SPECIAL 100th EDITION BW Confidential electronic publication SPECIAL 100th EDITION

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www.bwconfidential.com The inside view on the international beauty industry Oct 23-Nov 19, 2014 #100

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The buzz 5 Industry changes News roundup

th his is the 100 edition of BW Confidential ’s electronic Netwatch 10 Tpublication. To mark the occasion and our fifth anniversary, which we are celebrating this fall, we have Beauty blogger review exceptionally printed this special edition. As a subscriber, you will receive your own print issue shortly in the post. Interview 13 The features in this special edition illustrate how the Nars regional executive director for industry has changed since the first issue of Europe Frédérique Lampert BW Confidential was published five years ago. Consolidation in distribution is changing the face of Insight 17 the industry, both in the domestic market and in travel Travel retail consolidation retail, as our special report shows. M&A also continues apace on the brand side. L’Oréal has made a string of acquisitions over the past few years and Focus 22 just announced that it will buy US-based Carol’s Daughter, while Estée Lauder Industry outlook Companies also revealed that it will acquire fragrance brand Le Labo—an interesting move considering Le Labo’s standalone store network. Store visit But much in the industry has stayed the same. As our industry viewpoint Urban Decay, California 27 highlights, just like five years ago, there is much uncertainty about how the Clinique, London 28 market will perform over the next few months and during the all-important Christmas season. In these uncertain times, BW Confidential will continue to provide you with data, insights and country reports, which we hope will allow you to have a better grasp of market trends. We will continue to bring you news, analysis and commentary on the international beauty industry through our electronic publication, our print magazines and our daily news service on our website bwconfidential.com. Meet the BW Confidential team at: Oonagh Phillips Editor in Chief l TFWA World Exhibition, Cannes, Oct 26-31 [email protected] l Luxe Pack Monaco, Oct 27-29

l Cosmoprof Asia, Nov 12-14

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ferragamo.com 24/09/14 18:32 The buzz www.bwconfidential.com - electronic publication - Oct 23-Nov 19, 2014 #100 - Page 5 www.bwconfidential.com - electronic publication - Oct 23-Nov 19, 2014 n n n At a glance... France’s Beauty Success and Passion Beauté ink strategic alliance and Passion Beauté ink strategic France’s Beauty Success Nocibé wholly owned stores in France to Douglas rebrands The Estée Lauder Companies to acquire Le Labo The Estée Lauder Carol’s Daughter L’Oréal USA to buy

n n n n Carol’s Daughter is sold in the US through specialty stores such as This acquisition is L’Oréal’s fourth in less than six months; in June it reported a 4% increase in sales to €21.4bn ($27.1bn) ($27.1bn) €21.4bn to sales in increase 4% a The Perfume & Cosmetics division reported year. reported Luxury-goods group LVMH the of months nine first the for growth of 4% to reach sales of €2.8bn ($3.55bn) for the period. The Selective sales Retailing division, which includes DFS and Sephora, saw 5% growth and of €6.62bn ($8.38bn). Results Stay informed with our daily news headlines on www.bwconfidential.com our daily news headlines on Stay informed with News roundup roundup News News (ELC) is to purchase niche fragrance brand Le The Estée Lauder Companies (ELC) is to purchase niche fragrance 35 points of sale worldwide, including a Labo. Founded in 2006, the brand has locations in New York City, London, Paris, network of 10 standalone stores with Hong Kong. Le Labo’s product offer Los Angeles, San Francisco, Tokyo and candles, travel items, accessories and City includes fine fragrances, bodycare, only in specific boutiques. Le Labo will be Exclusives, a fragrance collection sold Demsey. managed by ELC group president John beauty brand Carol’s L’Oréal USA is to acquire US-based multi-cultural brand was founded in 1993 and reported Daughter. The New York City-based ended September 30, 2014. The brand will net sales of $27m for the 12 months “This acquisition will enable L’Oréal join L’Oréal’s Consumer Products division. beauty division […] and strengthen USA to build a new dedicated multi-cultural market,” commented L’Oréal USA the company’s position in this dynamic president and ceo Frédéric Rozé in a statement. Ulta, in mass distribution outlets including Target, and on TV home shopping network HSN. The brand also operates an e-commerce website and has two freestanding stores in Harlem and Brooklyn, New York. The brand’s product range spans haircare, bodycare, skincare and fragrance. purchased masstige make-up brand NYX Cosmetics and in September acquired California-based make-up brand Sayuki Custom Cosmetics and Brazilian haircare brand Niely Cosmeticos. Strategy L CONFIDENTIA CONFIDENTIAL CONFIDENTIAL News roundup

n n n Retail France-based perfumery franchise group Beauty Success and French grouping of independent stores Passion Beauté have struck an alliance to better position themselves in an

The buzz increasingly consolidated perfumery retail market. Each retailer will have a 50% share in the new venture, which is called Beauty Alliance France. The new structure will negotiate commercial conditions with brands and share trade marketing plans, resulting in reduced costs and economies of scale, according to the companies. However, the companies emphasized that the deal is not a merger and that each retailer will retain its identity and commercial strategy. “France’s top three perfumery chains [Sephora, Nocibé and Marionnaud] have a combined market share of 75%, so it was necessary for us to create an alliance. We are an alternative for our consumers, brands and our independent perfumeries,” explains Passion Beauté president Jean Pierre Dry. The alliance will become France’s fourth-biggest retail player in the perfumery market with a total of 450 perfumeries and 400 beauty institutes, sales of €330m and a market share of 11%—exceeding the 10% level, which the companies see as necessary to be competitive in the sector. Today Beauty Success has 296 perfumeries (200 of which are franchises), while Passion Beauté counts 170 points of sale. By 2019, Beauty Alliance France is targeting a market share of 15%, 600 stores and sales of €420m. Growth will come from new store openings by its members and attracting new franchise partners. The retailers point out that they could add some of the 38 stores Douglas is required to sell as part of its acquisition of Nocibé.

