confidential confidential confidentia l · 2017-02-01 · laura geller and clark’s botanicals....

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M&A was a key feature of the beauty market in 2016. Major groups looked to inject creativity, digital prowess

and a connection to millennials into their business through acquisitions. There was a clear need to buy growth. This was due in part to the difficulty of generating growth from traditional brands, and, say some analysts, because the majors still do not understand social media and digital in the same way as a younger brand or start-up. In 2017, it looks like the M&A trend will continue. Names often cited as ripe for a takeover are Anastasia Beverly Hills, known for its brow and contouring

expertise and social-media savvy and UK-based brand Charlotte Tilbury. There are also a host of smaller start-ups on the market that could interest some of the majors. But while the focus is on the latest digital, millennial-oriented hotshot, what about the

traditional brands, which may not be seeing strong growth rates, but still account for the bread-and-butter at major multinationals? Are they set to lose out from the attention given to the new up-and-coming additions at the major groups? And how can these brands get back to growth? It is hoped that some of the latest acquisitions will help big groups better understand what is needed to reach the millennial, whether that be in social media, the latest trends or new ways of selling. And it is hoped that this knowledge will then be applied to older brands, thereby bringing them more into focus for today’s consumer. However, while buying brands may add growth, buying new strategies for old brands may be harder to pull off.

Something old, something new The buzz 2News roundup

Netwatch 6 Social media monitor

Interview 7 Perfume Holding ceo Dino Pace

Insight 9 Hong Kong

Store visit 12Urban Decay, Paris, France

Oonagh PhillipsEditor in [email protected]

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News headlines daily on www.bwconfidential.com @BWCbeautynews

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At a glance...

Strategy

Anglo-Dutch group Unilever is to acquire premium haircare brand Living Proof. The brand will be added to Unilever’s Prestige portfolio. Living Proof was founded by venture capitalist Jon Flint and MIT professor Robert Langer and claims to bring bio-medical technology to haircare. The brand is sold in salons and at retail. Unilever has made a string of prestige beauty acquisitions over the past year including Murad, Dermalogica, Kate Somerville Skincare and Ren.

French group Yves Rocher has acquired Israel-based bath and body company Sabon, according to French press reports. Sabon, which was founded in 1997, is known for its artisan soaps and has a network of 130 stores globally. Its strongest market is Japan, where it has around 40 stores. The move is part of Yves Rocher’s strategy to grow its business outside of Europe.

L’Oréal has made another move to finance digital start-ups through an investment in the early-stage fund Partech International Venture VII, managed by international venture capitalist firm Partech Ventures. Partech Ventures focuses on digital companies and the investment in one of its funds will enable L’Oréal to tap into innovations in the area of prediction, personalization tools, artificial intelligence and new services, according to the group. The deal follows L’Oréal’s investment in the Founders Factory, a digital accelerator and incubator, announced last May.

US-headquartered prestige beauty company Glansaol has acquired the brands Julep, Laura Geller and Clark’s Botanicals. Terms of the transactions were not disclosed. Color cosmetics brand Laura Geller was founded in 1997 by professional make-up artist Laura Geller. Tengram Capital took a majority stake in the company in 2012. Julep, a color cosmetics and skincare brand, was developed by Korean-born Jane Park in 2007. Skincare brand Clark’s Botanicals was founded in 2008 by Francesco Clark. Glansaol is a partnership between former Revlon ceo Alan Ennis and private-equity firm Warburg Pincus and was founded in 2015. The company is expected to make further acquisitions.

Brazilian company Natura has acquired 100% of Australian beauty firm Emeis Holdings, which operates under the brand name Aesop. This comes after Natura took a 65% stake in Emeis Holdings in 2013. Today, Aesop operates in 20 countries. It has 77 stores and is present in 84 department stores. n n n

