FIT Capstone: 2005

Addressing the pressing issues of their industry, young beauty professionals provide a glimpse of tomorrow’s industry leaders.

By Stephan Kanlian, Contributing Editor

The FIT Master’s Program Class of 2005 with the program’s chair, Professor Stephan Kanlian.

Celebrating its fifth year, the graduate leadership program for emerging beauty executives at the Fashion Institute of Technology (FIT) closed the academic year with its annual student projects or Capstone presentations, along with a graduation awards ceremony on May 18. The event, sponsored by L’Oréal USA, was opened by FIT president Dr. Joyce F. Brown, who reminded the crowd of over 300 industry representatives that only three years previous, the program’s first Capstone had been held for an audience of 40 in a conference room near her office. Along with Dr. Brown, David Greenberg, senior vice president of human resources for L’Oreal USA, lauded the program’s rapid growth and underscored the industry’s commitment to this unique leadership think tank for talented young professionals. The Capstone was the culmination of two years of study by the 19 young professionals who presented that evening, and as part of L’Oréal’s sponsorship, the FIT Master’s program Class of 2005 was addressed the following morning by L’Oréal CEO Jean Paul Agon at a special breakfast in their honor at the college. Here is a summary of the findings of the four Capstone groups on topics selected from suggestions by the program’s industry advisory board, faculty and alumni.

CHINA
Nicole Howard, The Estée Lauder Companies (Group Leader)
Dulce Almario, L’Oréal USA
Patricia Rodrigo, L’Oréal USA
Tiffany Teves, Revlon Inc.

The group studying the emerging market for beauty products in China highlighted the long-term sector opportunity: the young, rural beauty consumer. Department stores and hypermarkets are the current leading channels of distribution, with most current growth coming from prestige brands purchased by wealthier Chinese consumers, who represent less than 2% of the population. Presently, the Chinese beauty industry is estimated at $5 billion, and predicted to grow 17% this year.

However, a tremendous opportunity exists in untapped rural areas, where the beauty market is expected to grow to $18 billion by 2020 in a total Chinese beauty market of $30 billion. China’s admission to the World Trade Organization and more liberal trade policies have also added to the opportunity inherent for beauty brands.

David Greenberg (left) and Ketan Patel of L’Oréal USA, which sponsored Capstone 2005.

The group defined this opportunity sector as Generation E, “The Experimenters,” aged 16-25, residing in rural areas of China. Key to understanding this consumer is to also understand her mother’s generation, which grew up during Mao’s Cultural Revolution, and was labeled by the group as Generation D, or “The Discoverers.” The group identified a unique “trickle up effect” in which mothers are now discovering beauty products and techniques alongside their daughters, which exponentially increases the opportunity for beauty brands in rural China.

The key to reaching “The Experimenters” is education, with ideas presented such as hygiene classes in rural universities. Unconventional distribution is also important, building interpersonal relationships with rural consumers based on the Chinese principle of guanxi, a relationship of trust which is best cultivated face-to-face. Specialty stores and pharmacies are opportunities to establish this type of rapport with consumers, as well as direct selling. Sales promotion can also build this rapport, perhaps through event sponsorships and academic scholarships in rural universities. The key to a rural strategy for beauty distribution in China focuses on areas where young women with earning power and disposable income are concentrated, including universities, office parks, industrial parks, local mom-and-pop stores and beauty salons.

Similar to distribution, the group suggested media strategies to reach the rural Chinese consumer who also uses alternative channels. China is one of the largest wireless markets in the world, and the group suggested using cell phones to promote texting among friends with promotional ads for beauty. Their research also uncovered a phenomenon known as “J-Sense,” suggesting foreign beauty brands look to Japanese companies for understanding of how to compete in China. Japanese companies develop premium yet localized products for this market. Among what can be learned from Japanese marketing techniques in China are the success of disposable packaging, kitschy design and bright eye makeup colors.

The group’s presentation strongly emphasized that China is unlike any other emerging market, with retail and marketing formats that took years to develop in the U.S. already being introduced. The opportunity, they believe, lies with Generation E. These young women have the potential to grow in their understanding of beauty through relationships with brands, and Generation E also represents an opportunity to find home grown talent for leadership of beauty marketing organizations in China.

RETAIL CONSOLIDATION
Lizabeth Burke, Takasago Fragrance (Group Leader)
Kendal Ascher, L’Oréal USA
Dorene Kaplan, Cosmetic World
Christine Keihm, Del Laboratories
Lori Orlowski, The Estée Lauder Companies

Among the many headlines cited by the group led by Takasago’s Liz Burke were JC Penney’s sale of Eckerd for $4.5 billion to CVS, the $17 billion merger between Federated and May Department Stores, and the $11 billion merger of Kmart and Sears. In studying the issue of retail consolidation, the group identified a pattern that reminded them of Monopoly, the board game. Like Monopoly, the consolidation of retail real estate is an effort to control the most real estate and capture the most visitors to your real estate, in the form of beauty consumers.

