Despite blurring of the lines between premium and mass products in color cosmetics, fragrances and personal care products and the ever-expanding presence of big-box mass retailers in the U.S., the luxury segment of the beauty business is once again showing healthy sales increases.

Better Sales in 2004
Building from a slight increase in 2003, the prestige beauty market in the U.S. rebounded nicely in the first half of 2004, according to NPD Beauty, a division of NPD Group, a marketing information company based in Port Washington, NY. Total prestige beauty products (as sold in department stores) had sales of $3.5 billion in the first six month of 2004, a 5% increase over sales in the same period of 2003, according to NPD’s most recent figures. Skin care and makeup were each up 7% to $1.1 billion and $1.4 billion, respectively over 2003. Still battling back, prestige fragrance sales were up a slight 1% to $1 billion.

Several prestige brands including LVMH and Calvin Klein have noted that duty-free shops have also come back this year as more consumers return to travel.

According to The Market for Cosmetics & Toiletries in the USA, 2004 by Euromonitor International, a global provider of business information and statistics, total sales in 2003 of premium beauty products, including color cosmetics, fragrances, skin care, sun care and hair care was $13.12 billion or approximately 29% of the total market of $45.4 billion. Total sales for those prestige products was $13.02 billion in 2002.

Department stores registered a slight share increase of 0.3% to 18.1% between 1998 and 2003, according to the Euromonitor report. An informal survey of four of the most well-known department stores—Lord & Taylor, Macy’s, Nordstrom and Neiman Marcus—at the Garden State Plaza, Paramus, NJ, on a mid-week, August afternoon, revealed some key differences. While the size and location of the beauty departments were about the same and many of the brands offered were also the same, the atmosphere in each was very different.

What Matters to the Luxury Shopper
Brand is key in the prestige beauty category, stressed Pam Danziger, president of Unity Marketing, a marketing consulting firm that specializes in consumer insights for luxury marketers. “Brand loyalty is highest in (luxury) categories that are highly personal (such as) cosmetics, beauty products and spa/beauty treatments services or mechanical in nature (including) gears, wheels and motion,” Danziger explained.

Luxury brands build images by connecting intrinsic elements such as quality performance, design performance and uniqueness, with experiential factors—how the brand makes the consumer feel and the way they experience luxury, according to Unity Marketing’s Luxury Market Report, 2004: Who Buys Luxury, What They Buy, Why They Buy.

While luxury beauty products follow some general prestige rules, such as the importance of brand name, quality, and uniqueness of the experience they afford, there are some significant differences. While Unity Marketing’s research found that buying most types of luxury products on sale or at discount is preferred by today’s luxury consumer, fragrance and beauty products are an exception. When the prestige consumer is out of her favorite foundation, fragrance or lipstick, time is of the essence resulting in two-thirds of luxury shoppers making their last beauty purchase at full price. “In the other categories, the luxury consumer has gotten used to waiting for sales to get the ‘real’ price, but with prestige beauty, the prices don’t change,” pointed out Danziger. “The exception in beauty is gifts-with-purchase and special combo packs of products (especially on television and the internet) that are offered that give the consumer the perception that she is getting something ‘special’—which can be very desirable,” she added.

Perhaps even more important, most prestige beauty products are actually affordable by a much wider audience than other luxury categories. While definitely a personal indulgence, virtually any women may treat herself to a $20 lipstick, a $35 foundation or a $50 jar of face cream and feel pampered without destroying the household budget.

Beyond Paradise by Estée Lauder epitomizes the brand’s quality and innovation.	Chanel’s No. 5 Seduction collection has classic Chanel styling for timeless fashion. Crystal clear, heavy-walled glass and elegant lines reflect the traditional brand image.	Calvin Klein’s new Eternity Moment takes design inspiration from the original Eternity bottle.