Following Douglas’ acquisition of French perfumery chain Nocibé in June, the German retailer will rebrand its wholly owned Douglas stores in France to the Nocibé name, a Douglas spokesperson told BW Confidential. The franchise stores will retain the Douglas name for the time being. Isabelle Parize, ceo of Nocibé, was named managing director of Douglas Perfumeries GMBH, with responsibility for France, Italy, Spain and Portugal. She will also remain ceo of Nocibé.

Data Prestige facial skincare masks grew by 60% Facial mask sales* by country July 2013-June 2014 in the US, 11% in the UK and 8% in Italy for the Country Sales % change July 2013-June 12 months ending June 2014, according to NPD 2014/July 2012-June 2013 Group. This growth helped to drive 2% value US $65.5m +60 increases for overall facial skincare sales in both UK £5.7m +11 the US and UK. Sales of masks in Spain rose 2%, offsetting the overall facial skincare declines in Italy €8.9m +8 the country. Spain €5.2m +2 Source: NPD Group *Value sales

Page 6 - www.bwconfidential.com - electronic publication - Oct 23-Nov 19, 2014 #100 CONFIDENTIAL CONFIDENTIALCONFIDENTIAL CONFIDENTIALCONFIDENTIAL CONFIDENTIAL The global luxury market saw slower growth in 2014, a trend that is set to continue, according to a new report by consulting firm Bain & Company in collaboration with Fondazione Altagamma, the Italian luxury goods manufacturers industry foundation. The global luxury market is set to reach €223bn in 2014, a 5% increase over last year at constant exchange rates (+2% at current exchange rates). This is down from the 7% increase in 2013. The group said that despite currency fluctuations, economic weakness in Europe and political events such as the Crimean crisis and protests in Hong Kong, demand from Chinese consumers and renewed interest in luxury in the US and Japan have helped counter the downward trend. With the exception of Japan, China and South America, all markets are now strongly driven by tourist spending. Chinese consumers represent the fastest- growing nationality for luxury, spending abroad more than three times what they spend locally. In light of this, Bain says it no longer makes sense to think in terms of geographies, but that brands should be thinking in terms of consumers. When it comes to regional trends, the Americas saw the fastest growth, with a 6% increase in sales at constant exchange rates (+3% at current exchange rates). In mainland China, luxury spend slowed with sales declining by 1% at constant exchange rates (-2% at current exchange rates) due to greater controls on luxury spending and changing consumption patterns. In Europe, growth came in at 2%, while Japan reported a 10% increase (+2% at current exchange rates), making it the best performing market in real terms.

The market for ethnic beauty products in the US will increase by 3.7% this year, according to a new report from US-based Kline & Company. The research company explains that some brands, which traditionally targeted their product offer to specific ethnicities, are repositioning to reach a broader BW Confidential audience. “This widening approach helps move multicultural brands beyond 4 avenue de la Marne the ethnic section of the beauty aisle to sit side-by-side nationally advertised 92600 Asnières sur Seine, France [email protected] brands,” comments Kline Consumer Products senior associate Donna Barson. Tel: +33 (0)1 74 63 49 61 Fax: +33 (0)1 53 01 09 79 Kline also explains that mainstream beauty brands are putting more emphasis www.bwconfidential.com ISSN: 2104-3302 on the ethnic consumer, not only through their choice of local spokespersons Publisher: Nicolas Grob but also by launching products simultaneously in the US and in the target Editorial Director: Oonagh Phillips [email protected] consumers’ country of origin. Deputy Editor: Alissa Demorest [email protected] The company forecasts that the ethnic beauty market will continue to face Editorial Coordinator & Assistant: strong competition from mainstream brands through 2019. Katie Nichol [email protected] Contributors: Alex Wynne, Renata Ashcar, Mayu Saini, Raphaëlle Choël, Sophie Douez, Close to 60% of US consumers plan to shop online for their holiday purchases Corinne Blanché, Nadia di Martino, Naomi Marcoulet this year, according to NPD Group’s Annual Holiday Survey. Some 62% Subscriptions 1 year: electronic publication (20 issues) + of women say they will shop online, compared to 57% of men. The main print magazine (4 issues) + daily news: €499 reasons for buying online, say respondents, are sale prices and overall value, or US$699 [email protected] convenience and free shipping. “Until retailers drive the consumer back into Advertising [email protected] the stores, online will continue to grow at a faster pace than traditional store BW Confidential is published by Noon Media 513 746 297 RCS Nanterre shopping,” comments NPD Group chief industry analyst Marshal Cohen. Copyright © 2014. All rights reserved.

Some 17% of online shoppers plan to purchase fragrance, putting the Reproduction in whole or in part without n n n permission is strictly prohibited. category into fifth place, after clothing, toys, books and food & beverages.

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n n n People US department-store operator JC Penney has named Marvin Ellison as president and ceo-designee. Ellison, currently executive vice president of stores at hardware retailer Home Depot, will replace Myron Ullman, who took over in April 2013. On August 1,

The buzz 2015 Ellison will become president and ceo of JC Penney and Ullman will become chief executive of the board for one year. Launches

P&G Prestige is expanding its Dolce & Gabbana brand’s beauty offer to skincare. The group is currently rolling out two skincare lines for the brand: Essential, a line-up of seven cleansing and prepping products and Aurealux, which it describes as an advanced treatment range and comprises five skus. Aurealux claims to balance skin texture, tone and shape and includes a cream, mask, serum, essence and eye gel. Products in the Aurealux line retail at between €54.50 and €128.50, while those in the Essential line are priced between €27 and €64.

Gucci (P&G Prestige) has launched its long-awaited color cosmetics range. The make-up line includes products for the eyes, face, lips and nails. It also includes eight brushes and skin preparation products. The products come in vintage-inspired packaging featuring the double G logo. The make-up line will be backed by an advertising campaign fronted by producer and writer Charlotte Casiraghi. The line is priced between €25 and €50.