Consolidation is certainly not a new phenomenon in the retail arena. In the post-war period, there were over 500 local and regional department stores in existence. By the 1980s that number had fallen to 50, and in 1994 it shrunk to 20. Today, that number is less than 10, driven by multi-channel shopping, decreased construction of new malls and the pervasive influence of retail giant Wal-Mart. Consolidation is also impacting other industries, including healthcare, video game manufacturers and toy retailers.

Revlon’s Tiffany Teves presents her findings on the Chinese market.

Today’s mega merger retail consolidations have enormous market implication for beauty brands. They redefine the power balance between manufacturers and retailers. The group pointed out that there will likely be less diverse product assortment as retailers put pressure on manufacturers for lower margins, control over product selection and inventory limitations. With the Federated/May merger, for example, sales may fall initially, and the new challenges for manufacturers will include national brand management, running national promotions, and a squeeze play for niche brands. The difficulty of competing in this environment for niche brands will impact the innovation that percolates into the market from smaller brands. Channel diversification continues as well, with consumers being driven to channels that offer service and entertainment, as well as convenience.

To adapt to today’s retail market, the group pointed out that the beauty industry must continue to improve business models, manage costs, produce high quality products, effect supply chain efficiencies and follow the consumer closely. According to a WSL Strategic Retail study, ironically, traditional department stores are well placed to deliver what consumers want most in a shopping experience: the ability to browse and accomplish a lot in one trip and do so in an attractive environment in a convenient location. Examples of retailers that provide superior service, customized convenience and entertainment include:

• Duane Reade’s trial program providing prescription kiosks in doctor’s offices;

• City Life barber shop in New York City’s offerings of premium, customized services;

• Holiday Inn and Nickelodeon’s joint venture of a Nickolodeon-themed hotel;

• The creation of a mobile retail format by London Bus, offering consumers one-of-a-kind designer apparel, accessories, and beauty products with the help of a stylist, and

• The innovative blend of cocktail lounge and retail format represented by the Handbag Bar of Louis Vuitton in Japan.

Advisory Board members for the Master’s program: Cosimo Policastro of Givaudan, Victoria’s Secret Beauty’s Jill Granoff and Ann Gottlieb.

The group’s recommendations for weathering retail consolidation focused on three key areas:

Superior Service: employee centric policies for career development, liberal wage policies and incentives based on service would provide a focus on sustained, superior customer service.

Convenience: customer-centric ideas included offering select mass market products in prestige retail formats, shopping on beauty brand websites with department store credit and beauty lounges with premium services in a traditional department store, including online shopping with home delivery.

Entertainment: recommendations centered on capturing consumer’s attention with the unexpected through pop up retail formats, satellite beauty departments in high traffic areas and the concept of television distribution for major national retailers with diverse product assortment.

CELEBRITY FRAGRANCES
Susie Schulz, Victoria’s Secret Beauty (Group Leader)
Marita Burke, Lehman Brothers
Donna Harrington, Givaudan Fragrance
Nicole Lucas, Unilever Cosmetics International
Christine McAfee, Cosmopolitan Cosmetics

The pervasive influence of celebrity on the fragrance industry was plumbed by one of the four Capstone groups, reaching back into the history of celebrity fragrance offerings and analyzing what key factors spelled success for this unique product format. More younger consumers perceive celebrities as role models in today’s society, driven by celebrity dominated media outlets and the increasing use of celebrity endorsements in industries as diverse as healthcare and automotive, as well as the continued emergence of celebrity brands.

While celebrity and fragrance have long had a connection, the fragrance industry has recently returned to this trend with some success, in an industry sector where launches have tripled since 1997 and brands now face a shorter life span. The celebrity connection accomplishes instant recognition and a well established infrastructure of publicity, as well as an emotional connection for consumers. Celebrity fragrances can also have a positive retail impact, bringing in new consumers and revitalizing existing distribution channels, as was the case last Christmas with the Britney Spears’ fragrance, Curious. The concern for the fragrance industry is the lack of staying power for most celebrity fragrances.

Ketan Patel and Stephan Kanlian flank (l-r) Outstanding Scholar Dalia Rosenberg of L’Oréal, Department Medal winners Sally Skidmore (Maidenform) and Christine Keihm (Del Labs), Scholarship Recognition recipients Susie Schulz (Victoria’s Secret Beauty) and Kendal Ascher (L’Oréal). Ascher also received the Victoria’s Secret Beauty Leadership Award for the Class of 2005.

Case Studies

In terms of staying power, no celebrity fragrance brand equals the 14 year success of Elizabeth Taylor’s White Diamonds. The group analyzed the basis for the brand’s success as a flawless execution of all marketing elements. The celebrity, the package, the fragrance and publicity all form a cohesive message, and Elizabeth Taylor has a celebrity that transcends many generations. Her recognizable persona allows a strong emotional connection to develop with consumers.