Romancing the Brand with Package Design
First impressions are as important in luxury beauty as in any product category, but prestige brands must be even more careful when crafting packaging than mass brands. For classic prestige brands such as Estée Lauder and Chanel that offer wide assortments of color, fragrance, treatment and personal care, maintaining image while being modern and fashionable is a delicate balancing act.

Estée Lauder Company has been carefully redesigning the packaging of much of its Estée Lauder brand. Pat Chiappetta, vice president Estée Lauder Global Packaging, stated, “In all of our packaging efforts, we are trying to move the brand forward without compromising its heritage. In packaging, there have been major initiatives in all of our categories. Our focus has been to modernize our look while retaining the elements of consumer recognition, as well as their expectation of quality and luxury.

“At Estée Lauder, our packaging has always been known for having details that matter,” stressed Chiappetta. “Small details really make a difference to us and to our customers. Our luxury packaging creates an emotional connection with our customers. This is done by communicating luxury in a less overt, more subliminal way, a more personal way. Each consumer can read her own definition of luxury into the brand.”

The design of the packaging for the Beyond Paradise Fragrance is an example of how Estée Lauder fine-tunes a package. Chiappetta explained, “It has an innovative, custom-designed, seven part cap/collar/actuator. This groundbreaking component eliminates the need for a separate removable cap and takes the ‘spray-through’ concept to another level. A twist to the right will open the pump; a twist to the left will lock it securely. The cap also includes a unique, holographic disc, which projects a subtle rainbow effect, enhancing the Surlyn body. The glass bottle is decorated with a color spray process that includes four unique inks that all blend together in an exquisite rainbow design. The overall effect keeps the tradition of our brand but is a bit more edgy.”

Estée Lauder’s new Illusionist Mascara offers both a visual cue and a tactile cue toward luxury. It is a new shape entirely, and, Chiappetta said, “The cap is injection molded ABS that is then over-molded in a soft Santoprene material for an ergonomic grip surface.”

The company’s packaging efforts have been very successful. Chiappetta stressed, “We have attracted new customers to the brand by focusing on design details and innovation. We are continually striving to be fresh and unique, to convey quality and to have the package inspire confidence in the product. The deliverable has been that our packages are intriguing and unexpected, but never gimmicky. As a result, our packages have an underlying value of quality and luxury.”

“The design for Chanel products comes out of France, where the team is headed by Jacques Helleu, creative director for Chanel worldwide”, said Scott Widro, vice-president of Material Management based in Piscataway, NJ. “Mr. Helleu and his team collaborate with Lyle Saunders, vice-president of creative in the U.S. to insure that our creative is globally consistent. Unique to our beauty business, Chanel product development is handled through our color studio in Paris where concepts for products and packaging originate, overseen by Dominique Moncourtois, director-creation maquillage.”

Here in the U.S., Widro’s group takes marketing’s concept and turns it into a reality.

“We engineer the package in collaboration with our French package development and engineering team, purchase it, handle production planning and track all new product introductions,” he noted. Package components are sourced on a global basis from multinational suppliers. Chanel makes its own product and fills the packaging at four facilities, three in France and one in the U.S.

“The packaging for Chanel No.5 Seduction Collection is a prime example of new packaging that is ‘absolutely Chanel,’ stressed Widro. The three-product collection, which launches early this month includes a 1.7oz. Sensual Elixir in a rectangular bottle with a stopper, Velvet Body Cream in a 5oz. jar with black injection molded, UV coated cap and a 13.5oz. Velvet Bath Milk in a glass bottle with a compression mold, black cap. All the containers are crystal clear, thick-walled glass molded in classic Chanel shapes. The caps for the Body Cream and Velvet Bath Milk are glossy black plastic while the cap for Sensual Elixir is a classic perfume glass plastemeri stopper. The Velvet Body cream glass jar is finished with a clear UV coating to protect the contents. Widro said, “The UV coating is typical of Chanel. It is an extra step we take for our quality and brand image. The consumer may never know that we have UV-coated the jar, but they will reap the benefit.”

