www.bwconfidential.com The inside view on the international beauty industry Dec 18, 2014 - Jan 7, 2015 #103

CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL

Comment Inside

The buzz 2 Quick and easy News roundup espite the trend for elaborate services and in-store customer Netwatch 6 Dconsultations, there is a definite market for quick and easy beauty buys. This convenience factor is one reason for the Beauty blogger review emergence of vending machines for beauty. US-based online subscription company Birchbox sought to add Interview 7 a fun factor to the equation with its vending machine in Paris Estée Lauder Companies group train station Gare Montparnasse. The miniature products sold by president international Cedric Prouvé Birchbox through the machine are not only intended as a solution for consumers who forgot to bring their or on Insight 9 a trip, but are a real-world way for commuters to try out a new US prestige market product they may not have thought about before. While waiting for a train they are likely to have the time to make the purchase and the limited offer may mean less confusion about Show review 13 what to buy. In addition, the price of just €4 for a pack containing two products doesn’t Cosmoprof Asia seem like much of a financial risk. Vending machines, of course, are nothing new, but for the most part they have not Store visit 15 really taken off for beauty. And in truth, Birchbox’s effort is more about building company Birchbox, Paris awareness offline than selling products. However, installed in the right place (high-traffic train stations seem ideal) and with the right products, vending machines could well begin to attract the non-perfumery, non-department–store shopper to beauty. We would like to take this opportunity to wish you a peaceful and prosperous New Year and we look forward to bringing you more news, commentary and analysis in 2015.

Oonagh Phillips Editor in Chief [email protected] Subscribe on p.17 or go to www.bwconfidential.com CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIA CONFIDENTIA L L The buzz Abercrombie & FitchandHollisterbrands.The firstscentsaretolaunchin2016. & Fitch.Theseven-yearagreement isforfragranceandfragrance-relatedproductsthe US-based Percassi group,operatesmore than600storesinEuropeandrecentlylaunchedtheUS. in December2020andwillbelistedontheIrishstockexchange. Kiko,ownedbythe deal, amovethatisintendedtofinanceitsinternationalexpansion. Thebondswillexpire Budget ItaliancosmeticschainKikohassoldbondsworth€100minaprivateplacement and expandedresearchteamsintheUS,Europe,Southeast Asia andChina. also beR&Dinvestments,includingthecreationofaGlobal Innovation CenterinJapan initiatives, withanaimofinvesting¥100bn($853m)beginning infiscal2015.Therewill markets: ShiseidoProfessionalandJoico. presence in-store,whiletheProfessionalbusinesswillfocusonitscorebrandsinAsian Online saleswillalsobeafocus,especiallyinJapanandChina. price productforyoungerconsumers,mainlyinemergingmarketsAsiaandChina. other Asiancountriesinthemedium-to-highpricesegment.TheZabrandwillbeanentry- andChina),theUS,Europe,intravelretail. Clé dePeauBeautéandNars,willfocusongrowingthebusinessinAsia(especially Personal CareandProfessional,createsixregionalhubs. ($853m) in2020andconsolidatednetsalesof¥1trillion($8.5bn). make structuralreformsforthenextsixyearstoreachoperatingincomeof¥100bn as potentialmergersandacquisitions. introducing newbrands,developinginemergingmarketsand“unexploredareas”,aswell fiscal 2017and5to7%from20182020.Thenewstrategywillalsoinclude channels. TheseinitiativesareforecasttoresultinaCAGRofbetween35%by will “rebuild”itsbrandportfolio,ingreaterAsiaandthetravel-retaile-commerce 2017, theJapanesebeautygroupwillfocusongrowingitsbusinessinChina,whereit hasoutlineditsnewgrowthstrategy,calledVision2020.Between2015and Strategy Stay informedwithourdailynewsheadlinesonwww.bwconfidential.com News roundup Shiseido saysitwillinvestthecapitalgeneratedbythesereforms intomarketing The PersonalCaredivisionwillrepositionitsbrandsineachcategoryandreinforce For theCosmeticsdivision,ShiseidosaiditwillpositionElixirbrandinChinaand The Prestigedivisionwillincludethecompany’sglobalbrands:Shiseido,BareMinerals, The groupwillsegmentitsbrandportfoliointofourdivisions:Prestige,, Shiseido alsoaimstoexpandmarketingandR&Dinvestments,willcontinue n n n n At aglance...

Sephora opensflagshipstoreinAustralia Interparfums IncsignsAbercrombie&Fitchlicense Kiko sellsbondstofundexpansion Shiseido announcesnewgrowthstrategy has signed a beauty license with fashion retailer Abercrombie Interparfums Inchassignedabeautylicensewith fashionretailerAbercrombie www.bwconfidential.com -Dec18, 2014-Jan7, 2015#103 -Page 2 n News roundup

n n n French skincare brand Ioma has launched in Russia in 90 Ile de Beauté stores. Three locations will be positioned as flagships—two in Moscow and one in St. Petersburg. These stores will house the Ioma Sphere 2 diagnostic tool on a permanent basis, while Ioma Factory, which creates personalized skincare formulations, will be in store for specific The buzz animations. Ioma will also have dermatologists on hand for certain events.

Fragrance house Givaudan has launched a website devoted to patchouli sourcing, called The Journey of Patchouli, at www.givaudan.com/patchouli. “We wanted to provide our clients, the media and the end consumer with a didactic tool that allows them to discover this ingredient, where it comes from, how it is harvested and how it is used in fine fragrance,” a Givaudan spokesperson tells BW Confidential. She adds that depending on the success of this first initiative, the company could launch additional sites for other fragrance ingredients.

