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Super Premium Beauty on Cusp of a New Era of Growth

Fflur Roberts, Euromonitor International
  • Anti-aging skin care is set to post the highest compound annual growth rate in global skin care by far between 2010 and 2015.
  • For luxury goods consumption, the scales of global demand tilt inexorably toward emerging markets.
  • In luxury fragrances, the scent is important but becomes secondary to the presentation of a bottle and the luxury credentials of the brand.
  • The new generation of wealthy BRIC consumers will engage with super premium fragrances in terms of how emblematic they are of luxury and sophistication.

That the BRICs, and China in particular, are driving the global luxury goods agenda is now indisputable, according Euromonitor International. Harvey Nichols, the leading luxury rival to Harrods in the U.K., will open its second Hong Kong outlet in late 2011 in a move that is directly linked to China’s growing appetite for luxury goods. Hong Kong is to wealthy Chinese shoppers what Miami is to wealthy Latin American shoppers—specifically a beacon, if not a shopping mall, for luxury shopping opportunities. And one has to think it is only a matter of time before Harrods itself embarks on its own Chinese venture.

Overall, beauty in China is predicted to achieve growth of more than $10 billion by 2015, by far the highest increase of any country globally. Key factors behind this performance will be China’s strong GDP growth and rising consumer disposable incomes. Also, as male attitudes toward grooming are changing, men’s grooming products have performed well, with the category set to register an average annual growth rate of 13% to 2015. Men’s hair care, skin care and deodorants are likely to remain the key drivers due to constant new product launches and promotions.

Anti-aging skin care is set to post the highest compound annual growth rate in global skin care by far between 2010 and 2015, 5% in constant value terms with the highest revenue in anti-agers coming from China. China is set to add $1.6 billion to its anti-ager value by 2015. This boom is a result of rising disposable incomes in the country, which have enabled the population to afford premium-priced anti-agers with whitening ingredients in order to achieve the cultural ideal of a pale complexion.

However, of all the BRIC countries, India attracts the big beauty players. Super premium beauty in India enjoyed healthy growth of 63% in 2010, unchanged from the previous year. Rising affluence and greater consciousness of personal image are driving growth in both rural and urban areas.

As a result of its consistently strong growth, India has attracted a number of multinational beauty companies to focus their expansion on the country. In most cases, their target has been urban areas. L’Oréal India launched the first Kiehl’s standalone store in 2011 in New Delhi, but others have targeted India’s rural consumers, who still account for approximately 70% of the total population.

The Regal Hug That Launched a Luxury Scent

In 2009, London’s iconic luxury retailer Harrods struck a deal with New York’s trendsetting Bond No. 9 to make a super premium house fragrance. As the story goes, the inspiration for the partnership came about after a protocol-breaking hug between Queen Elizabeth II and First Lady Michelle Obama during a presidential visit to London in May 2009. The fragrances, Harrods for Him and Harrods for Her, positioned at around $230 for 100mL, were promoted as a celebration of kinship between the U.S. and the U.K. and, in particular, their two most famous cities, London and New York City.

In that launch year, the U.K. was the biggest super premium fragrance market in the world, with retail sales of $340 million, according to data from Euromonitor International. However, the latest (fifth) edition of the Harrods and Bond No. 9 collaboration, introduced last month under the branding Harrods Amber and priced at around $400 for 100mL, comes at a time when the U.K. is set to lose its top ranking position in super premium fragrances to Russia. This dethronement of the U.K. aligns with trends across luxury goods consumption, as the scales of global demand tilt inexorably toward emerging markets and, in particular, China, Russia and Brazil.

Harrods Footfall Boosted by Chinese Bank Terminals

Executives at Harrods are unlikely to lose too much sleep over the U.K.’s loss of leadership in luxury fragrances, though. The store’s customer base is made up mostly of international visitors, and they will be the biggest buyers of Harrods Amber in 2011, not U.K. residents. Within that international customer base, the biggest participation is likely to come from China. Remarkably, without actually opening a store in China, the burgeoning wealth of Chinese shoppers has become key to the strategic development of the London Knightsbridge store.