In terms of distribution, Chanel fragrance and beauty products are found in department stores and at Chanel boutiques. On-line, Chanel products are offered at www.gloss.com.

The packaging for SKIN reflects the image John Varvatos is building—modern, masculine, stylish.	Packaging for DKNY Be Delicious from Donna Karan Cosmetics is designed to have all the fun and fashion of the DKNY brand.

Building a New Men’s Luxury Brand
Designer John Varvatos teamed up with Zirh International, a division of Shiseido, to launch a line of prestige fragrance and skin care products this spring. The packaging for the John Varvatos fragrance is a unique combination of glass, leather and aluminum for a sophisticated, masculine look.

With equally well-designed, unique packaging, SKIN, a treatment collection will be added to the Varvatos line in October/November.

“Zirh worked very closely with John (Varvatos) in designing the SKIN line packaging,” said Brian Robinson, Zirh president. “With design assistance from Lloyd and Company, we sought to create masculine, distinctive and luxurious packaging. The rubberized base allows for a clean and comfortable feel when holding or putting down the package and the metallic rings provide a prestigious visual impression.”

In designing the line, Zirh’s goals were three-fold. It was committed to making the products with the best ingredients for the highest levels of efficacy. A core group of products was developed that men are already familiar with that is complemented by another selection of specialized products (i.e. Eye Cream, Concealer Sticks) that would ordinarily be viewed as feminine or less masculine, Robinson explained. Zirh then set out to have the products and their presentation convey a sense of luxury with regard to texture and positioning. “We believe we have accomplished all three (goals),” stressed Robinson.

Zirh is being as careful and selective with distribution as it was in developing the Varvatos product. Robinson noted, ”The line is technologically advanced so whoever is selling it must be trained properly and able to explain benefits, usage, etc. to customers. This is a difficult strategy to execute in other channels (other than department stores and boutiques). Additionally, it is doubtful that other channels of distribution will be offered this line as it is our intention to keep distribution extremely limited.”

Luxury Fragrance Package Design: Classic or Fun
Calvin Klein fragrance packaging design is a collaboration between the fragrance team, an in-house creative team and a designer, according to Janice Vitale, vice president retail development, U.S. marketing at Unilever Cosmetics International. Pierre Dinand designed the bottles for OBSESSION, ETERNITY and ESCAPE and Fabien Baron designed the bottles for cK one, cK be, Contradiction, Truth and Crave.

Calvin Klein has been particularly successful with “flanker” brands that add elements of newness, while identifying closely with an established brand through name and packaging. Vitale noted, “Eternity purple orchid represented 25% of the Eternity brand retail last year and the 1.7 oz. edp was CKCC’s No. 1 women’s sku in the U.S. Not only do flanker brands give our existing business a boost, but also these line extensions add newness and excitement to our signature brands while reaching a new, broader audience.

Eternity Moment, the latest fragrance from Calvin Klein rolling out this month, is presented in a bottle that is a reinterpretation of the Calvin Klein classic, Eternity, first released in 1988. The new Eternity Moment bottle has a taller, more slender profile and a transparent cap. It is new enough to be distinct and similar enough to strike a chord of familiarity with some consumers.

Actress Scarlett Johansson has been chosen as the face of Eternity Moment, as she is seen to embody what today’s young women are—independent, spirited and confident.

While Calvin Klein is always exploring new ways to reach its consumers and pursue synergistic retail partnerships, its core business is done with department stores, according to Vitale, who added, “Duty-free continues to be a strong channel as well.”

DKNY Be Delicious, the latest fragrance from Donna Karan Cosmetics, launches in October. Be Delicious was designed to have all the fun and fashion of the DKNY brand. The fragrance, an apple-infused scent is called “sexy, sweet, tempting and playful…the iconic apple with an urban edge.”