French brand Yves Rocher is coming out with what it describes as a major new skincare launch next year called Sérum Végétal. The new range, which claims to act on all types of wrinkles, replaces the brand’s existing Sérum Végétal line and the Ovale Lifting line, and comprises 18 skus. Yves Rocher says the new Sérum Végétal is assimilated by the skin, meaning that its ingredients are of more benefit to the skin’s structure and can better target wrinkles. The range is based on the Ice Plant, which can resist extreme climactic conditions. It also uses a new extraction process called cryoextraction, which Yves Rocher has developed and patented. The extraction procedure is said to preserve the integrity of the Ice Plant’s molecules. Following consumer tests that showed consumers were looking for more than just anti-wrinkle properties in their skincare, the brand developed three sub- ranges targeting different skin needs: Wrinkles & Radiance, Wrinkles & Firmness and Wrinkles & Lifting. The Sérum Végétal range will begin to roll out in January 2015 and will be backed by a major marketing investment with TV advertising in some markets. The line retails at between €9.50 and €17.90. n

Page 8 - www.bwconfidential.com - electronic publication - Oct 23-Nov 19, 2014 #100 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL BW Confidential The inside view on the international beauty industry

I always appreciate BW Confidential’s BW Confidential is a unique media, broad-reaching, international coverage which covers truly international of the beauty industry, as well as their news and trends on beauty. ‘timely and relevant reporting of global ‘The style of writing is to the point trends and products. and layout allows easy reading. The Estée Lauder Companies group Whenever I see it in my inbox president, international Cedric Prouvé among the many emails I receive, ’ I always click it first. AS Watson Group coo Malina Ngai BW Confidential is one of the industry’s few specialized ’ magazines and I look forward I am a keen follower of ‘to reading every edition. BW Confidential. It offers I appreciate its journalistic important information and approach, in-depth articles, ‘ in-depth insights about credibility and above all its way years the industry that I can’t of describing trends, markets find anywhere else. and communicating figures. P&G Prestige global distributors Ferragamo Parfums ceo 5 & travel-retail director Luciano Bertinelli ’ Murat Akyildiz ’

BW Confidential keeps current with BW Confidential acts as the the movements and developments gold standard for beauty trade in the beauty industry. Its interviews news, offering relevant and BW Confidential is ‘and articles are insightful and offer ‘thought-provoking perspectives, always at the forefront of innovative and fresh perspectives. It interviews and regional news. the most important news ‘in our industry—great is certainly a must-read publication It’s a publication we strongly for anyone who is involved in support and one I look forward market and key player the beauty business. to reading. analysis, useful data and insightful comments. Luxasia ceo Patrick Chong La Prairie Group president & ceo Patrick Rasquinet Sephora global coo, managing ’ director operations & strategies ’ Olivier Schaeffer ’

The electronic publication The print magazine Collector’s edition bwconfidential.com

Every two weeks Four times a year The Future of Beauty News headlines every day Beauty blogger review BW Confidential reports on what the bloggers are saying about beauty

The latest innovations in the foundation category have been causing a buzz on the blogs. Diorskin Star, the new foundation from Christian Dior, has intrigued bloggers with its claims of making the wearer look more photogenic. YSL’s Fusion

Netwatch Ink Foundation has been praised for its long-lasting formula, although bloggers remain skeptical about the product’s claims that it provides “all-day perfection”.

Foundation and blush papers are showing up more frequently on beauty blogs. US-based brand Mai Couture has garnered attention following recommendations from make-up artists, who say that the paper format is perfect for on-the-go use. The format is said to be an ideal complement, rather than a replacement, for traditional foundation products.

The latest Japanese beauty products and gadgets have been hot topics on the blogs. One item that has attracted attention is the Fashion Face Pack by Kansai Yamamoto. The product is made up of two masks that when pressed onto the face recreate the make-up looks used by the designer in a recent London fashion show. The views expressed in this section are those of bloggers and do not represent the opinions of BW Confidential

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Nars regional executive director for Europe Frédérique Lampert Interview

Color conquest This year marks Shiseido-owned prestige make-up brand Nars’ 20th anniversary. The brand has come a long way since it launched its first 12 lipsticks in Barneys New York in 1994. Nars now has a full color offer of around 600 skus, is sold in 1,600 doors in 26 countries and continues to expand internationally. It is also pushing its travel-retail business and is opening more standalone stores. The brand is putting a special focus on Europe, especially the UK, and appointed former L’Oréal executive Frédérique Lampert to head up its business in the region in June. Lampert talks to BW Confidentialabout her development plans for Europe

How is the brand performing in Europe? Nars is perhaps one of the fastest-growing brands in the color market in Europe. We will see growth of around 37% this year, but this isn’t due to a flurry of door openings. We are very selectively distributed with 350 points of sale—in the UK, France, Spain, Italy, Turkey, Czech Republic, Scandinavia and Russia—and we foster a close relationship with our key retailers to work on per-door productivity. We work closely with Sephora in France, and in countries where it is the number-one retailer (such as France, Italy, Czech Republic and Scandinavia, for example), we are sold there exclusively.

Do you have plans to enter new markets in 2015? Next year will be devoted to growing sales in our existing markets. In Europe we’ll open some doors with our existing retailers, but we won’t venture into new partnerships. We’ll continue to drive our business in the UK, and in France, our number-two priority country, where we will develop our relationship with Sephora. Russia, which we entered this year, will also be a priority. By the end of this year, the brand will be present in 30 L’Etoile stores. We will have full counters in five of L’Etoile’s flagships, and we’ll be sold in an open-sell Nars environment in the other doors. Founded: 1994 Our development strategy is not to open full distribution, but to open in stores Acquired by Shiseido: 2000 that are best suited to the brand and this is the approach we’re taking in Russia. Doors worldwide: 1,600 We have huge momentum in the market as we have a lot of visibility from a Standalone stores: 6 PR standpoint, so the customer base is there. We’re working with L’Etoile to (in the US) develop the brand and sell-through so far shows that this is working. n n n Doors Europe: 350