Retail

LVMH-owned retailer opened its first store in Sydney, Australia at the beginning of December. The flagship store is located at Sydney’s Pitt Street Mall. Sources say Sephora plans to open up to 20 stores in the country next year.

UK-based luxury-goods retailer Harvey Nichols is to open a store in Doha, Qatar in the first quarter of 2017. The venture is in partnership with Qatari business group Saleh Al Hamad Al Mana. The 80,000ft2 (7,432m2) store will be located in Doha Festival City mall. This store will be the retailer’s eighth outside of the UK. Harvey Nichols has locations in Dublin, Riyadh, Hong Kong, Dubai, Istanbul, Ankara and Kuwait.

French department-store operator Galeries Lafayette is to open a new store in the Carré Sénart shopping complex in the suburbs of Paris in 2018. The store will cover 2 2 BW Confidential 6,000m (64,583ft ) on two levels. 4 avenue de la Marne 92600 Asnières sur Seine, [email protected] Hypermarket operator Carrefour is testing a new beauty concept at its store in Vitrolles, Tel: +33 (0)1 74 63 49 61 Fax: +33 (0)1 53 01 09 79 France. Called Pro’s & Co, the shop-in-shop offers the retailer’s own brand Pro’s, as www.bwconfidential.com well as third-party brands L’Oreal Paris, Gemey, , Essie and make-up tools from ISSN: 2104-3302 Publisher: Nicolas Grob Babyliss. Pro’s & Co has beauty advisors on staff and is open from December 11–31. Editorial Director: Oonagh Phillips [email protected] Deputy Editor: Alissa Demorest [email protected] French fragrance brand Maison Francis Kurkdjian has opened its second Paris Editorial Coordinator & Assistant: standalone store, five years after its first boutique opened in the French capital. Located Katie Nichol [email protected] in the Marais district, the new store is initially opening in a pop-up format for two months Contributors: Tina Clark, Alex Wynne, Renata Ashcar, Mayu Saini, Raphaëlle Choël, and will then close for renovation and re-open in May 2015. Corinne Blanché The boutique offers the brand’s entire range, as well as a collection of perfumed leather Subscriptions 1 year: electronic publication (20 issues) + goods that launches in December exclusively at the boutique. Created in partnership with print magazine (4 issues) + daily news: €499 or US$699 saddle maker Atelier Renard, the line is debuting with Twin Set, two bi-color slim hand- [email protected] Advertising sewn cardholders that fit together, made of calf leather or crocodile skin. The items come [email protected] in two scents, created exclusively for the collection. BW Confidential is published by Noon Media 513 746 297 RCS Nanterre “We’re testing the waters with Twin Set and will later expand the range to include other Copyright © 2014. All rights reserved. Reproduction in whole or in part without items, such as notebook holders,” explains brand founder Francis Kurkdjian. Prices for permission is strictly prohibited. Twin Set range from €525 to €1,165. n n n

www.bwconfidential.com - Dec 18, 2014 - Jan 7, 2015 #103 - Page 3 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL News roundup

n n n People

Shiseido president and ceo Masahiko Uotani has taken on the additional role of head of human resources and corporate cultural reforms. Jean-Philippe Charrier, chief officer The buzz of the Professional Business Operations division, is now responsible for Asian Strategy, a role formerly held by Yu Okazawa, chief officer of Business Division and general manager of marketing development China. Yoshiaki Okabe, general manager Prestigious Cosmetics Business division at Shiseido China, has been named general manager of International Marketing department and general manager of Marketing Strategy Group, International Business division. Mamoru Watanabe, manager of Asia Pacific Sales department, International Business division, has been appointed managing director of Shiseido India. All appointments go into effect on January 1, 2015.

Drugstore group Walgreens Boots Alliance president and ceo Greg Wasson, who assumed his position in August, will step down after the completion of the merger between Alliance Boots and Walgreens. Shareholders are to vote on the second phase of the merger on December 29. Following his departure, Walgreens Boots Alliance chairman James Skinner will become executive chairman, while Stefano Pessina, currently executive chairman, will take on the role of ceo until a replacement is found.

Estée Lauder Companies (ELC) has named Patricia Lopez senior vice president general manager Estée Lauder and Aerin Beauty North America. Lopez was previously chief marketing officer at . ELC has also named Jenny Belknap svp global marketing for . She replaces Agnes Landau, who was named svp and global gm for Darphin in September.

L’Oréal USA has named Marc Toulemonde as president of the Active Cosmetics division, with responsibility for the SkinCeuticals, La Roche-Posay, Dermablend, and Vichy brands in the US. He was most recently global general manager of SkinCeuticals. Leslie Harris, formerly SkinCeuticals vice president of global product development and marketing, will take over as global general manager for the brand.

Launches

French skincare brand is relaunching its Super Restorative Total Eye Concentrate, first introduced in 2006. The brand claims the product’s revamped formula is more effective than retinol. The plant-based formula includes harungana extract, which is said to have regenerative properties, and guarana to reduce puffiness in the n n n News roundup

n n n under-eye area. The eye-contour cream will retail for €67 and targets women over 50. Clarins is also introducing a new lip balm in January, called Daily Energizer Lovely Lip Balm. The balm comes in the form of a and gives a sheer rosy tint to the lips while providing hydrating properties, the brand says. Daily Energizer Lovely Lip Balm retails for The buzz €13.90. The packaging is entirely made of cardboard, making the item easily recyclable.

