Sizing up the competition
As powerful beauty groups continue to grow their portfolios by acquiring new brands, Nicki Saunders asks an age-old question: when it comes to selling fragrances in travel-retail, does size matter?
L’Oréal’s announcement at the end of January of its intention to acquire the shares of YSL Beauté Holding and all associated brands and licenses from PPR is the latest indicator of an ongoing trend towards consolidation in the beauty industry.
Perhaps more than any other category, beauty is dominated by a handful of powerhouses boasting well-oiled brand-building machinery.
Nowhere is this more visible than on the exhibition floor of the Palais des Festivals in Cannes where, come the annual TFWA World Exhibition, the entire fifth floor is devoted to L’Oréal Produits de Luxe International, and a selection of other beauty suppliers command impressive floor spaces on the levels below.
But when the big continue to get bigger, is there any room left in the space-constrained travel-retail environment for small and independent beauty suppliers? Beauty was the biggest category to be represented at the 2007 TFWA World Exhibition in Cannes, making up almost one third of the 443 exhibitors on show. Of the total new exhibitors in 2007, however, less than 20% were fragrance and cosmetic suppliers. Is the beauty category, then, in danger of squeezing out new brands?
For the brands that are bought by larger groups, the extra marketing support and investment they receive and the strengthened negotiating power they can wield, is likely to be beneficial in growing revenues and brand-building. This is particularly important for fragrances, where the product itself is often less important than the stories that support it and the lifestyle it purports.
Jean-Michel Bostroem, vice-president marketing of L’Oréal Produits de Luxe International, is confident that as a big group L’Oréal can offer its brands a positive future. “Consolidation in itself is neither a good nor bad thing – it depends on what the company does with the brands it buys. If we succeed in acquiring the YSL Beauté brands, it might be good for the sake of those brands because we really want to make them grow and we will put all our efforts and lab resources behind them,” he tells Frontier.
For new fragrance brands, financial support is crucial. Marcin Jasiak, managing director of L’Occitane International, has seen the beauty industry from the perspective of a beauty giant as well as an independent niche brand. Before joining L’Occitane International in 2003, Jasiak worked for Procter & Gamble.
“If I have only one brand, I cannot afford to lose money,” he explains. “If you’re a big group you can compensate the losses over two years from a new brand with the cash-flow of some other brands you have, so you can definitely afford to spend more money upfront.”
Large beauty groups can also share good practice and training, organise cross-promotions, encourage cross-sales, and make best use of the operational marketing between brands. What is more, bigger groups tend to have more bargaining power, easier access to retailers and can block-book promotional spaces at airports.
“There are plenty of possibilities which are interesting for these groups,” says Jasiak. Still, being a small fish in a large pond is not always beneficial. “If you are a small brand within their portfolio you’re better off being independent. You’re going to be disregarded in terms of space for launches as there will always be a priority towards brands like Boss and Lacoste for companies like Procter – which I fully understand.”
For L’Occitane at least, being independent allows it to retain a distinctive niche appeal. The company made its travel-retail debut in Asia in 2003 after proving
successful in local markets worldwide. “We have a significant amount of competitive edge on the niche basis that we can use,” he comments. “The big groups get different brands to represent different niches, but in reality they apply a pretty uniform politic, which means that more and more of these brands will have to resemble each other in order for the company to be able to fully utilise the synergies they can have between them, in terms of management, beauty consultants, etc.”
As well as niche appeal, independent suppliers are often compelled to be more original in their marketing. While independent beauty suppliers like L’Occitane may lack the marketing clout of their larger competitors, they do not necessarily lack the creativity.
“For small brands, you just have to find a smarter way of being distinctive,” says Jasiak. “For us, there are several elements of the marketing mix that are very difficult to match with just money – packaging, positioning and, for example, the smell of the products. We are being distinctive in a different way and not necessarily requiring enormous investment to make this visible.”
The supplier’s efforts were acknowledged by the industry last year when it became one of four companies, and the only beauty supplier, to be shortlisted for the 2007 Frontier Award for Best Marketing Campaign of the Year by a Supplier.
Though L’Occitane offers fragrances, its main product focus is skincare – a more fragmented category that is traditionally more welcoming to niche brands. Jasiak acknowledges that life in travel-retail is likely to be more difficult for independent suppliers that hope to launch largely unknown fragrances.
“In fragrances, one brand cannibalises the other. It’s extremely difficult to be distinctive unless you pick up a fantastic new designer who is more likely to go with a big group anyway… If you come today and you have three new fragrances of an unknown brand, even if you have had some success on the local market, you are very unlikely to get the space,” he comments.
One company taking up that challenge is Fine Brands, an international export agency that represents and develops strong local brands in the fragrance and cognac sectors on the international stage. The business development manager of Fine Brands, Tim
Descamps, is all too conscious of the challenges travel-retail presents to little-known fragrance brands. Like L’Occitane’s Marcin Jasiak, he too has seen the business from a position of dominance, with a six-year stint working for Coty Prestige in travel-retail and export positions.
Descamps now represents three key fragrance brands that are as-yet unknown to the travel-retail consumer: surf brand Kana Beach, Jacomo, and organic fragrance and cosmetics brand Senke. “The problem with small brands is that they take time to be discovered by consumers,” he points out.
“You can’t expect to be listed everywhere and deliver strong results immediately. Given the highconcession fees paid by airport retailers, they have to maximise profit on every square inch, and because of that they often don’t have the time and space to dedicate to brands that will need time to prove themselves,” he admits.
Yet, if it is only the independent brands that can truly achieve ‘niche’ appeal, then perhaps there is space in travel-retail for them after all. If domestic trends are anything to go by then niche and limited distribution fragrances may be the next ‘big thing’ in beauty retailing. There has been a marked increase in smaller perfumeries on local markets offering genuine olfactory creations, which consumers are starting to actively seek.
“It is a chance for retailers and operators in travel-retail to offer differentiation,” says Descamps. “When you move from one airport to the next you’ll find the big names like Calvin Klein, Chanel, Christian Dior and the like, and so in the end it’s always the same offer.”
The way forward, Descamps suggests, is the creation of small corners within airport shops that showcase new, niche or limited-distribution fragrance brands. Consumers looking for something different to add to their beauty regime would then know where to go, without having to know which brand they were looking for.
For retailers it is a familiar problem. On the one side, offering space to small and independent suppliers with less well-known brands can bring something unique to their shopping mix while stopping them from becoming too dependent on one or two suppliers, which could then diminish their negotiating power. It is, however, a more risky strategy than turning to big beauty groups, which provide powerful marketing and merchandising support and guaranteed revenues.
For all involved – retailers, consumers, and suppliers big and small – more brands in the market is ultimately a healthy thing. L’Oréal Produits de Luxe International’s Jean-Michel Bostroem, for one, is confident that consolidation will not stop smaller brands from breaking through in travel-retail.
“The beauty industry does not have a particularly high-ticket entrance,” says Bostroem. “Small brands with a turnover of less than €1m, for instance, can still be launched and be very successful. I have no fear that consolidation will prevent creativity – the more brands on the market the better, because then we will all try to find a point of difference from one another, and at the end of the day it’s the consumer who will decide.”
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