Stay informed with our daily news headlines on www.bwconfidential.com

n Unilever to acquire Living Proof

n Yves Rocher buys Sabon

n L’Oréal invests in digital fund

n Sisley opens first Maison Sisley concept


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n n n A new company called Beauty Pie claims to bring consumers beauty products sourced from the same suppliers as leading brands, but at a fraction of the price. The UK-based online company, which launched at the beginning of December 2016, sports the tagline All Your Makeup Without the Markup, and works on a club membership basis. Members pay a fee of £10 ($12.45) a month to be part the club, and in return Beauty Pie claims to sell them high-end beauty products at factory cost. Non-members can also buy its products at a regular price (both the regular price and factory cost are displayed for each product). For example, a Futurelipstick costs £20 ($24.90) for non-members and £2.26 ($2.81) for members. The company operates a price transparency system, providing a cost breakdown for its factory prices offered to members, including product and packaging, safety and testing, warehousing and VAT costs. The company has already come out with a range of make-up products and plans to add 100 new color items over the next year. It will also expand to skincare, make-up brushes and beauty tools. Beauty Pie products come in the company’s own no-fuss packaging, designed to be kept light to be more environmentally friendly.

Online beauty brand and retailer Memebox has raised $60m in funding to improve its mobile shopping experience, develop a beauty product and ingredients database and build more efficient global operations. The funds were raised in a Series C extension round (the company previously raised $66m in initial Series C funding) led by new and existing investors. Investors include Goodwater Capital, Altos Ventures, Cowboy Ventures, Mousse Partners, Formation Group, Funders Club, Pear Ventures, Cota Capital and Laura Mercier founder and former ceo Janet Gurwitch, who also sits on Memebox’s advisory board. Memebox has raised $160m since it was founded in 2012. Ceo Hyungseok Dino Ha said that while the company has been focused on developing in Asia, particularly China, it will use this latest funding to streamline its global operations. The company, which is headquartered in San Francisco, US, has offices in six countries. Memebox, which evolved from a subscription-box model to a retailer and then launched its own in-house brands, says that since its four own brands (Bonvivant, Nooni, I’M Meme and Pony Effect) launched they have seen growth of 60% quarter over quarter. The company’s mobile app represents more than 88% of its global online transactions, with more than 94% of customers in Asia shopping through the app. Memebox says that it plans to bring the mobile strategies that have been successful in Asia to the US.

Retail

German travel retailer Gebr Heinemann has set up a joint venture with Fraport, the owner and operator of Frankfurt Airport, to take over the operation of the 27 Heinemann Duty Free & Travel Value Shops, as well as concept stores at Frankfurt Airport. The new 50:50 venture called Frankfurt Airport Retail is intended to help the companies react jointly to developments in the market and to changes in traveler demands, especially in e-commerce. The companies said that they will now offer a reservation and home delivery option for goods sold at their stores. This means that passengers can order all goods online before their journey and have them delivered to their homes. Frankfurt Airport is Gebr Heinemann’s most important German location. n n n



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z News roundupn n n Walgreens Boots Alliance and Rite Aid have agreed to sell 865 Rite Aid stores in the US to Fred’s Inc in response to concerns raised by the Federal Trade Commission (FTC) over Walgreens’ proposed acquisition of Rite Aid. The $865m cash transaction for the sale of Rite Aid stores to Fred’s will also include certain assets related to store operations, the companies said. The deal is subject to approval from the FTC and the approval and completion of Walgreens Boots Alliance’s acquisition of Rite Aid. If approved, the move would make Fred’s one of the largest drugstore chains in the US. Fred’s would continue to operate the stores under the Rite Aid nameplate during a transition period. The Rite Aid acquisition, which was announced in October 2015, is expected to close in early 2017. Walgreens Boots Alliance expects to generate savings in excess of $1bn from the acquisition within three to four years.

French brand Sisley is to open its first Maison Sisley concept in February 2017. Located in a listed building in Paris’ 8th arrondissement, the 360m2 (3,875ft2) space combines beauty treatment rooms, a café and the brand’s first Parisian boutique. The 70m2 (753ft2) boutique features a perfume bar created exclusively for the destination. The boutique, designed like a concept store, will also feature limited-edition objects and accessories lines. The skincare zone has five treatment rooms offering face and body treatments for men and women. Sisley also created a line of four new skincare products, called Les Exclusifs Paris, designed to help with issues related to city life including stress, fatigue and pollution. A selection of make-up services will also be available. Another area is a living-room space with a sofa, where visitors can have a personal diagnostic session before entering the skincare treatment rooms. Maison Sisley also has a café with a terrace and a healthy menu reserved for spa customers.

