Industry Challenged by Fragrance Apathy

WRITTEN BY: Virginia Lee

AUTHOR BIO: Virginia Lee is a senior research analyst at Euromonitor International. In her role, she helps Euromonitor’s clients make informed strategic decisions by providing insights into consumer trends, new products, and retail channel developments. She is a frequent speaker at industry conferences. Virginia is regularly quoted in the press including Women’s Wear Daily, the Wall Street Journal, the New York Times, Time, Brandweek, and the Financial Times.

The economic downturn and weak consumer conditions have reduced demand for fragrances with 2008 retail sales declining by 5% to reach $5.6 billion according to Euromonitor International. Fragrance makers face numerous challenges, including consumer apathy about fragrances and softened demand for celebrity scents.

In the “New Economy,” consumers are focusing on necessities such as food and gas while giving up luxuries such as designer handbags and Starbucks coffee. After years of “trading up” to premium goods, Americans are now seeking out value and scrutinizing every purchase. Consumers are deciding that they don’t need to indulge themselves with another fragrance and have trimmed holiday gift lists to save money—a problem since fragrances have traditionally been a popular gift.

Fragrance makers face the additional difficulty of overcoming growing apathy towards fragrances among consumers. There has been an explosion in the use of scents beyond fine fragrances, with everything from hand dishwashing soap to fabric softeners to razor handles now infused with scents. As a result, fragrances have become less “special” and commoditized, with fragrance usage considered optional by many. Since fragrances are not considered exciting, younger consumers are even more likely to skip fragrance in favor of other goods such as cell phones and iPods.

There has also been a softening of demand for celebrity fragrances. While initially very popular, celebrity scents are no longer a novel concept and, as a result, have seen sales decline. Celebrity fragrances, which tend to appeal to young women who seek out these products to connect to their idols such as Paris Hilton, typically have a very short shelf life, as young consumers are quick to move on to the next “hot” star. Americans remain fascinated by what celebrities are doing and wearing, but the new focus on value means that they are less interested in buying clothing designed by celebrities (witness the closing of Jennifer Lopez’s Sweetface line) and celebrity scents. Looking at prices and shopping at consignment stores is “in” while being label-conscious and paying full price is frowned upon. Additionally, teenagers are experiencing financial pressures just like their parents. Teens are getting smaller allowances from their parents and are having difficulty finding part-time and summer jobs as they face competition from the large pool of unemployed adults. Despite these pressures, celebrity fragrances are expected to remain an important segment of the fragrance market for years to come. By offering a celebrity endorsement and lower prices, celebrity scents are able to attract the attention of teens, if only for a short time. It is important to reach out to young consumers but it remains a challenge to keep them interested in fragrance.

At the other end of the age spectrum, older and more affluent consumers are driving growth in super-premium fragrances. This interest in niche fragrances is developing as a backlash against the commoditization of fragrances and the rise of celebrity perfumes. There are still many high-earning perfume connoisseurs who are happy to spend over $100 on a bottle of perfume. These consumers have a high degree of brand loyalty and their preferences are driven by the originality of the perfume. They are interested in the story behind a perfume and look to blogs to find out more about the fragrance and the creator. These discerning perfume lovers do not want to smell like everyone else and enjoy wearing a unique perfume. Companies such as Bond No. 9 and L’Artisan Parfumeur are able to reach out to consumers through word-of-mouth.

The future outlook for fragrances is negative, with Euromonitor forecasting U.S. fragrance sales to decline by 17% in constant value terms between 2008 and 2013. If manufacturers want to minimize the impact of the downturn, they would do well to design products that offer excitement through unique packaging, appeal to consumers’ emotions through a unique story and/or target the younger or older age groups. Offering smaller package sizes is another way to increase consumer interest in fragrances as they provide a lower-priced option to value-conscious consumers. Innovation can work even during difficult economic times, as is evident from the launch of Coty’s Harajuku Lovers perfume from Gwen Stefani which has proven to be a runaway success despite the downturn because of the unusual and collectible design of its bottles.