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n n n How are you driving the business in your existing markets? We tailor our approach according to each retail partner. In the UK, for example, our two key retailers are Space NK and Selfridges. At Space NK we are rolling out a new merchandising display that we have developed with their team. At Selfridges, we did a major event with François Nars in September and we also launched our high-end gift Interview box called The Vault (containing 10 Audacious lipsticks and 10 nail polishes), which we created specifically for Selfridges and retails for £300 [$477]. Make-up is very In France, where we are in 100 Sephora doors, we created a Sephora task force this July that works on marketing, PR, training, assortment, merchandising and digital. “competitive and the arrival of more mass What will your focus be from a product perspective in 2015? Next year our main focus will be the complexion category. This category accounts for players like [budget more than 28% of our sales in Europe. We also aim to push our iconic products and brand] Kiko is making formulas, such as our bestselling Orgasm Blush. Another key priority next year will be our investment in digital. We’ll be driving our the environment even NARSissist initiative throughout Europe—a program designed to engage our community more competitive. to help us create the shades and products that our fans want. We will promote this in our more established markets of France, the UK and probably Spain. We’re trying to stand out through the level Will you open standalone stores in Europe? We now have six freestanding stores in the US—three in New York, and one each in Las of artistry and training Vegas, Los Angeles and San Francisco. We’re looking at potential opportunities in Europe we provide and I would say this will happen within the next two years. For a brand as selective as Nars, at one point you need to build awareness by having a physical presence. Nars regional executive director How do you see the prestige color market in Europe? for Europe Frédérique Lampert Make-up is very competitive and the arrival of more mass players like [budget brand] Kiko ” is making the environment even more competitive. However, I think that it’s a different customer that shops those brands—maybe a much younger shopper. We’re trying to stand out through the level of artistry and training we provide; we devote the majority of our budget to training, and in our key doors we always have a dedicated make-up artist on Nars’ global ambitions staff. We also developed different types of tools, Nars continues to open new markets. such as the Make Up Your Mind manual, which Currently in 26 countries, it launched consumers can use to create a smoky eye or in Malaysia, Italy, Scandinavia and bold lip look. The more you provide unique and Russia in 2013 and is entering the aspirational services, the more you can distinguish Middle East, this month. Nars also yourself from other make-up brands. plans to launch in China in the next few years. “We are gaining market s Nars ceo Louis Desazars How do you see the European market share across the regions, while performing in the coming year? building brand equity and awareness,” Nars ceo Louis Desazars In the southern countries, it’s an extremely tells BW Confidential. He continues: “In the US, Nars remains one challenging market. It’s still very difficult in Italy of the fastest-growing make-up brands and internationally we are and we aren’t seeing many signs of improvement strengthening our position in Europe and Asia. Globally, we will focus yet. But although Europe is a very competitive on continuing to build those existing markets showing the most market we see brands working hard to stand out growth—the US, the UK and Korea, as well as markets with potential from the pack. n for growth in the near future, such as Japan, Canada and Australia.”

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BW confidential electronic ad_A4.indd 1 21/07/2014 12:01

Insight

s Dufry’s acquisition of Nuance (right) is set to change the travel-retail landscape

Travel retail consolidation All together now As consolidation cranks up a gear in travel retail after the conclusion of the biggest deal in a decade, BW Confidential examines the implications for the industry and the road ahead

onsolidation is picking up pace in the travel-retail market, snowballing at a rate Cthat is consuming many in its pathway. The most transformational deal of the past decade has been Dufry’s acquisition of Nuance this year, which will change the The trend of mergers landscape considerably. The top 10 players had a market share of 44% in 2009, for and acquisitions example, and after the Dufry/Nuance deal their share comes in at 65%, according to “ Vontobel Equity Research analyst René Weber. will likely continue The CHF1.55bn ($1.66bn) transaction concluded on September 9, and the combination of both retailers puts Dufry ahead of its rivals as the global leader in in travel-retail. the travel-retail industry. The newly formed firm will have a presence in 63 countries It represents the across 239 airports, managing and operating close to 1,750 shops. The combined group will be clearly ahead of DFS [which has a global market share of 10%] and the ongoing shift of other players including Lotte [Duty Free], [Gebr] Heinemann, Lagardère and World control between Duty Free, each with a share of 6-7%,” noted a report by Vontobel. Nuance generated sales of CHF2.1bn ($2.2bn) in 2013 compared to Dufry’s retailers and suppliers CHF3.57bn ($3.8bn), both of them with a global spread. “Nuance is strong in Europe (across Switzerland, Sweden, UK and Portugal) but also in Asia (China, Macau and La Prairie head of travel Turkey), which is a great fit with Dufry’s strength in the Americas,” continued the retail worldwide Vontobel report. n n n Laurent Marteau ”

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n n n Dufry will now begin to integrate Nuance into its organization and expects to generate savings of around CHF70m ($74m) per year by 2016. Half of this is anticipated from gross margin improvement and the other half from cost cuts, Insight says Vontobel. The company expects to improve gross margins through increased purchasing power and through the integration of Nuance into its supply chain and logistics platform. Consolidation of the global and regional organizations, as well as global support functions, will create “significant value” for the company. With the new group spanning 63 countries and overlapping in the US, Canada, Switzerland and China, for example, the company can benefit from increased economies of scale in all regions.

What does it mean for beauty? As Nuance has a higher share of fragrances and cosmetics sales (some 41% of Nuance’s sales are in the category, compared with 28% for Dufry), the beauty category will shift to 33% within the newly-formed group, based on financial figures for 2013. But what does the deal really mean for beauty suppliers? Vontobel’s Weber comments: “Beauty suppliers, [but also all the other product category suppliers] will have fewer, but bigger clients. This will have an impact on suppliers’ margins due to [operators’] purchasing power. But on the other hand, the large travel retailers will be

Travel retail’s major acquisitions 2005-2014 CHFm

Date Company Target Country Sales Price Jan 2005 Autogrill Aldeasa Spain 920 1,070 March 2006 Dufry Brasif Brazil 370 660 March 2008 Autogrill WDF UK 870 1,132 May 2008 Folli Follie Hellenic DF (56%) Greece 390 406 Sept 2008 Dufry Hudson US 730 920 April 2010 Flemingo Baltona Poland 50 n/a Aug 2010 Lotte AK DF South Korea 275 n/a Aug 2011 Dufry InterBaires/others South America 386 766 Jan 2012 Dufry Regstaer Russia 50 50 Jan 2012 Lagardère Unimex Poland 30 n/a July 2012 Lagardère Aerporti di Roma Italy 110 275 July 2012 Lagardère Duty Free Wellington New Zealand n/a n/a Nov 2012 Dufry Hellenic DF (51%) Greece 355 924 Sept 2013 Lagardère Save Airest Italy 198 205 Dec 2013 Dufry Hellenic DF (49%) Greece 390 401 Dec 2013 Lagardère Gerzon Netherlands 65 80 May 2014 ARI Group CTC-ARI (50%) Cyprus 107 66 June 2014 Dufry Nuance Switzerland 2,095 1,550 Source: Vontobel Equity Research

