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Fragrance Gains in 2006

By: Briony Davies
Posted: May 10, 2007

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Looking forward, Euromonitor International predicts that the Chinese market will be a key source of growth in the region, driven by rising disposable incomes and improved distribution. China was one of the world’s top 10 countries in terms of GDP growth measured at purchasing power parity between 2000 and 2005. This newfound prosperity is putting more money in the hands of consumers who are proving increasingly willing to spend it. In contrast to the West, conspicuous consumption is the done thing, and labels, rather than quality, prevail. In addition, the problem of counterfeiting is being taken more seriously by the Chinese government, due to the lobbying efforts of the leading manufacturers and the EU. Legislative changes will also be influential in the medium- to long-term. Firstly, the tariff on premium fragrances was reduced from 30% to 10% at the beginning of 2005, thereby encouraging new brands to enter the market. In addition, international specialist perfumeries such as Watson’s, Sasa and Sephora have all indicated their commitment to expand further in China. The slashing of the ban on direct sales in 2006 should also assist the growth of fragrances as companies such as Avon, Oriflame and Mary Kay spread the sector into rural areas through more affordable products.

Celebrity Future Not Certain; Artisanal Fragrances Step Up
The cult of celebrity has helped drive sales in fragrances in recent years, with more and more shelf space devoted to pop stars, actors, fashion labels and even authors. Although the risks of celebrity endorsement are apparent—the selling power of a particular icon is only as strong as their image, which can easily be tarnished by bad behavior or a new flavor of the month—the trend currently shows no sign of abating. Kate Moss is the latest star to jump on the bandwagon after signing an agreement with Coty, which also works with Kylie Minogue, Jennifer Lopez, Sarah Jessica Parker, and Victoria and David Beckham. Cozying up with celebrities has also proved successful for Elizabeth Arden, which uses carefully chosen stars to generate appeal among a range of consumer groups. With Britney Spears and Hillary Duff targeting the teens to twenties segment, the company is hoping for a hit among baby boomers with its Danielle Steel fragrance. However, this type of marketing does not appeal to every demographic, and will never become all pervasive as manufacturers look to specifically target every consumer segment.

In France, for example, the rich and famous do not have the same level of notoriety as they do in the U.K. and U.S., and consumers are more sophisticated in their fragrance selection, putting scent above image. As such, celebrity fragrances have not been a major trend in France. The coming year could also see the beginnings of what some industry sources suggest is an inevitable backlash against the celebrity trend. Consumers themselves will drive this change in demand, as their growing sophistication makes them more likely to be persuaded by high-tech ingredients and innovative delivery formats rather than savvy marketing campaigns.

Manufacturers may also start pushing for this shift. Although attaching a famous face to a fragrance provides it with a ready-made image and eliminates the need for full-scale brand building, celebrity brands do not tend to have longevity. In fragrances particularly, extending shelf life has become vital in an increasingly fickle market.

Specialty fragrances are becoming available to a wider audience and are emerging as a fast-growing industry niche. In November, beauty boutique Studio Fred Segal launched a store-within-a-store called Memoire Liquide, offering bespoke scents at accessible prices (between $30 and $75 for a three-pack). Scent Design also sells custom fragrances on a budget ($20–$30 per ounce), as well as offering online advice about blending and layering scents. Even upmarket perfumery Roja Dove—which offers both bespoke services and rare, top quality perfumes—has expanded from its Harrods home to the less exclusive House of Fraser department store in Manchester in the U.K.