US-based beauty retailer Ulta Beauty will open its first store in Manhattan, New York City. The store, to be located on the Upper East Side, is slated to open in fall 2017. The Manhattan store is an important move for the retailer, which has until now mostly focused on suburban areas. Ulta Beauty operates 40 stores in the greater New York City area. The retailer, which ended the third quarter with 949 stores, recently raised its plans for door expansion from 1,400 to 1,700.

Brazilian brand Natura embarked on a soft opening of its first store in New York City in December in a bid to test the US market. The 92m2 (990ft2) store located in the Nolita district of Manhattan opened for a two-week preview and will re-open to the public in February. Through the store, Natura is aiming to

gain insights into American n n n

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n n n consumer behavior and it will also use the boutique to evaluate the acceptance of its products. Natura is looking to build its international business and this move to the US is part of that strategy. The store broadens the activities of the Natura Innovation Center in New York, which opened in 2014 with the aim of nurturing innovation, building a better understanding of international business and establishing partnerships with US technology centers.

People

German flavor and fragrance company Symrise has renewed ceo Heinz-Jürgen Bertram’s contract ahead of schedule for a further five years, until 2022. Bertram has been ceo of the company since August 2009.

Bobbi Brown, the founder of Bobbi Brown Cosmetics (Estée Lauder Companies), will step down from the brand after 25 years. Bobbi Brown was founded in 1991 and was acquired by ELC in 1995. The brand is sold in over 70 countries.

Data

Prestige beauty sales in the US were up 6% year-to-date through October 2016, according to The NPD Group. The growth rate is one percentage point lower than last year. Growth is still expected in the fourth quarter, NPD says, as the ‘binge mentality’ that began with make-up (with consumers using more products) moves into skincare. Make-up is again expected to outsell fragrance in the fourth quarter, as has been the case in the past two years. Make-up sales are driven by online buzz, with brow products seeing growth of 35%, lip color up 21% and face products growing 33% year-to-date though October. In skincare meanwhile, sales of masks were up 22%, lip treatment sales grew 22% and other face products including complexion treatments increased 13%. In fragrance, traditional flankers are driving growth. While the prestige fragrance market grew 2% year-to-date though October, dollar sales of flankers were up 18% compared to the previous year. The home scents category witnessed growth of 18%, with growth across all segments. Diffusers were up 21%, while candles saw growth of 14%. Sales of home ancillary gift sets grew 44%. ,

BW Confidential has donated €3,000 to the French CEW’s Centres de Beauté, which provide beauty treatments to cancer patients. The donation follows a partnership that BW Confidential inked with the CEW France to create a special-edition magazine (click here to access the issue) focusing on the winners of the CEW’s Achiever Awards. BW Confidential pledged to donate a portion of the advertising revenues of this special edition to the CEW’s Centres de Beauté and also made its own contribution to

the cause. BW Confidential would like to thank its advertisers who contributed to this special issue: Chanel, Parfums Christian Dior, Lalique, Firmenich and Drom. n

http://www.bwconfidential.com/magazine/CEW2016/index.html

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BW Confidential reports on what’s being said about beauty on social networks

Social media monitor

Fast beauty, similar to fast fashion, where catwalk trends are quickly translated to the high street, is a hot topic online. Bloggers note the number of mass and private-label beauty brands, especially those with a Korean influence, launching trendy products.

Tech beauty products are growing in popularity, and are liked for their professionally-inspired concepts at affordable prices. Popular innovations include devices like LEDSonic which uses ultrasound and LED light to treat acne, and the Pearl Compact Mirror (pictured), which serves as a mirror and as a USB battery pack that can charge devices.

Lip powders are becoming more popular. Bloggers like the powder texture that transforms into a liquid when applied to the lips. Described as creating a wow effect, the powders are said to provide lasting color, but on the downside dry out the lips.

A trend based on fragrance or bodycare products that harness positive energy and promote healing is emerging. While garnering much attention, this trend has also been met with skepticism. Brands in this area include Los Angeles-based House of Intuition, which offers Violet Water and Orange Water that can be used as a fragrance in the bath and claims to clear away negative energy.

