Internet Boosts Fragrance Sales During the Holiday Season

14 December 1998 00:00  [Source: ICB Americas]

By Peter Landau

Internet sales of retail fragrances are set to explode this holiday season. Jupiter Communications, a New York-based Internet research firm, predicts that overall on-line holiday spending will more than double this year to $2.3 billion from $1.1 billion in 1997. Cyber Dialogue expects the market for fragrances and cosmetics purchased on-line to reach $340 million by 2002, compared to only $5 million in 1997.

The Fragrance Counter, a wholly owned subsidiary of Allou Health and Beauty Care Inc. that was launched in September 1995, offers more than 1,200 brand-name designer fragrances. Its sister site, the Cosmetic Counter, features a selection of over 800 brand-name beauty products and accessories. Second quarter sales for the Fragrance Counter, which ended September 30, 1998, were $681,867, nearly a five-fold increase over sales of $119,547 during the same period in 1997.

The Fragrance Counter expects strong seasonal sales to more than double its quarterly earnings during its third fiscal quarter, which ends December 31. The company says this will be fueled by increased online traffic and the overall growth of online shopping.

During the second quarter, consumer traffic to the site more than doubled, reaching 1.3 million visitors compared to 600,000 during the first quarter. On a year-to-year basis, consumer traffic grew more than five-fold from the 194,013 visitors to the site during the second quarter of 1997.

"We have been experiencing enormous activity on our site since the spring, when we signed key distribution deals with America Online, Yahoo!, Lycos and Excite. As we move into the holiday season, which is historically the best season for fragrance sales, we expect to continue to see exceptional sales growth," says Eli Katz, chief operating officer of the Fragrance Counter.

"As the leader in e-commerce, AOL is driving a fundamental shift in consumer buying habits, bringing online shopping into the retail mainstream," says Bob Pittman, president and chief operating officer of America Online. "Since the 1997 holiday season, the number of AOL members who have bought products and services online has nearly doubled, and many more members have done extensive window-shopping."

In an AOL/Roper Starch research report soon to be released by America Online, 85 percent of Internet online users who shop regularly or occasionally say "shopping online is easier than the way they used to do it."

The Fragrance Counter's parent company, Allou Health and Beauty Care, posted second quarter revenues of $89.7 million, up from $83.3 million during the second quarter of 1997.

"These results are consistent with management's previously announced program of expanding its dominant lead in online sales of prestige designer fragrances and cosmetics through its e-commerce wholly owned subsidiary, the Fragrance Counter and the Cosmetic Counter," says David Shamilzadeh, chief financial officer and senior vice-president, Allou Health and Beauty Care.

Calling itself "The World's Largest Discount Fragrance Store," FragranceNet.com has launched the newest version of its on-line store just in time for the holiday shopping rush.

FragranceNet.com is a privately held New York-based corporation that carries more than 1,000 brand-name fragrances, lotions, powders and soaps for men and women at up to 70 percent off retail prices. "Online shoppers are looking for a combination of low prices and convenience," says company president Jason Apfel.

Procter & Gamble has also joined the online fray, though without the media blitz surrounding other fragrance sellers. In November, Procter & Gamble launched a Web site for its Hugo Boss men's and women's fragrance line that allows consumers to buy products for direct home delivery. One of the reasons for the site's quiet launch is Procter & Gamble's traditional policy of appeasing retail vendors by not selling directly to customers over the Internet.

Clinique is the first major prestige cosmetic brand to offer complete shopping online. The site was created in response to the growing number of women using the Internet. At present, women constitute 45 percent of online users. Women are expected to account for 60 percent of online users and spend $3.5 billion online by 2005, according to the company.

"Clinique.com is a valuable resource for the growing number of time-pressed women," says Angela Kapp, vice-president of special markets and new media for the Estee Lauder Companies Inc., and developer of Clinique.com. "It provides personalized information, an extensive selection of new products and convenient ordering in an easy-to-navigate site." The site currently boasts 350,000 registered users.

Despite the high expectations promised by the Internet, many industries with on-line retail sites have yet to show a profit. Analysts say that many of these companies may not make money until the next millennium. "But if sales go up to the $100 billion mark," says Walter Loeb, an analyst at Loeb Associates, "then those with the infrastructure will take the fullest advantage."

BERGAMOT--Based on producers' reports, the 1998 bergamot crop will be smaller than the 1997 one. Producers blame the decrease on a heat wave that hurt growing areas in Italy during July and August. "The weather has been very bad working against the fruit," says a major importer, "but now the weather is very good working for the fruit and offsetting the earlier conditions."

The importer adds that there appears to be little or no carryover from last year. Currently, there are no forward quotes. "Nobody has a replacement cost," he continues. "Nobody knows what bergamot is going to sell for." The bergamot crop does not come in until the end of the year. Until then, it is a wait-and-see market.

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