Page 18 - www.bwconfidential.com - electronic publication - Oct 23-Nov 19, 2014 #100 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL s WDFG (left) has said it may consider mergers, while it is thought Asian players such as The Shilla Duty Free (right) may look to M&A to boost its global business

more professional, which will also result in a more efficient supply and logistic chain.” Changing the balance of power with suppliers is one driver of the retail consolidation trend. Indeed, following the announcement of its acquisition of Nuance, Dufry ceo Julián Díaz said that travel retail needed consolidation given the growing strength of suppliers. At least for the larger beauty houses, having fewer but bigger clients will entail larger orders and fewer meetings plus logistics savings, reduced transport costs and more consistent pricing in each market. Being big means However, smaller or lesser known brands may face a rougher ride with the formation of travel-retail powerhouses making it more difficult for independents to gain shelf “might and the ability space in new markets. to muscle in strongly It is also set to make life more difficult for some smaller retailers. Travel retailer Dimensi Eksklusif managing director Zainul Azman gives the perspective of a regional for bids at key airports player in Malaysia. “Being big means might and the ability to muscle in strongly for in order to gain a bids at key airports in order to gain a footprint,” notes Azman. “However, it tends to lead to a monopoly as has been witnessed by the presence of global major players.” footprint. However, He adds: “The major global players have conquered the travel-retail scenario through it tends to lead to a various bid styles, such as the highest bid, joint ventures with airport authorities, build and operate and so forth. For local players, being so small, they see it as a major monopoly threat. Global players are not only keen to contest for the core product categories, but have now encroached to include other smaller categories too, like handicrafts and local delicacies.” Dimensi Eksklusif managing director Zainul Azman Global growth ” Consolidation is set to continue. Just after the deal with Nuance, Dufry’s Diaz predicted more M&A among operators. Beauty company La Prairie head of travel retail worldwide Laurent Marteau too sees more consolidation: “The acquisition of Nuance by Dufry demonstrates another marker in the European distribution trend where medium-sized operators are either merging or being bought. It’s happening in local markets as well; a key example is the purchase of French perfumery chain Nocibé by Germany’s Douglas Group. The trend of mergers and acquisitions will likely continue in travel-retail. It represents the ongoing shift of control between retailers and suppliers.” More consolidation means that the larger players will gain further market share n n n

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n n n and new tenders will see more professional competition. Rivals will also seek to grow their global network to gain ground on the scale and magnitude of Dufry’s geographic coverage following Nuance’s integration. Insight “Most of the other players have respective home markets as their main sales contributors—for example, DFS in Asia, Lotte in South Korea, Heinemann in Germany, Lagardère Services in France, WDF in Spain and the UK, and Shilla in South Korea,” says the Vontobel report. But this is changing with the top 10 travel retailers in particular making a marked effort to push beyond their traditional boundaries. The Shilla Duty Free, for instance began operating the beauty concession at Singapore Changi in October, while Gebr Heinemann won the Global top-10 travel retailers* Sydney airport contract and DFS Group secured the historic Fondaco dei Travel retailer Sales 2013 Tedeschi building on the Grand Canal in Venice for its landmark entry CHFbn into Europe. Dufry Group/Nuance 5.67 It is likely that the key operators of today will continue gaining more DFS Group 4.27 locations and market share. The ones most likely to prosper are those Dufry** 3.57 with a solid financial basis, as airport bidding is becoming increasingly expensive. Additionally, those who opt to create special retail initiatives Lotte Duty Free 3.04 with suppliers will have a competitive edge as airports want to host Gebr Heinemann 2.87 exclusives and seek points of difference from their competition. Lagardère Services 2.74 World Duty Free Group 2.54 Changes for suppliers The Shilla Duty Free 2.40 The thirst for travel retailers to grow their global presence will also Nuance** 2.10 prompt changes for suppliers. La Prairie’s Laurent explains: “The consolidation of operators in travel retail will create a demand for Dubai Duty Free 1.67 globally driven directives from brands—the travel-retail business is Ever Rich Group 1.20 becoming more global.” He continues: “This has influenced many Source: Vontobel Equity Research *2013 full year sales suppliers to create a global team that handles the travel-retail portion **Before Dufry’s acquisition of Nuance of business exclusively, not only to maintain the point of contact for operators but to be able to answer the operator’s needs in all parts Main travel retailers global market share of the world. This is one of the main reasons La Prairie has created the global travel-retail team while keeping the regional directors for Travel retailer % global brand consistency.” market share But the path to growth can present differences of opinion. World Duty Dufry Group/Nuance* 13.5 Free Group, for example, recently revealed that ceo José Maria Palencia DFS 10.4 will leave the company by the end of the year. In the past few months Lotte Duty Free 7.2 the group has conducted a strategic review of its business and future Gebr Heinemann 6.8 opportunities and a new impetus will be put on business development through both organic growth and pursuing mergers with other Lagardère Services 6.5 operators. While agreeing on the basic objectives, the company and World Duty Free Group 6.0 Palencia had differing opinions on how to implement the strategy and The Shilla Duty Free 5.7 this led them to part ways. Dubai Duty Free 4.0 In an industry that has long been deemed fragmented, consolidation is Ever Rich Group 2.9 set to change how operators and suppliers work. For some it will offer Aer Rianta International 2.5 opportunity, but for others it raises issues about stifling independence and creativity and about being able to compete in a market dominated Others 34.5 Source: Vontobel Equity Research by large global players. The consolidation train is definitely gaining *Verdict Research puts Dufry/Nuance’s market speed, but its next stop is as yet unknown. n share at 15%