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Perfume Holding ceo Dino Pace tells BW Confidential about his plans to build the company’s own brands and its niche business

Brand building

How are you weathering the tough fragrance market?The market is unpredictable with positive and negative months. But although 2016 was not easy, we are still targeting growth in terms of sell-in. If I look at market share, the picture is a little different because in certain regions like the Middle East and Latin America we have been able to outperform the market and our main competitors. The market in the Middle East is recording a drop of between 12 and 15%, but we are seeing terrific growth with Ferrari, which is a result of good projects and a strong investment in trade initiatives and media. In this difficult market, we are looking to come up with innovative ways of using fragrance.

For example, for Ferrari we have patented a fragrance case that clicks onto the iPhone, which is a new way of using fragrance and appeals to young consumers who always have their phone at hand. This has worked very well in the Middle East, Latin America, the UK, Italy, Germany and in in-flight. Retailers like the idea that we are offering something different and distinctive for consumers. While this year has been tough, I am confident that we can grow the size of the company.

We do sales of €90m and in 2017 our sales are set to reach €100m. We have three paths to growth: Ferrari, which is our biggest brand; Atkinsons, our niche brand, which we relaunched three years ago, and I Coloniali, another brand that we own and are revamping.

How do you explain growth in Brazil?In Brazil, Ferrari has historically been between number three or number four, but in August 2016 we ranked number two because we are investing a lot. Despite the crisis and the currency devaluation, we are working better because we changed our distributor and so are better covering the independent doors, Renner and Sephora. With our retailers there we have set up better marketing plans to promote the brand and to advertise it much better than in the past, so we are gaining market share.

In 2014, you stated that you wanted to double the Ferrari business in four years. Are you on track?In two years we should double our sales. The brand is still growing, but not in double digits. We are still in the process of cleaning up the market. Ferrari is a strong business, but it has been affected in the past, and especially because of the crisis, by the gray market. So we are cutting this and controlling our distribution as much as we can. We want a clean market and don’t want to compromise our image. We have already cut €10m [in sales] and we are still cutting. This is the price to pay to re-conquer retailers’ confidence. This also means that we are attracting a new kind of consumer. In the past Ferrari was

discounted and now we are talking to consumers who are willing to pay €70 or €80, whereas in the past it was €20. The Black line is our biggest pillar and we are revamping Black to trade up the image of Scuderia Ferrari. Next year we will launch Ferrari Forte in the Scuderia Ferrari line. It will be more of a premium product. n n n

Perfume Holding ceo Dino Pace

Perfume HoldingKey brands: Ferrari, I Coloniali, Atkinsons, Liu Jo, BikkembergsSales: €90mSales by regionSouth America: 19.7%Italy: 19.4%Middle East & Africa: 12.4%Asia: 12%Russia & Eastern Europe: 11%Western Europe: 10.1%North America: 7.5%Corporate (direct sales & contract manufacturing): 7.9%Sales by brand Ferrari: 42%I Coloniali/English Garden: 14%La Perla: 8.5%Iceberg: 6.7%Tacchini: 6.4%Atkinsons: 6%Liu Jo: 5.5%Other: 10.9%



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n n n How are you revamping I Coloniali? This brand has a 30-year history, but we are reshaping it and the new look hits the market in January 2017. We have revamped the brand from a bodycare line to a skincare brand for the face and body, and this will be followed by haircare and fragrance. It is not a classic skincare approach, as we are targeting consumers who are looking for an apothecary brand with a contemporary approach to skincare; it is a natural brand with ingredients from Asia. But it is still affordable, retailing at between €40 and €90. At the moment, the brand is only in Italy, but that is going to change—although we are

not going to enlarge distribution quickly. We are looking at around 4,000 doors worldwide. We could also launch our own stores for the brand later on.

You revamped the Atkinsons brand in 2013, how is it performing?We positioned the brand in the niche category and revamped the story. The brand now does sales of €7.4m wholesale in just 400 doors, and we think that it can reach €15m in sales in five years. We do not want to expand the distribution too much. We would target 1,000 doors maximum, with maybe some flagships and e-commerce. In April we will open our first flagship store in London. We expect good sales from this store, but the boutique is more of a marketing investment to re-affirm the Britishness of the brand. If it does well, we could consider opening more stores in key capitals around the world and maybe having 10 boutiques globally.

