than 200 doors, department store Foschini has good coverage of the South African market and sells major prestige brands, such as Dior and Lancôme. However, the retailer has less of a prestige positioning than some of its competitors, such as Edgar’s. The Foschini Group, which owns the retailer, reported an increase in beauty sales of more than 11% in the first half of this year. However, it warned that the trading environment would continue to be challenging in the months to come.

Woolworths N° stores: 197 Retail chain Woolworths, which began selling beauty in 2006, has a wide selection of prestige brands and quality presentation.The retailer does not break down its beauty sales, but its ‘general merchandise’ sales, which include beauty, were up by 7.2% in the fiscal year ending June 30, 2013. Woolworths is forecasting “constrained” economic conditions in the coming year. The retailer plans to open three clothing and general merchandise stores in South Africa next year, and six in the country in 2015. n n n

www.bwconfidential.com - December 19, 2013-January 9, 2014 #84 - Page 10 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Make-up CONFIDENTIAL Beauty insight Facts, figures, trends & innovations

CONFIDENTIAL Insight China, Japan, Korea Market watch CONFIDENTIAL Insight: skincare Interview Travel retail:Asia CONFIDENTIA

L South Africaretail n Essentials andisinnegotiationswithseveraldepartment-storeretailersfortheconcept.n Moulin. The retail chain is alsonow continuing on, we will to firstinvest launch in training new“To brands extend programs online,” our forreach, itsexplains thisBAs. year,MetropolitainCape we’ve Town focused in founder 2014. on WilfriddevelopingMetropolitain and itsfirstoutsideofashoppingmall.TwonewstoresareslatedtoopeninPretoria our willwebsite launch and afrom new version ofopened itsfourthstoreinJohannesburg—allfourstoresaretheJohannesburgarea— its website next February. increase by 18% in 2012. In July,A specialist the retailer in exclusive(which also niche hasN° stores:4 beautya distribution brands, Metropolitainbusiness) Metropolitain Cosmetics Cosmetics saw its sales focus onbeautythansomeofitscompetitors. Kardashian Beauty. Industry sources range ofprestigebrands,andnewcomersthisyearincludeHermès,JuiceBeauty report that Stuttafords hasStuttafords been putting was Southless ofAfrica’s a N° stores:12 first department-store operator. The store stocks a wide CONFIDENTIAL The retailer has a project for a shop-in-shop niche brand concept called Metropolitain what’s tocome? What’s changedand Luxury insight Market watch:US Interview Packaging Stuttafords CONFIDENTIA L trends andnewopportunities An analysisofmarket data, Fragrance Interview Packaging report Market watch Travel retailspecial

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Color makes acomeback Make-up insight Market watch Interview Travel retail Packaging 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 Figures, retailinitiatives&trends Skincare insight Market watch:China Interview Travel retail How prestige is set to develop How prestigeissettodevelop Insight: Haircare Market watch:TheUS Interview Packaging

Boost yourinternationalbusinesswithBWConfidential Data, trends&retailerviews Fragrance insight Interview Market watch Travel retail Packaging What’s nextforthecategory? Make-up Interview Market watch Travel retail Packaging insight What’s nextforthecategory? Skincare insight Interview Market watch:China Travel retail:Asia Trends, opportunities&challenges Insight: Fragrance Creation Packaging Middle East Market watch: Interview Digital focus

[email protected] Ups, downs&newdirections Insight: Fragrance Interview South EastAsia Market watch Travel retail Packaging

What’s instorefor2013? Make-up insight Market watch:US Interview Travel retail Packaging Intercharm Moscow Russian niches BW Confidentialreports on what was seen and heard at the Intercharm Moscow trade show, held from November 27-30, 2013 Show review ussia’s economy may have slowed this year, but its beauty market continues Rto hold its own and is still attracting much interest from foreign players. This was the sentiment at the Intercharm Moscow trade show, which took place from November 27-30. The show, which celebrated its 20th edition this year, attracted 67,382 visitors, a 9% increase from 2012. Exhibitor numbers were up by 10% to 1,022. This year, there were new national pavilions for the US and Thailand. Exhibitors at the show said they were encouraged by the growth forecasts for the market. In 2012, Russia’s beauty market saw sales of $13.5bn, according to Euromonitor. Last year, the market enjoyed its strongest growth since 2004, with sales up 21%. Euromonitor predicts that the sector will grow annually by at least 4% for the next five years.

Niche on the rise The prestige market continues to do well and is seeing stronger growth than mass. Packaging companies at the show confirmed this trend, adding that there is greater demand for glass among brands in the market, to convey a more luxurious image. Big-name brands are still popular in Russia, but consumers are also venturing to buy more original products. For example, there has been a rise in demand for Arabic fragrances. These scents were found mostly in the mass market just a few years ago, but now have a more upscale positioning, with industry players reporting that consumers like the strong scents and the elaborately decorated bottles. Niche products, whether in fragrance or in skincare, are also gaining ground. “Niche is developing, as consumers are now ready to go for different brands and pay for good products. These brands are popular not just in Moscow, but also in the regions,” distribution company Soling PR manager Elena Zakharova told BW Confidential. Reflecting the demand for these products, the Intercharm Moscow show hosted a new area for up-and-coming brands this year, called La Niche. The area housed 21 niche brands, including fragrance company Micallef and skincare company Iceland Cream. In addition to finished cosmetics and perfumery products, the show hosted large sections devoted to nails and hairdressing, as well as an area for raw Intercharm Moscow materials and packaging. Held: November 27-29, 2013 Next year’s show will take place from s This year’s edition of Intercharm Moscow featured a Exhibitors: 1,022, +10% vs 2012 new section dedicated exclusively to niche brands October 22-25. n Visitors: 67,382, +9% vs 2012

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Macy’s puts a new focus on beauty The US department-store retailer unveils its refurbished beauty floor at its flagship store in New York City

S department-store retailer Macy’s inaugurated its revamped beauty department Uat its flagship store in Herald Square, New York City in November. The 24,000ft2 (2,229m2) space has been refurbished to provide a more upscale shopping experience and for the first time, includes premium brands Tom Ford, Hermès, Jo Malone, and La Mer. The space has introduced a Fragrance Bar, an area featuring a Macy’s Herald mix of prestige and luxury , framed by a large LED screen showing the latest Square launches. The beauty floor now also houses a Kiehl’s shop-in-shop and the Impulse l Location: Beauty concept, Macy’s in-store area that offers a selection of niche brands, which New York City, US the retailer launched in 2010. l Size: 24,000ft2 The retailer is putting an emphasis on service at the Herald Square store with the (2,229m2) opening of Blow, an express hair blow-drying bar, as well as a Benefit brow bar. The l On offer: Fragrance Bobbi Brown counter offers a seated area for makeovers, while the Dior counter now Bar, Blow hairstyling bar, includes a nail bar. Kiehl’s shop-in-shop, A space devoted to men covers 4,000ft2 (372m2) and includes an Art of Dior nail bar, Bobbi shop, while facials from Lab Series, Clinique and are also on offer. Brown makeovers, Art of Macy’s operates more than 800 stores in the US. n Shaving shop

www.bwconfidential.com - December 19, 2013-January 9, 2014 #84 - Page 13 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Store visit

s Brands including Tom Ford and Hermès are new to Macy’s lineup

s Macy’s revamped store puts more of a focus on premium brands

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