Estée Lauder Companies-owned brand Darphin is to launch a line next spring, which it says takes a new approach to skincare based on managing, rather than fighting the aging process. Called Exquisâge, the line comprises a serum and a cream and incorporates a cocktail of four ingredients dubbed the CelluVie Complex, which is said to stimulate collagen production and reduce wrinkles.The serum claims to revitalize skin and improve elasticity and luminosity, while the cream protects the skin. Exquisâge will launch in March, with the serum retailing at €90 (30ml) and the cream priced at €78 (50ml). In other news, Darphin announced it has collaborated with Paris-based Antoinette Poisson, specialists in period patterned wallpaper, to create a handbag in the Darphin colors. The hand-made leather bag features a domino print. Only 10 will be created and each one will be numbered. The bag will be sold exclusively at Darphin’s Paris beauty institute, priced at €3,800.

Niche brand Odin New York has launched The White Line, a collection of three floral unisex EdPs: Efflora, Milieu Rosa and Vert Reseda. “We wanted to create floral scents that had a different approach from the classic powdery florals that are common on the market today,” Odin New York co-founder Kelly Kovack tells BW Confidential. Efflora features notes of mandarin orange, Turkish rose, grapefruit blossom and oak moss. Milieu Rosa’s juice includes notes from three different types of roses, vetiver and raspberry, while the third fragrance, Vert Reseda, has notes of Reseda leaf, peony gardenia and sandalwood. The scents were created by Drom perfumer Jean-Claude Delville. The outer packaging was created by paper designer Matthew Shlian. The White Line launched exclusively at Barney’s in New York, Liberty in London and at Colette in Paris late November. Each 100ml EdP retails for €175.

Trade shows

Exhibitors and visitors expressed enthusiasm over the first edition of MakeUp in São Paulo, the color cosmetics trade show for the South American market. The show, which took place in São Paulo on December 3-4, welcomed more than 620 visitors and 15 exhibitors. Organizers expect the show to grow along the same lines as Make-Up in New York. That event also welcomed 600 visitors when it launched four years ago, while this year’s edition attracted 2,300 visitors. Highlights at MakeUp in São Paulo were the conferences, including a session hosted by João Carlos Basilio, president of Brazil’s association Abihpec, and an event where make-up schools competed in creating looks. MakeUp in São Paulo is the fourth color cosmetics trade show organized by Paris-based Beauteam (the others are MakeUp in Paris, MakeUp in New York and MakeUp in Seoul). Beauteam founders Sandra Maguarian and Jean-Yves Bourgeois say this latest event reinforces the strength of the show’s concept. “These four annual events in Europe, North America, Asia and South America offer the make-up industry unique opportunities to reach four huge markets directly,” commented Bourgeois. n

www.bwconfidential.com - Dec 18, 2014 - Jan 7, 2015 #103 - Page 5 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Beauty blogger review BW Confidential reports on what the bloggers are saying about beauty

The new Tom Ford lipstick collection, Lips & Boys, has been a hot topic in the blogosphere. Bloggers are intrigued by the inspiration for the line—all products are named after men who have been important in Ford’s life—and praise the

Netwatch design and color palette. The exclusively online launch strategy has also incited comments about the brand’s desire to reinforce its presence on the web.

A new sub-category in the haircare segment, hair products, are “launching everywhere”, say bloggers. However, judging by comments online, consumers are not always sure what these products actually do or whether they are necessary. Bloggers also question the efficacy of multi-functional haircare products inspired by BB creams.

Sephora France’s fragrance bottle recycling campaign has seen positive feedback. Bloggers are interested to see if the concept—the initiative offers a 20% discount on new purchases in exchange for used bottles—will be expanded to other categories.

News that US mass merchandiser Target will expand its niche beauty offer has been well received by bloggers. They say they like the idea of being able to shop more hard-to-find or foreign natural beauty brands at Target. The new offer includes French skincare brand Nuxe, which launches online at Target next year. The views expressed in this section are those of bloggers and do not represent the opinions of BW Confidential

The inside view on the international beauty industry

In-depth coverage of the global beauty market

The inside view on the international beauty industry The inside view on the international beauty industry The inside view on the international beauty industry

Interview Interview ceo Interview Coty ceo Laurent Boillot Ferragamo Parfums ceo Michele Scannavini Luciano Bertinelli Market watch: Market watch: Brazil What’s next for Mexico, Travel retail: Europe The ins & outs of doing Argentina & Colombia? How the region is faring & business in the country the continent’s top airports Travel retail: Travel retail Brazilian travelers Market watch: Africa Data, digital & How they shop & how The potential & challenges of the CIVETs to reach them the next big region for beauty

Packaging Packaging Packaging Sector outlook & Decoration techniques How make-up packs luxury trends for 2014 & trends are evolving

Insight: Fragrance Insight: Make-up Insight: fragrance creation Global market analysis Doing color better What’s next for the industry?

ISSN: 2104-3302 ISSN: 2104-3302 ISSN: 2104-3302

www.bwconfidential.com N°16 November-December 2013 www.bwconfidential.com N°17 March-April 2014 www.bwconfidential.com N°19 September-October 2014

BWCONF_oct2013-def2.indd 1 24/09/13 18:00 BWCONF_fev2014.indd 1 06/02/14 15:16 BWCONF_septembre2014.indd 1 22/07/14 12:04

Distribution at all the major international events ...TFWA World Exhibition Cannes • Beauty World Middle East Dubai • PCD Paris Cosmoprof Worldwide Bologna • China Beauty Expo Shanghai • HBA Global Expo New York Duty Free Show of the Americas Orlando • Intercharm Moscow • Exsence Milan Luxe Pack Monaco • Beyond Beauty Paris • Luxe Pack Shanghai • In Cosmetics Paris Luxe Pack New York • Cosmoprof Asia Hong Kong • Pitti Fragranze Florence • Make Up in Paris Elements Showcase New York • Mondial Beauté Paris • TFWA Asia Pacific Singapore...