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Credit : Gonzalo Machado Credit : Carole Bellaiche officer, global business officer, globalbusiness director andchiefoperating Shiseido representative Carsten Fischer director OlivierCourtin Clarins managing and ceoPhilippe Benacin Interparfums SA president Nicolas Hieronimus selective divisions L’Oréal presidentof Industry outlook

What’s next? the marketshapingupfor2014andbeyond BW Confidential BW We expect to see continued growth from emerging markets as the middle- CF: Weexpecttosee continuedgrowthfromemerging marketsasthemiddle- Quality istheonlywayup. where money is put in the juice, stopping. Collections,nichebrands, ofcourse,butalsosuperiorqualityfragrances, have saved this market from withbecoming Lancôme banal. and Clarisonic. Inthese. fragrances, Consumers we doalso not want see advanced[the] or arebirthofancientbeautyrituals.Iamthinkingoils course, butnotonly upscaling technology, trend which we are NH: Skincareable to provideremains a strong growthWhat isdrivingthemarket,andwhatholdingitback? driver, and we see interest in new textures we lookattheworldmap,situationisworsethantwoor threeyearsago. China has slowed, and Argentinazone, and Braziltax levels have arealso very slowed high, significantly.seen aslowdownbecauseofthetenseeconomicandpoliticalsituation.Ineuro the geopolitical When situation inyear. the MiddleApart fromEast theis tough,US, which Interparfums SApresidentandceoPhilippeBenacin:2014isaverysoft is a bit more dynamic, the restbecause ofthenewtaxmeasures. of the world has not performing so well are France,China, which in Canada,is negative, in the and UK Japan,andexpect especially which to performhas in fallen travel better retail. than thewillThe market. marketsgrow at We thata arerate are seeing of about growth +2.5Clarins managingdirectorOlivierCourtin:Webelievetheselectivemarket in to Asia, +3% atnotably constant exchange the comingmonths. rates, and we entire organization and expect the firstroundofbrandstrategies.Weareenactingmarketingreformsacross to see how these actions impactfoundation the bottom for line growth, in establishing business CarstenFischer:2014isayearforsolvingissues,buildingsolid medium- and long-term visions,Shiseido and representativeactivating directorcare obsession. and chief operating officer, increasinglyglobal opening its mind andeffects andthereisarealrenewalineyes.Asia,particular,includingChina, wallet to the color category The lipmarketisreinventingitselfwithnewtextures,applicationmodesand after decades of face until the end of the year. In termsmarket of during categories, the first we seehalf make-up of2014. the movingyear,We grew andup. well we hopeabove to this maintain pace,worldwide thisat more selectiveperformance than one market and ashould halfL’Oréal presidentofselectivedivisionsNicolasHieronimus: The timesbe growing the at a pace of +4%markets doyouseeperformingwell,andwhichlessso? to +4.5% in What are your market expectations for 2014 and which categories and asks four key industry players how they see asksfourkeyindustryplayershowtheysee CONFIDENTIAL CONFIDENTIAL CONFIDENTIA L income consumer continues to rise, with forecasts claiming that half of all growth will come from this segment in the next 10 years. We are strengthening our infrastructure and operations in these markets to fully participate in this shift. OC: [In terms of product categories] Mugler fragrances, especially Alien, are performing very well in certain zones. [Skincare] is driven by Double Serum and our new line for over 50s. Make-up is also performing very well. Suncare has become more complicated because of regulations, and is increasingly dominated by mass. People are looking for basic sun protection rather than a quality product, and innovation is very expensive. PB: One thing I cannot explain in many European and established markets is the decline In terms of categories, in [fragrance] unit sales each year. It’s true that this is countered by price increases, so the market is globally flat. Consumers have transferred spending to technology, and are “we see make-up buying less fragrance, and purchasing power is generally lower. moving up. Asia, in particular is What are this year’s major challenges that the industry needs to watch for? increasingly opening NH: For me, one of the major challenges of the future for the whole luxury industry, including beauty, will be its capacity to combine a certain idealistic vision of luxury with its mind and wallet what we can call ‘new luxury’. On one hand, the concepts of heritage, craftsmanship, to the color category art, sustainable development are the essence of luxury, but on the other hand, everything is going faster. By that, I mean new product flash successes, instant consumer after decades of face advocacy, social networks and star endorsement boosting sales overnight. The industry care obsession players who can combine these two visions might be the winners of tomorrow. CF: The landscape of the beauty industry is changing in many ways, which is exciting because we now have an influx of influences from new channels, especially from emerging markets, and a new digital-native generation. Asian beauty trends will L’Oréal president of selective be more prominent as these markets, led by China, increase their presence and the divisions Nicolas” Hieronimus consuming class continues to grow. The Millennial segment will drive systems online and demand seamless delivery of information and product on mobile and tablet platforms. OC: We need to defend our position in mature markets. The [consolidation] of distribution in Europe, with Douglas being bought by Nocibé, is one of my challenges, and is putting pressure on margins. Digital is also a major challenge, and we are investing heavily in it. Changes in regulations in Europe and China are forcing us to adapt. Exchange rate effects were tough in the first half, but have been good in the second, so that should cancel out the overall impact for the year; it’s good for European manufacturers. We are still seeing strong growth in Russia, but we know there will be a slowdown sooner or later. PB: We have had a very good year in Russia, despite events there. Maybe next year things will change. [The slowdown in China] is a problem for everyone. Luxury products are the first to suffer, and there has been decline in growth for fragrance. With the anti- corruption law, business has slowed, although less so in fragrance [than in other luxury categories] because prices are lower. [Globally] the situation is very complex, but we are working with it. We have several very strong fragrances that are performing extremely well, which helps. n n n