For example, Harrods now employs 75 Mandarin-speaking staff members to help serve its huge volume of Chinese visitors, with approximately half the store’s footfall made up of Chinese shoppers on the first day of January 2011. And earlier in 2011, 75 China UnionPay (CUP) bank terminals were installed. This CUP investment has yielded an immediate retail upside, with Chinese shoppers spending on average almost $6,000 per Harrods visit in the first quarter of 2011, up 40% on the same period in 2010, based on VAT returns and according to company sources.

Chinese cards are not compatible with chip-and-pin terminals in the U.K., so the CUP terminals are crucial to bulking out purchases, especially for ultra-high end products. One Chinese customer in 2011 used CUP to splash out $225,000 on a diamond. And it is increasingly common for a Chinese shopper to buy four or five units of a product, such as a bottle of perfume or a luxury accessory. Such multiple purchases (normally for gifts at home) were much less visible before the terminals were put in place. Selfridges & Co in London has also installed CUP terminals, and much stronger CUP penetration across Western Europe is expected over the next five years as more upscale retailers tap into the lucrative luxury spending capacity of Chinese tourists.

The Most Expensive Smell in the World

Beyond Russia and Saudi Arabia, luxury fragrances was still a nascent category in emerging markets in 2010. However, that is likely to change going forward as wealthy consumers from China, Brazil and India develop a keener interest in the world’s most expensive perfumes, just as they have for the world’s finest wines. Indeed, to 2015, Russia, Brazil, China, India and Saudi Arabia will comprise five of the 10 biggest projected growth markets for super premium fragrances, according to Euromonitor International.

But, what type of super premium fragrances are the Chinese and high net worth individuals from other the emerging markets after? The fragrance industry appears to be falling over itself to get a steer on what BRIC luxury trendsetters are likely to go for in a perfume. Yet, does scent per se play a decisive factor? The world’s most expensive perfume is the limited edition Clive Christian No. 1, which costs around $200,000 for a 30mL bottle. It is not, of course, just any old bottle. It is made of Baccarat handmade crystal, adorned with a 5-carat white diamond and an 18-carat gold collar.

The packaging of Clive Christian No. 1 is the main driver of the price, and this is the key point about luxury fragrances. The scent is important, but it is still a sideshow to the presentation of a bottle and the luxury credentials of the brand. For the new generation of emerging market trendsetters, with cash to spend, the core of luxury attraction is related to how much a brand says about its social status. It is aspirational consumption on a scale that fast-moving consumer goods markets have never seen before.

The latest super premium fragrance from Giorgio Armani (Armani Prive La Femme Bleue) is limited to 1,000 bottles, with a price tag of around $600 for a 100mL bottle. This type of limited edition branding is common in luxury wines and spirits, because it flexes the type of exclusivity that gets fashionistas’ pulses racing. The limited edition brands themselves are not about making money but about creating an aura around an umbrella brand. In fragrances, brand loyalty is strong, but the loyalty is often to the label, not necessarily to a specific scent. Armani Prive La Femme Bleue could, in short, give significant impetus to the Armani fragrance line as a whole. Indeed, much more limited edition branding is expected in luxury fragrances going forward, which in turn will give impetus to the super premium fragrances category.

The Luxury Aspiration X Factor

The notion that consumers in China, Brazil and Russia will reject a fragrance because it smells too French or too Italian is simply not true. Fragrances do not need to capture the scent of a country to become a desired luxury product. The way a super premium fragrance is perceived is more directly related to its positioning, and indeed to the packaging and the luxury credentials of the name. Bond No. 9 has a strong association with New York neighborhoods, which is a key driver of demand. But that is down to the packaging, commercialization and branding. The scent came later.

And consider the case of Comme de Garcon. The brand is often associated with French sophistication, even though it is Japanese. And for its first foray into fragrances, Comme de Garcon chose an English perfumer, Mark Buxton. Comme de Garcon perfume subsequently became associated with something quintessentially Japanese or quintessentially French or quintessentially British, depending on your perspective. The point is most of the new generation of wealthy BRIC consumers will engage with super premium fragrances in terms of how emblematic they are of luxury and sophistication and not depending on whether they smell French, Italian or Japanese.

Perfumers may be key to creating added value finesse, but the way a luxury fragrance is packaged and branded has to be more important. That is where the category needs to be channeling its biggest dose of emerging market investment over the next five years.

Fflur Roberts is the head of luxury goods research for Euromonitor International.

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