Boost your international business with BW Confidential > [email protected]

DemiPage-210x148NEW.indd 1 07/08/14 11:34 Estée Lauder Companies group president international Cedric Prouvé

Driving growth Interview Estée Lauder Companies’ Cedric Prouvé talks about China, developments in retail and acquisitions

Are you seeing any improvement in growth of same-store sales in China? In China, most of our brands are growing very well, including at a same-store level. It is a bit different now for Estée Lauder, as it is the biggest brand in China, so we are struggling a little bit on like-for-like door growth, but we are still expanding distribution. For China, we are taking a long-term view, and we know there will be bumps in the road and issues with growth. The economy is growing at 7.3% and we are still seeing a lot of runway in our expansion of distribution into tier-three and tier-four cities. The core business is Estée Lauder and we are launching Re-Nutriv Ultimate Diamond [In terms of Dual Infusion in the super prestige arena. We are broadening our franchise portfolio, as distribution in China], we are a little over-dependent on Advanced Night Repair, so we have to diversify and “ push other categories. we are looking at Fundamentally, I agree that China is slowing down, but I think we have been less affected by the restrictions on gifting, as cosmetics are more affordable. There is a general other initiatives, such movement for the government to boost local consumption of Chinese brands. We haven’t as transportation seen that much in cosmetics, but we think it will come eventually. But by that time, we hope we will almost be considered a local brand. hubs, railway stations, airports or tourist How do you see your retail strategy in China evolving, especially in third- and fourth-tier cities? destinations within Right now we are in almost 100 cities in China and we think we could be in several the country, as a lot hundred cities down the road. Some third-tier cities are very impressive and the [retailers there] usually leapfrog tier-one and tier-two cities in terms of quality. of Chinese consumers Department stores will still be our main channel, but they will grow more slowly than want to discover others, particularly online. We opened [on Alibaba-owned website] Tmall for Clinique, Estée Lauder and , and will probably introduce other brands to Tmall. their country first When we look at online development overall in our company, it is the fastest-growing before they travel channel along with travel retail. Online is close to 6-7% of total sales this year, and in markets like the US and the UK it is above 10%. Our online business in China is still in internationally the low single digits, but is growing fast and has the potential to reach 10% fairly quickly. Another piece of the strategy is retailer dot-coms, but in China there are no big players Estée Lauder Companies at the retail level yet, and the market is still quite fragmented. The other thing that is group president international evolving fast in China is direct-to-consumer via freestanding stores, and we have around Cedric Prouvé 30 standalone stores in the country. There are very good quality malls developing in China ” and we are opening more freestanding stores. We are looking at other initiatives, such as transportation hubs, railway stations, airports or tourist destinations within the country, as a lot of Chinese consumers want to discover their country first before they travel internationally.n n n

www.bwconfidential.com - Dec 18, 2014 - Jan 7, 2015 #103 - Page 7 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Estée Lauder Companies group president international Cedric Prouvé

n n n You announced the acquisition of Le Labo. What else is being done on the M&A front, and will the size of future buys resemble that of Le Labo? [following the interview, ELC purchased Rodin Olio Lusso and Editions de Parfums Frédéric Malle] We are very active and we have a lot of cash, but we are not going to go for targets just Interview for the sake of buying something. The targets have to be in line with our strategy. Le Labo is right on our strategy in terms of being bespoke and prestige, although it’s still at [For acquisitions], an early stage of development. In the fragrance pyramid it is at the niche end—we are “we are not so much not comfortable with the bottom of the pyramid with commodity fragrances. We are not looking at high-scale targets, but at brands we can make bigger and where we can get a looking at how big good return. Le Labo is exceptionally small, so it’s not going to be that material right away the brands are today, in terms of integrating it into the group. But we started with a lot of brands that were very small, such as Tom Ford and Smashbox. We’re not so much looking at how big the but more at how big brands are today, but more at how big they can become tomorrow. they can become

How will your free-standing store network evolve? tomorrow It is no secret that we are a retailer now. We operate over 1,000 stores around the world. In Europe we are our own biggest retailer. The shift to freestanding stores is happening in Estée Lauder Companies Europe, where we are getting into a significant mix of what we call direct-to-consumer, group president international whether that be freestanding stores or online. With standalone stores, we can express Cedric Prouvé the brand and have the right service and merchandising; profitability is also quite good. ” It doesn’t cause conflict with retail partners. With brands like MAC, and Jo Malone, our stores create more awareness, so classic distribution benefits from it.

Would you open more stores for brands that don’t have a free- standing store model, such as Estée Lauder or Clinique? In more developed Western European markets this would be more difficult as we have thousands of doors. We might, but more for awareness rather than as a distribution strategy per se, and it won’t be huge part of our distribution mix. We are doing it in emerging markets, for example with Clinique in India and Brazil. It depends on the market; where we don’t have a choice in terms of distribution we go with freestanding stores.

You opened a boutique with World Duty Free at Detroit airport that only sells brands from the Estée Lauder group. Will you open others? It is more a tactical play; I don’t think you’ll see this as a core strategy of the group. We do it where it makes sense pragmatically. We did multi-brand stores in a few countries where we had no options at the beginning, such as in Poland, the Czech Republic and Hungary.