www.bwconfidential.com - electronic publication - Oct 23-Nov 19, 2014 #100 - Page 23 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Industry outlook n n n The analyst’s view Three industry analysts give their views on On the global market Focus Focus how the market is performing in the US, “Growth of premium beauty is intensifying and is Europe and globally forecast to exceed the pace of the mass segment by 2018 at 3.3% year-on-year growth. Future growth engines remain the US and China, which combined On Europe will account for 60% of the global premium market “We expect [prestige beauty sales in France, Italy, value growth. China is expected to overtake Japan Spain and the UK] to be slightly positive (flat to +1%) as the second largest market in 2018. While skincare on year 2014, but with some key differences seen is the primary growth engine in China, fragrances across countries. contribute strongest to growth in Brazil and the The UK will continue to drive growth (+6 to Middle East. However, driven by the fast-expanding +7%), through very strong dynamism in make-up consumer base for mass products in emerging (contributing to 60% of the total prestige growth). markets the ratio of premium to mass is expected to Fragrances should also perform well and we expect a decline globally by 2018.” bright Christmas in the UK, while skincare will end up Euromonitor International senior beauty and positive, but with a lower growth rate. personal care analyst Ildiko Szalai On the other hand, continental Europe is much more complex and we don’t expect a strong improvement. We expect France to be at around -1%, mainly On the US penalized by a decline in skincare, while fragrance “The prestige beauty market in the US will have should stabilize and make-up will experience slight a positive year. While mass continues to face growth. Italy will be at around -1% with an uplift in challenges, prestige has seen significant growth trends for fragrance, while make-up and skincare will in make-up and something of a turnaround in suffer. Spain shall slightly recover after a very difficult fragrance. The one caveat to the overall positive trend first half at -4% and be at around -2.5%, with is a slowdown in skincare. Driving sales are a mix fragrances [seeing] stronger decreases than make-up of brands—from the well-known luxury, designer and skincare; however, we don’t foresee any category and artist brands to the indie and more selectively returning to growth in Spain this year.” distributed brands.” NPD Beauty Europe industry expert NPD Group vice president and senior global Mathilde Lion industry analyst Karen Grant

Beauty and personal care sales* 2014** by region Global beauty market growth* by Region Forecast sales % growth 2014/ channel first half 2014 2014 $bn 2013** Channel % change first half Asia Pacific 139.8 +7.9 2014/first half 2013 Western Europe 104.8 +1.1 Luxury +4.5 Latin America 88.8 +12.6 Mass market +3.5 to +4.0 North America 85.2 +3.3 Dermo-cosmetics +5.5 Eastern Europe 30.1 +3.6 Hair salons +1 to +1.5 Source: L’Oréal Middle East and Africa 27.5 +13.1 *Provisional figures, excluding razors, soaps Australasia 7.5 +2.9 and toothpastes; excluding exchange rate impact World 483.7 +6.5 Source: Euromonitor International *Retail sales price **Forecast

Page 24 - www.bwconfidential.com - electronic publication - Oct 23-Nov 19, 2014 #100 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Market pulse

How some of the market’s main beauty players are shaping up so far this year

L’Oréal Growth at L’Oréal’s Luxe division was boosted in the first half by sales of the Urban Decay, Kiehl’s and Clarisonic brands, as well as by fragrances La Vie est Belle from Lancôme and SÌ from Giorgio Armani. The division reported market share increases in China, Western Europe and the US. Urban Decay became the division’s second-ranking brand in the US after Lancôme. L’Oréal finalized its acquisition of Decléor and Carita from Shiseido in April. The French group continues to be active on the acquisition front, announcing the purchases of Californian company Sayuki Custom Cosmetics, Brazilian haircare firm Niely Cosmeticos and US brand NYX Cosmetics, as well as a fragrance license with Puma, since June.

Procter & Gamble P&G recently announced it would shed more than half of its 160 brands to focus on its core brands, although it is not clear how this will specifically affect beauty. While the group’s beauty business has been struggling for several years, its Prestige arm is considered a strong performer, and has been an area of investment. It added new licenses Stella McCartney and Alexander McQueen, while Gucci make-up, introduced in September, has reportedly seen a positive start. The group is looking to focus on three axes for Dolce & Gabbana with the launch of a new skincare line this year. The division has also divested certain activities, however, ending its license with Dunhill and selling DDF skincare.

The Estée Lauder Companies Growth accelerated for The Estée Lauder Companies in the second half of its fiscal year ended June 30, 2014, when sales grew 12%. The company’s business was boosted by make-up artist brands and luxury fragrances, as well as by emerging markets like China and Brazil, established countries including the US and the UK, and travel retail. E-commerce and m-commerce were also strong growth drivers, with the group launching 50 m-commerce sites over the fiscal year. The company succeeded in recruiting new consumers in China through the launch of Clinique and Estée Lauder stores on Tmall. The company announced it will acquire fragrance brand and retailer Le Labo, its first purchase since taking over Global beauty market growth* by make-up brand Smashbox in 2010. channel first half 2014 Channel % change first half Shiseido 2014/first half 2013 Japan’s market leader initiated a turnaround plan in April following the appointment of Masahiko Luxury +4.5 Uotani as its new president and ceo. Uotoni highlighted issues including not nurturing brands Mass market +3.5 to +4.0 enough as reasons behind its recent performance. Initiatives instituted include restructuring the Dermo-cosmetics +5.5 company’s domestic business, boosting relationships with retailers, strengthening Chinese business and growing BareEscentuals. The group also unveiled a major new skincare launch for the Shiseido Hair salons +1 to +1.5 brand called Ultimune this year. Shiseido is predicting a 2.4% increase in sales for its fiscal year Source: L’Oréal *Provisional figures, excluding razors, soaps ending March 31, 2015, including 6.6% growth in international revenues and a 1.9% decline in and toothpastes; domestic business. In June this year, Shiseido announced that its BPI division had signed a 15-year excluding exchange rate impact licensing agreement with French fashion label Zadig & Voltaire. BPI has been actively seeking new brand opportunities to counter the loss of its lucrative Jean Paul Gaultier license in 2016. n n n

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n n n LVMH In what it describes in its first-half report as a “highly competitive market,” LVMH

Focus Focus Perfumes and Cosmetics is focusing on investing in its core brands. In the first half, Parfums Christian Dior was buoyed by the performance of fragrance lines J’adore and Dior Homme. Guerlain’s business was bolstered by La Petite Robe Noire, as well as the Asian performance of Orchidée Impériale and Abeille Royale skincare. Make-up brand Benefit opened a boutique in Paris and has seen strong results in markets like the UK and the Middle East. Make Up For Ever and Fresh were also key revenue drivers cited by LVMH.