The bottle, a simple oval that sits comfortably in the hand, is called “a contemporary interpretation of the timeless apple.” Designed by Laird & Partners (Trey Laird and Hans Dorsinville) and Chad Lavigne LLC, the green glass “apple” (by Vitro Packaging) is topped by a shiny chrome cap. The actuator and dispenser are set within the cap.

Neo Luxury Packaging Defined at Luxe Pack New York Panelists discuss the elements of luxury at Luxe Pack New York: (l-r) Marc Rosen, Marc Rosen Associates, Roger Caracappa, Estée Lauder, Barbara Zinn Moore, Lord & Taylor, Theo Spilka, Ferminich, and Harry Slatkin, Slatkin & Co. At Luxe Pack New York in June, a seminar on prestige packaging organized by Marc Rosen, founder of Marc Rosen Associates, New York, NY, gathered industry experts from all segments of the value chain to discuss what “Neo Luxury” packaging is all about. The panel consisted of: Roger Caracappa, executive vice president of global packaging, quality assurance, global merchandising, corporate store design and retail store operations; Barbara Zinn Moore, senior vice president and general merchandise manager for cosmetics for Lord & Taylor; Theo Spika, vice president, fine fragrance and new business development for Firmenich International Fine Fragrance Center; and Harry Slatkin, president of Slatkin & Company. Caracappa noted that luxury packaging must communicate to the consumer in a subtle and personal way that the product is a high quality. “The packaging standards at Estée Lauder are the best in the industry,” he emphasized. “The most important thing is not about the cost of goods, but rather about providing something the consumer wants. And it’s not about contrived packaging but is done by selecting the right material and the right supplier.” “Consumers look at the whole package,” confirmed Lord & Taylor’s Zinn Moore, adding, “clean, simple, elegant packages are best. There’s luxury in simplicity such as Vera Wang (the fragrance bottle) or the packaging of Estée Lauder’s Pure Color.” Zinn Moore said that even a minimal change can make a huge difference. “When Clinique added a pump to a lotion container, sales increased dramatically,” she said. “Our customers link quality to luxury and also respond to newness.” Spilka emphasized, “The pack must mirror the contents. When you’re working with a fragrance that cannot be seen or touched, packaging is impactful and emotional and must communicate whether luxury or not.” Spilka pointed out that many of the latest fragrances are packaged in bottles that are reminiscent of containers from 100 years ago for a look that has “timeless elegance.” Slatkin started selling its candles at Saks eleven years ago and they are now available in 2000 doors. “We allow the consumer to have a piece of luxury. We treat every project like someone getting dressed. The various components are like articles of clothing. We don’t package just to package, but also to dream and inspire.”

Changes in Prestige Distribution
Because consumers have branched out to shop at a wider variety of stores, department stores are no longer the only place to find prestige beauty products, according to Unity Marketing’s Danziger. “More are going to a specialty store or a salon or spa,” Danziger noted, “where they can have a more pleasant experience and find product.”

In 2003, specialty stores maintained their share of 7.2% the beauty market, according to Euromonitor. CP&D’s visits to several specialty stores at the Garden State Plaza in New Jersey turned up key differences between these retailers.

The success of Sephora, owned by LVMH, has proved that “open sell” can work in the prestige market. Established in 1998, Sephora USA now has more than 90 locations in the U.S. in more than 20 states. When we visited, the store was hopping. Sales staff cruised the aisles to offer quick help as shoppers served themselves.

The specialty beauty retailer offers approximately 250 prestige brands, according to company spokesperson Alison Slater. “Our best selling category is color, but the fastest growing category is skin care and we’re also doing very well in fragrance.”

Fragrances are displayed in a straightforward, easy-to-shop manner—alphabetically arranged, women’s on one wall and men’s on the facing wall. “The shopper can pick up and test as many fragrances as she wants. She can stay there all day if she wants to in order to find what she wants,” Slater stressed.