Given the softness in Europe, how can you better position yourself? France is slightly negative, but overall we are growing. In Spain the market is still negative but we are pretty much flat, and we’re growing in Greece where the market is negative. Where conditions are tough, we try to go for market share. We’re also optimizing our portfolio, so some brands that were less material before s ELC is looking to widen its brand offer in our results are becoming more significant. For example, brands like La Mer, Tom in China with the launch of Re-Nutriv Ford, Jo Malone, and Bobbi Brown are taking a greater share of the pie. n Ultimate Diamond Dual Infusion

www.bwconfidential.com - Dec 18, 2014 - Jan 7, 2015 #103 - Page 8 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Insight

s Saks Fifth Avenue and Macy’s (top) have launched new concepts and revamped beauty areas, and specialty retailers Sephora and Bluemercury (bottom) are growing their footprint. Online, Amazon launched its Luxury Beauty store this year

US prestige market Uncertain times The US prestige market is impacted by shaky consumer confidence, but strong color cosmetics sales and new retail concepts are giving the market a boost

udging by the figures, the US prestige beauty market is holding up reasonably well. JPrestige beauty sales rose by 6% to $2.4bn in the third quarter 2014 compared with the same period last year, according to NPD Group. Make-up saw the strongest growth, with sales up 10% to $1bn, while fragrance sales rose 4% to $543m and skincare sales reported a 2% increase to $840m. However, beauty consumers are increasingly conscious of how they spend, largely due to uncertainty over the economy. “Consumers are asking themselves every time they spend if the purchase is a smart use of their money. That filter is being applied not just by mass consumers, but by affluents as well. Consumers are less willing to pull out their credit card and this poses a challenge to prestige brands; the days of launching a new and improved product priced $5 higher doesn’t work anymore,” explains WSL Strategic Retail president US prestige beauty sales 2013 Candace Corlett. In addition, impulse purchases for Category Sales % change 2013 high-priced items have slowed. $bn vs 2012 Skincare and make-up both reported increases of 7% Make-up 4.12 +7 in 2013, while fragrance sales were flat. As this year unfolded, however, the numbers began to shift. By June Skincare 3.62 +7 2014, skincare sales, the market’s growth engine over Fragrance 2.99 0 the past five years, had grown by only 2%. Even Total Beauty 10.73 +5 formerly high-growth items like serums have n n n Source: The NPD Group

www.bwconfidential.com - Dec 18, 2014 - Jan 7, 2015 #103 - Page 9 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL US prestige market

n n n seen a sales slump. A lack of innovation in the category is one reason given by analysts for the decline. Consumers are also turning to make-up items like alphabet creams and illuminators for quick fixes and more immediate results. Insight Despite this, oils and masks are seeing robust growth. Sales of prestige facial masks were up 60% in the year to June 2014, compared with the same period in 2013, says NPD. New launches have helped sustain the category. Department-store retailers report that premium items, such as Sisley’s Black Rose Precious Face Oil, Dolce & Gabbana’s new Aurealux skincare line, La Prairie Cellular Eye Essence Platinum Rare and Chanel’s Sublimage L’Essence have performed exceptionally well. Sephora is still at the Make-up is the market’s undisputed champion this year and the category continues to gain ground, with 8% growth in the first quarter and a 10% increase in the second “forefront, but it isn’t quarter. Entry-level items, such as brow products, are seeing strong increases—the the only one vying for sub-segment’s sales grew by 28% in the 12 months ending March 2014. Innovation in the category in the form of new textures and stronger color statements are also in play. attention. There are so many sources to A contrasted fragrance market Prestige fragrance sales saw growth of 4% in the third quarter, but the category go to today—we see is still tough. However, premium scents continue to do well. “High-end luxury tremendous online haute perfumery brands such as Jo Malone, Kilian, Bond N°9, Creed and Le Labo are currently driving the business, as well as exclusive launches like Viktor & Rolf’s activity, subscription BonBon,” Saks Fifth Avenue senior vice president beauty, intimates and swim Kate box sites like Birchbox, Oldham tells BW Confidential. Laurice Rahme, president of Bond N°9, says that this year started out well, but has become more difficult in the second half. “We were and little brands seeing a really good rebound in the market up until October, which was flat. However, emerging on platforms luxury perfumery brands at the high end of the market are still showing great results,” she says. NPD Group global beauty industry analyst Karen Grant confirms this view. like Instagram. It’s a “Higher price point items are still doing better than the overall market. Consumers feeding frenzy may be spending on fewer things, but they’re spending on those that matter more to them,” she says. Sales of fragrances priced $100 and over grew by 30% last year. Niche fragrances are also widening their presence beyond luxury department stores NPD Group global beauty and indie boutiques. “Niche has matured into a real business and retailers are taking industry analyst Karen Grant these brands more seriously. Sephora has brought in niche products like Comme des ” Garcons, Atelier Cologne and Martin Margiela’s Replica line,” says US-based Brand Growth Management partner Kelly Kovack. Celebrity fragrance sales, meanwhile, have taken a nosedive. The category reported sales of $100m in 2013, according to NPD, down about 30% from 2012. Some of this, says Parlux president Don Loftus, was down to “shockingly bad product”. Loftus told BW Confidential earlier this year that the industry needs to “raise the US prestige beauty sales third quarter 2014 bar”, and that retailers need to be more selective. “If Category Sales % change Q3 the industry offers mediocre product, it’s up to retailers $bn 2014 vs Q3 2013 to push back,” he said. Make-up 1.0 +10 Online and upward Skincare 0.84 +2 Online sales continue to move upwards. Direct-to- Fragrance 0.54 +4 consumer sales increased by 19% in 2013 over 2012 Total beauty 2.4 +6 says NPD. Market research company L2 reports n n n Source: The NPD Group

www.bwconfidential.com - Dec 18, 2014 - Jan 7, 2015 #103 - Page 10 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL US prestige market