Chanel The privately owned firm, which does not release sales data, remains among the prestige market leaders in the fragrance and make-up categories, and is understood to be boosting its presence in skincare. The company announced it would sell its masstige make-up brand Bourjois to Coty, which will enable it to focus purely on the prestige channel. Chanel will become a shareholder in Coty as a result of the deal. Chanel recently launched e-commerce for its beauty brands for the first time, in the US and France. Standalone beauty stores have been another recent area of focus, with the brand opening its first such boutiques in France and China in recent months. Chanel has tightened distribution in some markets, notably France, according to sources. The company named Christine Dagousset as global deputy general manager for Chanel Fragrance & Beauty in January 2014. She will take over from Andrea d’Avack as its global president next year.

Coty In July, Coty announced a major restructuring of its business built around product categories and regions. In late September, ceo Michele Scannavini, who took the company public, stepped down, although the firm insisted this did not mean a change in strategy. However, the move was viewed as negative by market analysts given the timing of the company’s restructuring initiative. Chairman Bart Becht was named interim ceo. The group continues to look for acquisitions, and is set to buy make-up brand Bourjois from Chanel in return for shares. The group says the move will reinforce its color business and its reach in Western Europe. Coty has also been working to build its position in emerging markets, which represented 29% of its business in fiscal 2014, and has created several partnerships. These include partnerships with Avon in Brazil, Chalhoub in the Middle East and Li & Fung in Asia. The TJoy brand in China was discontinued in July. In its fiscal year ended June 30, 2014, Coty was impacted by a contraction of the nail business and weak mass-market sales.

Puig The company, which celebrated its 100th anniversary this year, continues to see success in fragrance, with Paco Rabanne’s One Million and Lady Million still performing well several years after launch and the more recent Invictus leading to further market share gains. Puig aims to become number three on the global fragrance market with a market share of 12% by 2020. In 2013, it claimed the number-six spot, with an 8.6% market share, up from 3.4% in 2005. Puig attributed its 1% rise in 2013 sales to its exposure to emerging markets, where local currencies fell against the euro, and to the strength of the euro against the dollar. To focus on its core fragrance and fashion activities, Puig sold French skincare brand Payot to a group of investors in September. n

Page 26 - www.bwconfidential.com - electronic publication - Oct 23-Nov 19, 2014 #100 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Store visit

California color L’Oréal-owned Urban Decay opens its first standalone store on the brand’s home turf in Newport Beach, California

rban Decay, the California-based make-up brand acquired by L’Oréal in U2012, is opening its first freestanding store in mid-November at shopping complex Fashion Island in Newport Beach, near the company’s headquarters. The 1,000ft2 (93m2) boutique features the brand’s full product offer, as well as special items created exclusively for the store. The store is fitted out with six make-up stations, and an oversized digital wall in the center of the store broadcasts videos and images of Urban Decay products and make-up looks. The décor also features a large metallic tree that contrasts with the reclaimed wood flooring. Shoppers can relax in the UD Lounge, which houses a coffee bar and an interactive photo booth, where users can upload photos of their new make-up looks to Instagram. Shoppers can also take a seat and charge their phones in the “dude station”. Regarding the brand’s retail expansion plans, Urban Decay ceo Tim Warner Urban Decay told BW Confidentialearlier this year that there are “big opportunities” for more l Opening: November freestanding stores, both in the US and internationally. “We want to launch l Location: this store, make sure we have the right business model, and be able to offer Newport Beach, California different products and different looks—we don’t want to replicate what we l Size: 1,000ft2 (93m2) already have across all stores. We see opportunities in Singapore, Hong Kong, l Special features: and the UK.” Exclusive products, six Urban Decay also announced that it will open a store in Covent Garden, make-up stations, lounge, London, UK in November. n interactive photo booth

www.bwconfidential.com - electronic publication - Oct 23-Nov 19, 2014 #100 - Page 27 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Page 28- www.bwconfidential.com -electronic publication- Oct 23-Nov 19, 2014 #100 Store visit G of £16($25.50)—duringthe firstweekofthestore’sopening. brush, whichislaunchingat aspecialintroductorypriceof£10($16)—instead as FoamingSonicFacialSoap, acleanserformulatedtobeusedalongwiththe brand’s newcleansingdevice SonicSystemPurifyingCleansingBrush,aswell remover andmoisturizinglines.Therewillalsobeaspecial focusonthe Clinique’s 3-Step Cleansing System range, Smart Custom Serum and its make-up moisturizer bestsuitedtotheirskin. Following theconsultations,visitorsaregivencomplimentary samplesofthe are onhandtoprovidepersonalizedskincareconsultations ataseatedbararea. regimens onsixheadphone-enablediPadstations.In addition, brandadvisors sensory cues. wind, pollution,andthesoundofurbantraffic—throughvisual,auditory experience whattheskinissaidtobesubjectedonadailybasis,suchas houses threepod-typeareas,whereconsumersstandinfrontofascreenand chance toexperience“adayinthelifeoftheirskin”.The700ft Clinique popsupinLondon skincare offerinLondon Clinique opensitsfirst-everpopupconceptstoredevotedto Great SkinLab willbeopenthroughthe end-of-yearholidays.n An editedassortmentofthebrand’sskincareofferisfor saleattheboutique: At thestore,shopperscanlearnmoreaboutClinique’s productsandskincare London’s CoventGardenonOctober24,wasconceivedtogivevisitorsa reat SkinLab,Clinique’snewpop-upconceptstore,whichopenedin 2 (65m 2 ) space iPad stations, complimentary Covent Garden,London,UK consultations and samples, CONFIDENTIAL l l

Pod areas, On offer:Podareas,

Clinique Great Size: 700ft CONFIDENTIAL l Skin Lab

Location: Location: retail area 2 (65m CONFIDENTIA 2 )

L BW Confidential would like to thank its partners and advertisers for all their support over the past five years years5 TFWE 2014 www.mavala.com RIVIERA VILLAGE RG 16

Annonce Votre Beauté yeux A 210x297mm BW Confidential.indd 1 05.09.14 15:35