BW Confidential - Issue #1 - April 2010 - (Page 45)

Western Europe: Germany ‘beautiful stores and great brand experiences’, and warn that if perfumeries don’t do more to improve the service element they will lose out. Consumers have already started to trade down in make-up and the same thing is beginning to happen in skincare. There is certainly a price advantage—there is a strong discount war among the drugstores, with retailers such as DM Drogeriemarkt and Müller looking to outdo each other on the price front on almost a daily basis. Analysts say that selective retailers should also watch out for drugstores increasing their offer of selective brands. One brand cites Müller, which it says has done a great job of bridging mass and class cosmetics. nnn Market watch (Müller has also expressed another interest in prestige: the company said it would like to increase its 3% stake in retailer, Douglas to around 18%). Other pluses for the channel are that players such as DM, Ihr Platz and Rossmann are focusing more on private label, and that many drugstores are moving to more premium locations around the country. As for department stores, the channel has been hit by Arcador (owner of the Karstadt department-store chain) going into administration in June 2009. There has been much talk about a possible merger of Karstadt with Metro’s Kaufhof chain, but nothing yet has materialized. Analysts believe the merger would be positive, as the market needs one strong department-store chain. Albrecht & Dill’s Sahling comments that whatever happens there is a lot of work to be done on the chain. “Karstadt has a real problem with its positioning; they don’t seem to know if they are a luxury store or a more mass retailer. They have very high-end stores and really ugly stores.” The outlook for the German beauty market largely depends on what happens in the overall economy, and in particular the unemployment situation. This year has gotten off to a slow start, largely due to bad weather conditions. Some say however, that unless there are fewer products, more reasonably priced items and better retail, the market will remain flat for the years to come. n Western Europe: France Better than expected credit: stock.xchng Prestige puts in a resasonable performance, but unit sales are still on the decline rance’s selective beauty market may have seen a decline in 2009, but compared to some other industries, the sector came out of the crisis quite well. According to NPD, selective beauty sales were down 1.4% in value to €2.8bn last year. There were worries over the all-important Christmas season, but consumers did come out to buy cosmetics and fragrances, albeit at the last moment. “The year wasn’t as bad as we thought it would be and in December the customers were there, even if it was partly the discounting phenomenon among the chains that brought customers to stores,” says Inter Parfums director France Jérôme Thermoz. Discounting was a major feature before the Christmas holiday and carried on well into the traditional January sales period, when stores were advertising markdowns of between 40 and 60%. F By category, fragrance performed the best, with sales down by only 0.7% in value. This was largely due to a string of strong perfume launches at the end of the year, including Yves Saint Laurent’s Parisienne, and to heavy advertising before Christmas by groups such as L’Oréal. Make-up saw a sales decline of 1.2%, while skincare was down 3.9% in value. Skincare’s declines in selective were in part due to competition from other channels, such as pharmacies and parapharmacies. Value versus volume The 2009 results may seem reasonable in a year of recession, but in terms of units sold it is more worrying. In volume, the total selective market was down by 3.9%. Fragrances were down by 3.2% in units, make-up by 3.5% and skincare fell by 5.9% in volume. The Federation of European Perfumery Retailers vice president Robert Leygues comments: “Every year the market is losing in volume. Prices are too high and we are in direct competition with other product categories. This year the market will fall again in volume, we are not out of the woods yet.” Getting consumers into perfumeries was certainly not easy last year. Suppliers increased prices in the range of 5-10%, which made perfumeries less accessible, and there was also the problem of stores not being in stock. There was a general destocking from retailers in many countries, but France was particularly hard hit. Not only were retailers looking for liquidity, but a new law as part of France’s modernization of the economy (LME) meant that payment terms were reduced from 90 to 30 days. As a result retailers stopped ordering. In terms of retail activity, Sephora n n n April 2010 - N°1 - BW Confidential 45

Table of Contents for the Digital Edition of BW Confidential - Issue #1 - April 2010

Update - Brand and retail recap
Take note - Market facts, figures and trends
Launches - The latest fragrance, skincare and make-up launches
Best of BW - Market highlights
Interview - Sephora international & development md Olivier Schaeffer
Insight: make-up - Category overview
 - Industry viewpoint
 - Trends
Wellness report - Overview
 - Industry roundtable
 - Spa case studies
Travel retail - Europe: little chance of a rebound
Market watch: Western Europe - Regional analysis
 - Germany
 - France
 - UK
 - Spain
 - Italy
Radar - Six up-and-coming beauty brands
Packaging special -  Industry analysis
 - Innovation
Last word - UBS analyst Nik Modi's outlook for 2010

BW Confidential - Issue #1 - April 2010