In the realm of celebrity endorsements, Chanel was held up as an example of a brand that has managed this promotion tool effectively. Over the past several decades, Chanel has utilized celebrity advertising, with each campaign respectful of the brand’s heritage, but adding new relevance to the brand. The most recent campaign, with academy-award winning actress Nicole Kidman, infused the brand’s fragrance franchise with modernity, simultaneously having a halo effect on other product categories in the Chanel brand.

The group strongly emphasized that the risks involved with the use of celebrity can be significant, with the concern that over-dependence on the celebrity’s status may sacrifice innovation or establishment of the brand’s identity. The greatest risk is the negative effect of bad publicity surrounding a celebrity. However, despite the risks, the group’s analysis led them to suggest that the trend will continue with momentum in the marketplace, with some areas of least exposure growing more rapidly, such as men’s fragrance in the mass market. They also predicted that style icons will join celebrities as the base for fragrance brands, in the mold of Sean John and Tom Ford. Their research led them to suggest that the celebrity trend will increase the commoditization of the fragrance category, and lead some brands to shun even celebrity endorsements in marketing their fragrances.

Opportunities uncovered by the group’s research included the use of current celebrities to help in revitalizing mature brands in the beauty category, or the creation of fragrance campaigns around celebrity influencers (e.g. Oprah Winfrey) or inspirational motivators (e.g. Lance Armstrong).

CREATIVITY
Sally Skidmore, Maidenform (Group Leader)
Beth Ehrenberg, Cosmopolitan Cosmetics
Leslee King, Victoria’s Secret Beauty
Midori Mashiko, Eluci International
Dalia Rosenberg, L’Oréal USA

A 1999 study of 500 CEOs by the American Management Association asked the question: “What must one do to survive in the 21st century? The top answer was “practice creativity and innovation.” Only 6% of those same CEOs, when asked, felt their companies were doing a good job in this regard. The group analyzing the important issue of creativity in industry asked the question a different way: “How does your company define creativity or does creativity define your company?”

Defining creativity as an essential business growth element, the group put aside convention that might assume creativity to be a personality trait, emanating from high IQ or artistic talent. Instead, they defined creativity as an ongoing process, in which one has the ability to be curious and versatile, and attempt to solve problems in many different ways. Most importantly, they identified five key elements to promoting creativity in the workplace:

1) Physical Space: Work spaces that encourage creativity were defined through positive examples such as the playful office environment at Fisher Price, or the college campus inspired workspace at Abercrombie & Fitch that keeps their core customer constantly in mind.

2) Idea Incubator: A culture that supports risk must view failures as opportunities for growth. 3M was cited as a prime example, where employees can elect to spend up to 15% of their time on projects of their own choosing.

3) Cohort of Gurus: The creative process requires collaborative environments, such as Lauder’s BeautyBank, where interdisciplinary teams without individual titles and limited e-mail work in cross-functional pods, allowing the development and launch of three new beauty brands in 18 months.

4) Search and Reapply: Givaudan Fragrance was singled out as an example of a creative organization that seeks out information and has the vision to recognize opportunities among its findings, such as learning gained from the lighting industry that led to the company’s shadow flower accord.

5) Seize the Opportunity: Extraordinary brands are able to recognize an opportunity and break free from the competitive clutter. Examples in this genre included the collaboration of Shiseido and Coca-Cola to jointly launch a body lotion and diet drink, the reinvention of Bath and Body Works through third party brands and the product innovation at Kenmore that introduced stylish colors to reinvigorate the laundry appliance category.

Kendal Ascher of L’Oréal USA receives the Victoria’s Secret Beauty Leadership Award from the firm’s President and COO, Jill Granoff.

Two companies were held up by the group as bringing together all of these elements: IDEO, the global design firm, and Pixar, the academy award-winning animation studio. At IDEO, the culture is unstructured, with fun physical work spaces and cross functional teams focused on idea generation. IDEO filters ideas, often based on consumer behavioral observations, and their work has resulted in multiple product design innovations across many industries, including the Apple mouse and the Palm Pilot. At Pixar, a unique corporate culture that includes sculpture and improvisation classes, encourages creativity in a casual, open atmosphere and idea sharing for collaborative benefits. A risk-taking attitude has led to innovative animation, technical innovation, and award-winning results.

From their research, the group came up with a list of four central recommendations for establishing creative corporate cultures that drive innovation:

1. Establish safety, trust and fun in the workplace;

2. Reward creativity and teamwork;

3. Seek inspiration everywhere; and

4. View creativity as a process.

Next year’s Capstone event will be sponsored by the Estée Lauder Companies, and will take place on May 17, 2006. For more information on the event or the FIT Master’s degree program, contact the college at (212) 217-5714 or consult the college’s website at www.fitnyc.edu/cfmm.