n n n that online beauty sales have outpaced total industry growth since 2010, with specialty beauty retailers like Sephora reaping the benefits. “Online is very strong. Dot-com has taken off to such an extent that we’ve had to put a bit more Insight focus on our bricks-and-mortar business [to keep the consumer coming in],” says Department stores Israeli skincare brand Ahava US senior marketing manager Devon O’Neill. Saks’ “continue to push Oldham agrees: “The customer is better educated and aware of availability of product, so it is more important to show the consumer the value of coming into brands for exclusives, our stores by offering best in class services.” but if you have a When it comes to online, Amazon’s prestige beauty store, which launched in October 2013, is being closely watched. Most prestige brands, says L2, have kept global brand, you Amazon “at arm’s length”—either due to demands from their existing prestige can’t give exclusives to retail partners or for fear of tainting their prestige image. Some brands that started out selling on the site have withdrawn due to pressure from their traditional retail every retailer. I believe partners. Many others are taking a wait-and-see approach. “Amazon is very much this will encourage a work in progress and there is a real debate among brands about whether they want to be there, but I’m not getting wind of a real buzz about it,” comments brands to take more NPD’s Grant. control of their In the specialty-store segment, Sephora continues to do well. As of October, the LVMH-owned retailer operated 356 free-standing stores and 489 Sephora Inside distribution JC Penney shop-in-shops in the US. “I have yet to see a retailer who can compete with Sephora. It is always five steps ahead of everyone else and is very agile,” Brand Growth Management remarks WSL Strategic Retail’s Corlett. partner Kelly Kovack However, other formats are attracting consumers. “Sephora is still definitely at the forefront, but it isn’t the only one vying for attention. We see tremendous ” online activity, subscription box sites like Birchbox, and little brands emerging on Holiday forecast: ‘Tis the season? platforms like Instagram, for example. It’s a Given its gifting potential, fragrance is forecast to feeding frenzy,” says NPD’s Grant. One former perform better over the holidays this year, especially LVMH beauty executive adds: “More consumers the women’s and high-end segment. NPD reports are going online to sites like [Michelle Phan’s] that fragrance is the fifth most-popular purchase Ipsy or Birchbox to learn about the latest of the season, all consumer-goods categories launches and trends. Sooner or later, Sephora combined. Make-up gifting is said to be making a will have to react”. comeback, with eye and lip items predicted to drive New entrants like Italian budget make-up sales this year. Entry price point items, like single-use brand Kiko, which is said to have ambitious facial masks, small-format fragrances, eyeliners and plans, are also set to shake up the market. Kiko brow products, are also expected to do well. has opened six stores in New York and New Skincare, however, isn’t projected to provide Jersey and one in Miami and plans to expand its much of a boost to the market. “The category can’t footprint nationwide. overcome the softness in top sub-segments like facial Beauty retail chain Ulta also continues to grow. , age specialists and gifts,” says an NPD As of September 2014, Ulta had 715 stores and report. “However, smaller sub-categories will help opened 100 new locations in the year. It aims to keep skincare afloat this season.” open 100 additional stores in fiscal 2014. Leading up to the holidays, some 60% of Smaller prestige beauty retailers like consumers plan to do at least some of their shopping Bluemercury are also ones to watch. The online this year, making the web the leading channel Washington DC-based chain has said that it for holiday shopping. aims to expand its number of doors from n n n

www.bwconfidential.com - Dec 18, 2014 - Jan 7, 2015 #103 - Page 11 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL US prestige market

n n n 65 to around 100 boutiques in the short-term. As for niche-focused chain Space NK, it now has 17 Bloomingdales locations with its shop-in-shop format, and five standalone stores. However, the UK- Insight based chain is reportedly having trouble gaining traction in the market, and some say the concept is not tuned in to the US consumer. Despite this, industry watchers say it’s likely that the US will see new players emerge in the niche segment in the next few years.

Department stores look to the future The department-store front has seen its share of changes over the past year. In 2013, Canadian retail group HBC acquired Saks Fifth Avenue and luxury retailer Consumers are asking Neiman Marcus was sold to private-equity group Ares Management and Canada Pension Plan Investment Board. themselves“ every In terms of expansion, many department-store operators are prioritizing their time they spend if the outlets, rather than full-line stores (outlets stores generally only sell personal- care items and do not stock not full beauty offers). HBC, for example, has said purchase is a smart that it will “prioritize and significantly increase” OFF 5TH, Saks’ value format. use of their money. Beauty has, however, been a priority for Saks Fifth Avenue this year; the retailer launched a new area devoted to designer fragrances at its flagship Fifth [...] This poses a Avenue store in New York City called The Fragrance Library, which offers an challenge to prestige edited assortment of “signature” designer fragrances, rather than a brand’s entire offer. The area is staffed by a Fragrance Librarian, described as a “scent brands—the days of stylist”. “We’ve expanded the concept to eight additional stores this fall, and launching a new and we’re monitoring the success in the out-of-town stores. We will confirm the additional roll-out strategy after the holidays,” says Oldham. improved product Saks also launched Beauty on 5 in November, a beauty service concept on the priced $5 higher contemporary fashion floor featuring a nail bar, makeover station and brow bar. Oldham says it plans to open a new Apothecary concept in some stores. doesn’t work anymore The market’s biggest player, Macy’s, revamped its beauty floor at its flagship store in New York City last year. The space now houses premium brands including Tom Ford, Hermès and La Mer, and has a Fragrance Bar offering WSL Strategic Retail president Candace Corlett prestige and luxury perfumes. It also houses a Kiehl’s shop-in-shop and Macy’s niche concept, Impulse Beauty, as well as a host of beauty services and a ” men’s area. Meanwhile, mid-market department store retailer JC Penney, in the second year of its turnaround plan, continues to grow its partnership with Sephora. JC Penney announced that it would continue to expand its Sephora inside JCPenney locations through 2017; there are currently 489 Sephora Inside JC Penney shop-in-shops. From a brand perspective, many bemoan that US department stores have become even more focused on exclusives. “Department stores continue to push brands for exclusives, but if you have a global brand, you can’t give exclusives to every retailer. I believe this will encourage brands to take more control of their distribution,” says Kovack. But this demand for exclusivity is unlikely to ease, as retailers look for a point of difference to drive consumers into their stores—something that is becoming increasingly difficult due to the rise of the web and the uncertain economy. n

