From Gucci Grooming to Burberry Beauty, a host of luxury goods brands are diversifying into the skincare & cosmetics space in a bid for new growth
The luxury industry is abuzz with the promise of beauty, whether it is Gucci’s very first range of branded cosmetics to launch in late 2014, or Burberry’s decision to take its operations in house and chase significant growth through skincare and fragrance.
‘The perfume strategy’ dates back beyond the 1920’s, around the time that Gabrielle Chanel created Chanel No. 5, which is to-this-day the world’s best-selling perfume. Other French couture-houses followed suit; Lanvin with Arpège in 1927 and Givenchy somewhat later in 1952.
Regardless of the timing, these extensions firmly – and legitimately – established the natural link between haute couture houses and fragrance. And eventually paved the way for brands such as Chanel to diversify into skincare and cosmetics with a level of credibility and authenticity in the mind of consumers.
“ The global perfume market is expected to reach a value of roughly $45.6 billion by 2018 ”
The global perfume market is expected to reach a value of roughly $45.6 billion by 2018, driven primarily by growth expected in the underpenetrated emerging markets and innovative product launches, according to market research firm Companies and Markets (C&M;).
When you add skincare and cosmetics into the mix, the global beauty personal care industry is forecast to reach an estimated $265 billion by 2017 with a CAGR of 3.4%, driven by increasing demand in Asia Pacific and Europe (Lucintel).
The overall market is set to benefit from the growing trend towards consumer urbanisation, higher spending propensity and the heightened importance on personal appearance and grooming (C&M;). Not to mention a global explosion of an emerging middle class, who have been exposed to more luxury brands online than any generation prior.
In short, beauty represents big bucks and is currently underpenetrated in several ‘opportunity’ markets for luxury brands. If common anecdotes are to be believed, lipstick sales actually increase during recessions and luxury-branded fragrance purchases allow ‘entry level’ or ‘future’ luxury consumers to buy into their dream brands without hefty investment.
It is a strategy that has allowed a number of luxury goods purveyors to increase the breadth of their product offering, fatten their P&L; and deliver returns to hungry shareholders. Not to mention the impact that beauty categories have had on global brand awareness, long before the advent of the Internet.
And there are multiple opportunities in a changing market place. As we have seen with interest in luxury leather goods and apparel, sales-of (and interest-in) men’s products are on the rise. Typically, the men’s market was confined to the after-shave fragrances, but today the cards are being turned and men’s fragrances for specific occasions are witnessing huge growth, holding the promise of emerging into a mainstay market (C&M;).
“ The global beauty personal care industry is forecast to reach an estimated $265 billion by 2017 ”
Grooming and skincare is emerging as a key concern for male consumers, as men generally become more concerned with their appearance. So for a global luxury brand – such as Burberry, such as Gucci – who are yet to tap into the vast opportunities currently capitalized by their competitors, the beauty proposition makes exceptional sense to the bottom line.
But how does such category expansion reflect on its brand equity? Gucci reported its slowest quarterly sales growth in four years, for the final three months of 2013. As the brand struggles with overexposure, its management has publicly expressed a desire to increase prices, limit store openings and focus more on exclusive, expensive, rarefied products.
Yet here we are with the announcement that it will create a beauty offering, starting with products for the Eye, Nail, Lip and Face, complimented with brushes and skincare. All of which – as defined by price point – can be classified as entry-level products for the masses. By a brand that as yet, has no known legitimacy in cosmetics.
Dior’s Paris Beauty Flagship
Many luxury powerhouses have proven that you can stretch your brand beyond core competencies whilst maintaining positive sales and desirability. Strategist argue that there will be a tipping point – and that some brands are fast approaching – but luxury sales of the brands in question are yet to halt or decline in the double-digits.
And in the simple case of comparing one French conglomerate to another, one must only look at the success of Dior, Guerin and Givenchy over at LVMH – not to mention its booming retailer Sephora and the recent launch of Marc Jacobs cosmetics – to see an opportunity for Kering that is underleveraged.
As Alex Fury of The Independent recently pointed out, Yves Saint Laurent is the only brand in the Kering Luxury stable with a diversified cosmetics offering. Bottega Veneta, Balenciaga, Stella McCartney, Alexander McQueen are all active in fragrance, but are facing intensified competition from a whole host of celebrity and fashion brands.
“ One must only look at the success of Dior, Guerlain and Givenchy over at LVMH ”
Again, according to The Independent, Gucci is potentially the only within the Kering stable “with the global clout to command a cosmetics empire.” And ipso facto, a testing ground of sorts for other Kering brands, with the kind of profit margins that can sustain the costs of new launches and experimentation.
At the end of the day – romance about what constitutes luxury aside – there are clear financial opportunities for Gucci in the global beauty marketplace and a proven position in fragrance. The challenge will be to maintain a perception of exclusivity and remain desirable to its affluent apparel and leather goods customers.
Burberry is facing a less treacherous marketing proposition. Burberry is for the people, the ‘democratic luxury’ brand of choice for the digital savvy millennial consumer. When the Brit-brand launched its first-ever fragrance, Burberry Body, Facebook was the only place that customers could request the first samples.
Burberry Body Campaign
During a recent results conference, announcing preliminary figures for the year ended March 2014, COO John Smith revealed the brands desire to become a Top Ten luxury player in the beauty space, chasing balanced growth across fragrance, makeup and skincare categories, targeting specifically the millennial consumer.
Beauty at Burberry grew at 25% at constant FX in 2014, when market growth rates have been averaging 2-3% over past decade. Burberry believes that it is under-penetrated within the £20 billion prestige market and will be scaling distribution through traditional and non-traditional retail channels, as well as dedicated beauty flagships.
Given Burberry’s proven ability in creating outstanding consumer experiences and immersive marketing campaigns, alongside their understanding-of and ability to converse-with digital natives, the brand seems excellently positioned to capture the consumer’s attention in a crowded space.
“ Burberry is facing a less treacherous marketing proposition ”
What remains to be seen – for both Burberry and Gucci – is how they establish legitimacy in these new fields and how they capitalize on their rich luxury heritage without losing their position and top-level clients. If any brands have proven it can be achieved, they are Chanel and Dior, who manage to sell both Haute Couture and lip-gloss, alongside scientific skincare and branded key rings.
As we noted in our analysis of the BrandZ Top 100, Gucci’s brand value rose 27% between 2013 – 2014, whilst Burberry’s skyrocketed by 42%. The ranking is based on a mix of quantitative revenue data and qualitative consumer perception, which suggests that interest in the brands from consumers is still rampant at a global level.
Whatever your philosophical take on luxury goods brands entering the realm of cosmetics, skincare and fragrance, it is unlikely to expect a great slowdown from either of these companies. Gucci is addressing the issues it feels impacted its Q4 2013 sales and is now opening up a new revenue stream, with the potential for high margins.
Only time (and the consumers) will tell whether or not this is at the expense of brand equity.
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