Stops at Origins and Aveda free-standing shops showed intimate boutiques where sales staff were helpful and product was accessible. Victoria’s Secret Beauty has been moved and is now next door and connected to the Victoria’s Secret apparel boutique. Priced at a moderate lux levels (lipsticks are $13), this store was also busy with makeup demonstrations in process at two counters.

Television and Online Retailing Evolve
While tracked by Euromonitor as part of “Other,” which accounted for 9.2% of all beauty sales in 2003, online and television retail channels are also growing in significance. Television, where infomercials can capture the consumer for fairly long periods of time to focus on a particular line, seems to have particular potential. “The celebrity lines (as seen on television) have creditability because the spokeswoman is someone the viewer feels she knows and looks up to. And reordering is easy,” stressed Danziger.

“Perhaps the most interest at the WWD Beauty CEO Summit (May 2004, Miami, FL) was the presentation by Darlene Daggett, president of U.S. Commerce for QVC Inc.,” noted Stephan Kanlian, chair of the Master’s degree program in Cosmetics and Fragrance Marketing and Management at the Fashion Institute of Technology. Kanlian explained, “I believe in a short period of time the perception of manufacturers of prestige brands toward direct television sales will evolve into an acceptance of its place in the distribution mix, similar to what has happened to online retailing.”

Many of those television lines are marketed by Guthy-Renker, headquartered in Palm Desert, CA. The company was established in 1988 as a television direct marketer by Bill Guthy and Greg Renker, co-chief executive officers. Today, Guthy-Renker is one of the world’s largest direct response television companies with 2003 sales of $970 million and an average annual growth rate of 33% over the last 10 years, according to the company’s website, www.guthy renker.com.

Guthy-Renker beauty brands are sold on television in the U.S. market as well as through online sites. The brands include: Proactiv Solution – Vanessa Williams; Principal Secret – Victoria Principal; Meaningful Beauty – Cindy Crawford; Natural Advantage, skin care, Dr. Farris and Kathy Lee Gifford; Youthful Essence – Susan Lucci, and Sheer Cover – Leeza Gibbons.

On its television network and website, QVC offers a variety of 62 beauty brands, varying from the latest fashion fad line—Dessert by Jessica Simpson (Kissable Body Shake for $36 or two lip glosses for $34.54); to value collections—Fran Wilson (five lip gels for $21.49); to classic prestige brands—an assortment of Prescriptives products.

Online Retail Offers the Thrill of the Hunt
Online retailing of cosmetics is the epitome of finding a needle in a haystack. “Color Cosmetics” searched at Google.com brings up 4,660,000 results. But if you know what you’re looking for it’s another story. Prestige lines Chanel and Clarins maintain graphically beautiful websites where visitors can learn about the latest products, complete with hot links to www.gloss.com where the brands’ products can be purchased side-by-side with Estée Lauder, Clinique, Bobbi Brown, La Mer, M.A.C., Origins, Prescriptives and Stila lines. The Estée Lauder Companies family of brands can also be accessed through the corporate site www.elcompanies.com or by searching each individual brand.

But, online retailing offers more than internet access to products available in traditional retail stores. Lines that are only available online, such as reflect.com, offer unique services.

Reflect.com is serious about making each of its customers feel special when it promises, “Nothing compares to a beauty product made just for you. That’s why Reflect is pleased to provide you with custom beauty solutions and individualized attention you won’t find anywhere else.” Prices are definitely in the prestige level: True Blend Liquid foundation is $45 for 1 fl. oz., while lip gloss is $22.50.

Reflect.com offers a customization process for shoppers to order color cosmetics, skincare, hair care or fine fragrance. A generous return policy states, “If you aren’t completely delighted, we’ll re-make it to your satisfaction or give you a refund, no product returns necessary.”

No matter where it’s purchased, luxury beauty must offer quality, performance and the sense that it is only for someone very special.