You recently lost the La Perla license. Is this a big loss for you?It depends how you look at it. It is a matter of priority and focus. To achieve certain goals with La Perla I would have to invest so much and pay a lot in royalties. I would prefer to invest more in my own brands, in Ferrari and perhaps in new acquisitions that are less expensive and more fruitful for the company.

How will this impact the company financially and are you looking at new brands to compensate? I will lose €8m. We are developing our new brand Bikkembergs. This brand launched in 2016 and in three years it should achieve €6m in sales and then in five years it should do €10m. We are creating a community for this brand, which is known for sport, around indoor football. You have to do this to talk directly to consumers to drive them to the store, as today you cannot wait for the retailer to do this. We also have Liu Jo which is growing steadily. In two years we have built

the Liu Jo business to more than €5m wholesale. We are enlarging the distribution of this brand, which is currently in Italy, Benelux, Russia and Poland. We have launched in the Middle East and are bringing it to Latin America. For us Liu Jo can be bigger than La Perla. Then we have I Coloniali and Atkinsons, so it is a matter of focus; we cannot do everything, and I prefer to do fewer things, but well and to invest my money wisely. In terms of acquisitions, we would love to have a female brand. But if

we make an acquisition, it would need to be a niche brand. We would not be able to buy an established niche brand, but there are so many perfumers who have ideas and need a business partner and we are ready to do that. n

s Perfume Holding is looking at innovative ways of using fragrance. For Ferrari it has patented a fragrance case that clicks onto the iPhone

Perfume Holding ceo Dino Pace

“

”Perfume Holding ceo Dino Pace

In terms of acquisitions, we would love to have a female brand. But if we make an acquisition, it would need to be a niche brand. There are so many perfumers who have ideas and need a business partner and we are ready to do that



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Business in Hong Kong continues to be tough, which is forcing brands to take a new approach to the market

Challenged

Hong Kong

After nearly two years of declining sales, the beauty market in Hong Kong

continues to suffer, largely due to a steep drop in Chinese tourism. According to industry sources, the prestige market saw sales drop 6% in the first nine months of 2016. This follows a decline of 4% in 2015, and few are optimistic about a change in the market’s fate any time soon, despite more encouraging signs in September and October. (It is estimated that prestige sales represent around 60% of the beauty market in Hong Kong.)“I don’t see the near future being much brighter for consumption,” says Frédéric Cohen,

Clarins Group general manager for Hong Kong and Macau. “After two years of decreases, the declines will start to narrow, and we should soon reach a baseline before some kind of a rebound, which we hope to see in the second half of 2017, maybe 2018.”For around five years up to 2014, Hong Kong’s beauty sales grew at an average annual

rate of around 15%, with Chinese tourists accounting for up to 80% of business for some international brands, according to sources.While the slowdown has eased somewhat in recent months, incoming visitor numbers

are still declining. Visitor numbers fell 2.4% in October 2016, with a 3.5% drop in Chinese visitors, according to data from HKTB Insights & Research. “The third quarter of 2016 was slightly better, yet business is not really improving. It is still going down,” says Cohen. The total number of inbound tourists to Hong Kong fell 5.7% in the year to the end of October to 46.7 million, with the number of arrivals from the mainland falling 8.2% to 35.4 million.

Chinese go elsewhereThe reasons for the slowdown are predominantly macroeconomic. After the Umbrella Movement of late 2014, during which Hong Kong nationals protested against Chinese intervention in local politics, many Chinese consumers began to feel unwelcome and unsafe there. At the same time, due to the depreciation of the Chinese yuan and the comparative strength of the Hong Kong dollar, which is pegged to the US dollar, the price differential between Hong Kong and the mainland has eroded, making it less appealing as a shopping destination. The Chinese government has also introduced measures limiting the number of journeys made by its nationals to one day a week, impacting sales of “daigou,” where professional shoppers bring back goods to sell in China. Chinese shoppers, in such a context, are increasingly traveling to destinations further afield like Japan, South Korea, the UK and Russia. Increased brand availability in mainland China is also having an impact.“Spend per [passenger] has been dropping in Hong Kong and the strong Hong Kong

dollar has significantly impacted the saving proposition versus China domestic,” observes LVMH-owned travel retailer DFS senior vice president global merchandising beauty Ariel Gentzbourger. Nevertheless, she says that “beauty [is showing] resilience versus the higher end offer in fashion or watches, jewelry and accessories.” She adds that business in the category has improved in the fourth quarter. n n n