www.bwconfidential.com - Dec 18, 2014 - Jan 7, 2015 #103 - Page 12 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Cosmoprof Asia

Bigger and better

BW Confidential reports on what was seen and heard at Cosmoprof Asia, which took place in Hong Kong from November 12-14 Show review

his year’s Cosmoprof Asia show was the biggest ever in terms of exhibitor Cosmoprof Asia Tnumbers and size. The show welcomed 2,362 exhibitors, up 9% from 2013, Took place: November 12-14 on a show floor covering 81,500m2 (877,259ft2). In terms of country pavilions, Exhibitors: 2,362, +9% vs 2013 the largest was Korea’s with 336 exhibitors, reflecting the strong influence that Visitors: 60,000 brands from the country are having on the region and beyond. Some 60,000 visitors attended the show this year. Many exhibitors commented on the strong international profile of buyers and distributors attending. “It is a great show because we see a mix of Asian, European and US customers,” commented pack decoration company Seram managing director Cyril Guigon. Metal components manufacturer ACME president and ceo Michael Roughton added: “We expected to meet essentially Asian clients, but what surprised me is the number of American clients here. This show is really a worldwide platform.” Asia is the global The show’s success is in part down to the development of the Asian region for trend-setting place beauty. And although growth is slowing in parts of the continent and especially “ in China, the market is still dynamic, according to Cosmoprof Asia director and for beauty, and Hong executive vice president UBM Asia Michael Duck. “China’s growth is around 7.5%, which is still high, and the country has massive potential in its second- Kong is the epicentre and third-tier cities. Other Asian countries also offer growth opportunities, such as Indonesia, the Philippines and Vietnam, so there is strong confidence in the Cosmoprof Asia director and future of the beauty market,” Duck told BW Confidential. He added that the evp UBM Asia Michael Duck importance of trends from Asia also attracts executives. “Asia is the global trend-setting place for beauty, and Hong Kong is the epicentre.” ” To highlight key trends this year, the show introduced several new areas, including Spot On beauty, which showcased 146 innovative brands from 17 countries. Another new area was Prestige Avenue, which hosted 10 high-end brands in an open-lounge format. Hot trends seen at Cosmoprof Asia were anti-aging in skincare and make-up, green and organic products—an area where there is still strong demand—and multi-functional products.

Seen in show US-based brand Sormé Cosmetics presented a make-up base with anti-aging benefits. The Fresh Start Anti-Aging Make-up Base is a light, fast-drying formula that claims to smooth the skin’s texture and fill lines and wrinkles to provide better overall coverage and a more natural look. The formula contains green tea, grape seed extract and pomegranate. n n n

www.bwconfidential.com - Dec 18, 2014 - Jan 7, 2015 #103 - Page 13 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Cosmoprof Asia

n n n JD Beauty showcased the Selfie Brush. The product (pictured) is a paddle hair brush with a mirror that slips onto a smartphone, so users can easily comb their hair before taking a selfie. It has a handle (like a hairbrush), which the company says also makes a cell phone easier to hold for a better picture. The product is specially designed for the iPhone 5, iPhone 6 and Samsung S4 and S5. It first launched in the US and UK in October and is now rolling out internationally.

New Korean brand a;t fox presented its products (pictured), which Show review are based on the tea ceremony concept. The company markets skincare and make-up, which comes in gourmet shapes (cupcake- shaped skincare, chocolate-bar shaped soap for example) and is based on three kinds of tea leaves. The brand has a café in Korea based on the afternoon tea concept, where it serves tea and desserts and sells its cosmetics range. It has just launched a new product called Tea Toc Water, which is a clear tablet containing tea for facial cleansing. a;t fox will open two stores in Shanghai, China in March next year. Industry soundbites on Asia “Korea is where we all want to be. In Korea, companies are very Spanish organic skincare brand Naobay, which fast and creative and they work around concepts. They don’t just is Ecocert-certified, revealed that it has expanded do lipstick, they invent concepts around the lip and change the its product lineup from 29 to 40-plus skus. New attitude towards a product. International brands have to realize products in the range include facial-care items, that in countries like Japan, China and Korea the offer is very organic spa products and a men’s line. domestic. Global brands need to watch out there, otherwise local brands will take an even bigger share of the market.” Korean brand Kicho showcased a range Intercos president Dario Ferrari of natural creams and , which target sensitive and problem skin. “The Chinese market is changing very fast so we need to adapt quickly. What is specific to China in particular is the importance Swiss company Mila d’Opiz presented of online sales. Regulations have changed and we can now sell The Skin Whisperer (pictured). The product online directly through a Hong Kong-based company, which is features a new anti-aging complex that is a good way to test the market. But in terms of volume, it isn’t a said to stimulate the skin’s collagen and viable business model and in the long run, we will need to register elastin production to boost firmness. the products. Our biggest challenge is finding a good distributor.” Alvend Laboratories export manager Marjorie Boudaud US-based Atzen, which claims to blend organic plants and vitamins with high-tech ingredients, “Things are starting to move after the slowdown and I am showed a new skin lightening cream. The product confident that we are entering a new cycle. We need to find is hydroquinone-free and claims to use safe and growth again and I feel things are happening.” natural brightening actives. The company says that Coverpla president Bruno Diepois the product responds to consumer demands for non- toxic whitening ingredients. “I see a big influence of Asian trends and products in Europe, like the snail cream, sheet masks and BB creams. The awareness French brand Melchior & Balthazar, which was of Asian brands in Europe is getting bigger, but European niche founded in 2012, showed its Argan Oil for the face, brands can also seduce consumers in Asia, as they will always body and hair. The brand is based on the concept of benefit from the European cachet.” using only high-quality raw materials produced by Qiriness co-founder & marketing director Vivian Marton artisans around the world for its products. n

