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The fragrance market—with sales of $30.5 billion in 2006—is one of the largest cosmetics and toiletries segments globally. While historically it has been one of the less dynamic markets—dragged down by declining unit prices, oversaturation of new products and low brand loyalty in key value countries, including the U.S.—fragrances’ strong performance in 2006 (almost 6% growth in 2006 in U.S. dollars, in fixed exchange rate terms) capped off a three-year trend of growth acceleration. Economic prosperity in the emerging markets feeds the growth, but increased demand for celebrity scents and youth-oriented fragrances are largely credited in maturing and developed markets.
The emerging regions are becoming increasingly important to the worldwide fragrances market. Latin America and Eastern Europe alone account for almost one-third of global sales, nearly doubling in value from 2002–2007 to an estimated $9.3 billion. Their influence is also evidenced by the growing portion of global sales being accounted for by the mass segment. At $18 billion, premium fragrances make up almost 60% of the market, but it is mass brands that are contributing most to growth—both in percentage and absolute terms. Although there have been moves towards masstige and premium fragrances in Latin America, there is still a strong preference for mass brands right across the region, and they outsell premium perfumes in Eastern Europe, as well.
Asia-Pacific, such an important driving force behind growth in other beauty markets, is less significant in fragrances. With predicted sales of approximately $2 billion in 2007, the region accounts for less than 7% of the worldwide market, and has historically achieved a growth below the global average. This is primarily due to cultural norms where consumers prefer to be odorless and associate heavy scents with the masking of body odor. Japan, for example, is one of the wealthiest countries in the world, yet annual per capita spending on fragrances is less than half that of Russia and three times lower than the figure in Brazil.
Western Europe and North America are the most significant value markets, accounting for almost 60% of global sales. Both regions are marked by competitive markets, high launch rates and short shelf-life for new scents. Despite these difficulties, companies are succeeding in lifting value growth in Western Europe, at least.
Premium fragrances are driving growth in both Western Europe and North America, but dynamism is, on the whole, coming from the lower end of the segment and from discounting. In the U.S., for example, manufacturers are exploiting the migration of consumers toward mass retailers with innovative strategies to suit this channel. Elizabeth Arden introduced Curious Britney Spears into the mass channel with a 30 mL bottle, bringing price points down to capture a younger audience.