“

”Clarins Group general manager for Hong Kong and Macau Frédéric Cohen

I don’t see the future being much brighter for consumption. After two years of decreases, the declines will start to narrow, and we should soon reach a baseline before some kind of a rebound, which we hope to see in the second half of 2017, maybe 2018


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n n n “Hong Kong used to have the big advantage that it was cheap, it was close [for the Chinese], and it was simple. None of that applies anymore,” industry expert and former L’Oréal executive Stephen Mosely comments. “Until something changes to make it an attractive destination, it’s going to see fewer and fewer travelers, and be more and more reliant on local spending.”

Boosting local spendFaced with this, brands have been making increased efforts to better target local consumers, often neglected in the past, with more appealing in-store experiences and ramped up social-media strategies, for example. But given the weight of sales to inbound tourists—Hong Kong has a resident population of seven million, but welcomes more than 50 million visitors each year—targeting local consumers alone is not enough. “Initially we refocused on local consumers but we can’t think only that way,” says Clarins’ Cohen. “Hong Kong welcomes eight times its population every year. Even though it’s slowed down in the past couple of years, Chinese traffic should keep increasing in coming years, everywhere in the world. And Hong Kong should maintain a significant share of that,” he believes.And in the slowdown, not all brands and categories are

suffering equally. AmorePacific’s Sulwhasoo and L’Oréal’s Yves Saint Laurent and Maybelline are reportedly gaining market share, while other Asian brands like Shiseido and SK-II are also performing well, sources say. “Chinese consumers in Hong Kong are getting more sophisticated,” says Cohen. “They used to focus on traditional international brands because [these brands] were more aggressive in China 10 years ago. However, now they have access to a wider variety of beauty brands including Japanese and Korean brands, which offer natural Asian heritage and a perception of higher relevancy to their beauty needs.”“Hong Kong has always been about survival of the fittest and

that hasn’t changed,” says Mosely. “Within that framework, some brands can be stunningly successful and grow their market share, but other brands that might be successful elsewhere in the world can really suffer.” Indeed, some of the big-name international brands are said to be suffering, with declines in the region of 20% in 2016, according to sources.This is partly because the landscape has been changed by

the incursion of Korean brands, boosted by the appeal of the K-wave. Last year, South Korea became Hong Kong’s second-largest importer of cosmetics after France, according to trade statistics, overtaking the US.According to Cohen, it is not just South Korean brands that

are benefiting. “In terms of Korean influence, brands like YSL have made a huge jump in the market thanks to a total revamp and a very efficient product placement in a Korean TV drama and celebrity endorsement,” he explains. “The influence of Korea comes from brands, but also from marketing in n n n

Hong Kong beauty sales 2015-20162015 $bn

2016 $bn (estimate)

% change 2016/2015

(estimate)

Total beauty sales

2.13 1.99 -6.5

Source: Hong Kong Trade Statistics

Hong Kong retail sales by distribution channel January-October 2016Channel Sales Jan-

Oct 2016% change 2016/2015

Department stores HK$37.1bn (US$4.7bn)

-7.6

Medicine & cosmetics stores

HK$34.4bn (US$4.45bn)

-0.3

Source: Hong Kong Census and Statistics Department (includes all product categories sold in each store channel)

Hong Kong prestige beauty growth by category January-September 2016Category Growth rate %Skincare -10Make-up +6Fragrance -5Total prestige beauty -6

Source: Industry sources


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n n n Korea towards Chinese consumers. We did some strategic endorsing with the new Clarins lip oil; it was extremely successful with some key opinion leaders in Korea and therefore created a halo effect on the whole region.”In terms of category, prestige skincare sales, which still represent the lion’s share of the

market, reportedly declined 10% in the year to September, and while all segments are suffering, the whitening category has been particularly hard hit, with certain international brands withdrawing investment from the segment.Make-up sales, meanwhile, were up 6% in the same period after seeing the same

growth rate in 2015, although consumers in Hong Kong and China are still not heavy color-cosmetics users. “At the moment, make-up is quite successful, but we’re talking about something from a rather small base,” comments Mosely. Clarins introduced its make-up products in Hong Kong this fall, says Cohen, and is seeing strong results, especially for foundation and lip products. Travel retailer DFS is also seeing brisk demand for make-up in its Hong Kong stores, Gentzbourger comments, citing the strength of designer brands like YSL, Tom Ford and Givenchy.