www.bwconfidential.com - Dec 18, 2014 - Jan 7, 2015 #103 - Page 14 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Store visit

Birchbox builds offline presence in France The beauty box specialist opens a pop-up store and launches a vending machine concept in Paris

year and a half after launching its online beauty subscription box offer in France, AUS-based Birchbox is out to build awareness by developing its real world presence. The company opened a pop-up store in Paris early December, which was followed up with the launch of Birchbox on the Go, a branded vending machine at the French capital’s Birchbox Paris Gare Montparnasse train station. There may also be a permanent retail location on the Pop-up store cards. Birchbox Europe general manager Quentin Vacher told BW Confidential that the l Open: pop-up store is testing the waters for a potential brick-and-mortar store in Paris. (Birchbox December 4-24 opened its first store in New York City in July.) l Size: 100m2 (1,076ft2) The 100m2 (1,076ft2) pop-up, located on the rue Turbigo in central Paris, is open until l On offer: Boutique December 24 and features three areas: a retail boutique, “La Fabrique” (the factory, in offering bestselling products French), where shoppers can compose their own beauty box, and Backstage, a space from Birchbox’s French offering pay-for workshops and beauty services. website, La Fabrique The retail offer is comprised of bestsellers and exclusive products and brands gleaned make-your-own box area, from Birchbox’s online shop in France. Birchbox encourages browsers to test products, pay-for workshops and and all items can be sampled before purchase. In the La Fabrique space, consumers can beauty services choose five sample-sized products to create their own box. The Backstage area offers a series of workshops and beauty services, including hair styling, make-up application, skincare rituals, and hand massage. The services Birchbox On the Go last between 10 to 25 minutes and cost from €5 to €20. vending machine Birchbox On the Go, the company’s vending machine launched in Paris’ Gare l Location: Montparnasse Montparnasse train station, will be on site for five months. The vending machine offers train station, Paris a range of beauty packs, which contain two miniature/travel-sized products and cost €4. l Open: December 2014- Each pack is based on a specific theme, such as ‘last minute weekend’ or ‘evening with April 2015 friends’. To support the launch, Birchbox hosted beauty workshops at the train station on l On offer: Packs of Saturday December 13. Birchbox has said that it aims to expand the vending machine two miniature/travel-sized concept to other high-traffic areas, such as hotels and nightclubs. n beauty packs retailing at €4

www.bwconfidential.com - Dec 18, 2014 - Jan 7, 2015 #103 - Page 15 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Store visit

s Birchbox’s pop-up store in Paris sells products and allows shoppers to curate their own beauty boxes

s In addition to its Paris pop-up (storefront pictured left), Birchbox has also launched the On The Go vending machine (pictured right), a way for the brand to create a buzz in high-traffic areas

www.bwconfidential.com - Dec 18, 2014 - Jan 7, 2015 #103 - Page 16 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL BW Confidential The inside view on the international beauty industry

The print magazine The electronic publication

bwconfidential.com

Four times a year Every two weeks News headlines every day

# Subscription order form Please complete this form and return it: • by post: BW Confidential - Subscription Department Subscribe for 2 years and save 20% 4 avenue de la Marne - 92600 ASNIERES France Yes, I want to subscribe to BW Confidential • by fax: +33 (0) 1 53 01 09 79 r 2 year subscription r 2 year subscription with thematic guide • by email: [email protected] €799 or US$1,099 €879 or US$1,199 • the electronic publication (40 issues) • the electronic publication (40 issues) • daily news on www.bwconfidential.com • daily news on www.bwconfidential.com • the print magazine (8 issues) • the print magazine (8 issues) Contact information • the thematic guide (1 issue per year) Company:...... r 1 year subscription r 1 year subscription with thematic guide First name:...... €499 or US$699 €549 or US$769 Last name:...... • the electronic publication (20 issues) • the electronic publication (20 issues) Job title:...... • daily news on www.bwconfidential.com • daily news on www.bwconfidential.com • the print magazine (4 issues) • the print magazine (4 issues) Address:...... • the thematic guide (1 issue) Postal code:...... + Free: each subscription includes full access to the entire contents of BW Confidential’s City:...... archives on www.bwconfidential.com Country:...... Payment method r € r US$ Email (required):...... r CB, Visa, Mastercard/Eurocard l_l_l_l_l l_l_l_l_l l_l_l_l_l l_l_l_l_l VAT number (required for European Union):...... Expiration date: l_l_l_l_l Security code l_l_l_l r American Express l_l_l_l_l_l l_l_l_l_l_l_l l_l_l_l_l Signature & date:

Expiration date: l_l_l_l_l Security code l_l_l_l_l 2015 28, until February M019 - Offer valid r Please bill me