Retail and rental costsThe tough market is being felt by retailers, with total sales in department stores, a preferred destination for Chinese shoppers, declining 7.6% in the year to October, according to data from the Hong Kong Census and Statistics Department. In such a context, department stores are increasingly focusing on promotions, observers say.Health and beauty retailer SaSa saw retail sales in Hong Kong and Macau decline 3.6%

in the six months to September 30. Although the retailer saw an increase in the number of transactions made, average transaction values dropped more than 6%. SaSa is working to adapt to changing market preferences with faster product launches, shorter product cycles and lower-priced, trendy Asian products. During the years prior to 2014, a wealth of new malls and stores sprang up, and many

international brands opened multiple standalone boutiques. But since the crisis, this has become a thorn in their side, as landlords have not been reducing rental costs in line with the market decline. “The landlords of the malls kept increasing the rents even though business is decreasing, so most brands now are looking at their distribution to make sure it is still relevant,” says Cohen. Mosely adds: “Retail at the moment depends a lot on getting rental reductions. Consequently, most retailers have been downsizing, because commercial rents have been incredibly expensive.”SaSa, for example, is looking to reduce the cost of its store rentals in tourist areas. Clarins

will end 2016 with nine standalone stores in Hong Kong, having closed four doors during the course of the year. Observers anticipate that other brands will also reduce their footprint.Faced with all these challenges, many brands are scaling back their overall investment.

“In any business, if your business is decreasing, your investment needs to be re-calibrated, especially if it’s not only something temporary,” says Cohen. “It’s been two years already. We have to scale down and we have to be creative and innovative in our business model and understand where the market is going and keep adapting our models to stay relevant to our consumers and to the market.”Innovation and better, more targeted marketing are key to maintaining business in Hong

Kong, and there are certainly pockets of growth, especially in make-up. But for many brands and retailers, it continues to be a case of weathering the storm as best they can. n

“

”Industry expert and former L’Oréal executive Stephen Mosely

Hong Kong used to have the big advantage that it was cheap, it was close, and it was simple. None of that applies anymore. Until something changes to make it an attractive destination, it’s going to see fewer and fewer travelers, and be more and more reliant on local spending


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Urban Decay Paris store

l Location: 48, rue des Francs-Bourgeois, Paris, France

l Opened: December 2016 l Size: 120m2 (1,292ft2)

l Special features: creation of animated

GIFs, exclusive products, collector shades, make-up

demonstrations, tips and classes

L’Oréal-owned Urban Decay has put the focus on digital for its new Paris store. The two-story 120m2 (1292ft2) boutique in the Marais district of

the French capital features a digital tool for creating interactive GIFs on the ground floor, as well as a screen connected to the brand’s Vice app, which allows shoppers to virtually try on the 100 shades in its Vice lipstick range that launched in June.The store’s basement is home to the UD Lounge, which focuses on make-up

artistry, and is where make-up classes and services take place. There are four make-up artists at the store. The make-up classes are priced at €60 for individuals (reimbursed when €120 is spent in-store) and €20 in a group (reimbursed when €60 or more is spent in-store). The store also offers shoppers a complimentary make-up look done by a

professional (focused on eyes, lips or skin). The Standard, a look for the face, eyes and lips, is priced at €30 for 30 minutes, while The Full Monty (priced at €45 for 45 minutes), can include contouring and the application of false eyelashes and is said to be suited to special events. The store stocks some 650 make-up skus, 200 of which are exclusive products.

Store exclusives include gift sets such as the Vault Vice (30 lipsticks) and the Naked Vault Volume III (which is composed of all of the brand’s Naked palettes). Also stocked are collector shades and a lifestyle offer, with US-made T-shirts. n

Urban Decay’s first French store highlights technology and digital try-on

Digital focus



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s The UD Beauty lounge focuses on make-up artistry, and consumers can have make-up looks done by experts

s The Urban Decay store’s decor features neon light detail (left) and shoppers can virtually try on the 100 lipstick shades in the brand’s Vice Lipstick range (right)

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