Italy - Testing the water

Results show that Italy's C&T market only just managed to hold its own in 2005. However, on the export market results paint a very different picture. Will this new growth area really signal a revival inthe country's cosmetic fortunes?

After a burst of sales activity in the last few years and upbeat predictions for the year to come, Italy's C&T market in 2005 did not quite live up to the hype. The positive outlook has in fact turned out to be more of a mixed bag. Overall sales turnover last year grew by just 1.7%, reaching €7.651m according to Italian trade body Unipro, and shows a steady drop off when compared to the percentage growth in 2003 (3.8%) and 2004 (2.2%). Italy is the third cosmetics market in Europe so what lies at the heart of this stagnation of sales?

Such cautious growth has in some part been blamed on testy economic situations including currency fluctuations and the weakening of the US dollar against the euro. Tensions and jitters over oil prices, which have steadily crept up over the last 12 months have further compounded the situation, affecting inflation rates and buying power.

To put Italy's C&T woes into context, the situation for the rest of Europe does not look much better. Provisional figures from Italy's cosmetic neighbours unveil a very mixed picture, according to Unipro, with Spain and Switzerland recording modest growth after a more positive period of growth, while the UK and Germany have witnessed a revival in fortunes after three years of general retrenchment. One of the only countries to show any signs of significant growth is Finland, which notched up a 6% hike in sales in 2005. Unipro points out that Finland's C&T market is relatively underdeveloped compared to other European markets so therefore has a greater prospect of achieving positive results as it has not reached saturation point.

However, the news from Italy was not all doom and gloom as activity on the international scene picked up considerably, with the sale of Italian cosmetic products abroad growing steadily, increasing the country's balance of trade surplus. In fact, the level of exports in 2005 actually exceeded predictions to reach volumes of €2.1m, a rise of 6.3% on the previous year. This is the tenth consecutive rise in as many years and has helped make up for Italy's poor domestic performance, where the slowdown has continued.

"Export is now one of the most important sectors for the Italian balance of trade," explains Unipro president Fabio Franchina, citing the US, UK, France, Germany and Japan as the most significant importers of Italian cosmetic products. Poland is also fast becoming a key market after its import level increased by more than 25% last year. Other export hotspots include Thailand, the United Arab Emirates, Russia and Vietnam, which recorded a phenomenal 159.3% rise in cosmetic imports from Italy in the first nine months of 2005.

Customer satisfaction

The predicament in which Italy's domestic C&T market finds itself can also be traced back to the change in consumer buying patterns, which have seen a shift in favour away from mass channels such as supermarkets and hypermarkets offering discounted prices on cosmetic products to a more qualitative, service led approach offered by pharmacies. The rise of internet shopping and direct sales also marks a move away from the traditional methods of purchasing.

"We are seeing that consumers are buying intelligently and only buying when they actually need something. Quality is being used as a reference point by everyone," continues Franchina. "Therefore consumption is becoming more and more important."

Despite the erosion in consumer purchasing power, cosmetics still feature highly as a constant in customer buying behaviour, along with items related to health and general well-being, according to Franchina, and the shift towards alternative retail channels is a direct reaction to this. Retailers and manufacturers are now placing more emphasis on service, research and innovation and the competition for increased quality and quantity of these types of products has risen.

The pharmacy channel has been a clear winner in this latest trend, marking a 4.6% increase in sales and registering volumes of €1.107m. "This channel is considered the quality channel," says Franchina. He estimates the sector has doubled its market share in the last ten years due to the growth in demand for highly specialised cosmetic items such as depigmenting products, which require the sales expertise of beauty consultants to educate the consumer - an element at which the service-orientated pharmacies excel.

It comes as no surprise to learn that the growth in consumption enjoyed by the pharmacy channel has come at the expense of other channels, in particular the perfumery channel, which has suffered a period of contraction as a consequence. Consumption in this channel fell by over 2% to €2.341m. "It's an ever changing channel," says Franchina on the changing fortunes of the perfumery channel. "Perfumes are usually sold in perfumeries but are now being sold in other channels such as supermarkets. As a result of the changing consumption habits, the perfumery channel has been negatively affected."

In addition, the growth of herbalist shops, whose consumption rose by 4% in 2005 thanks to the trend in preference for natural, holistic products and general well-being, has further compounded the situation for perfumeries. The herbalist channel is still relatively young, worth €263m, but has huge potential for development. "The increasing care and attention paid by consumers to their bodies and their well-being has led them to rediscover the natural options that permeate every sector of the market, from furniture to food," says Giancarlo Bruson, president of the Unipro Herbalist Shop Sales Group. Direct sales and mail order have both also seen a rise in sales, up 4% and 1% respectively, eating further into the perfumery channel's market share.

Bloom of youth

With an increase in sales of 12.4% to a value of more than €51m, make-up kits and trousses were the most successful product sector in terms of growth rate in 2005. The gains were in stark contrast to the rest of the colour cosmetics sector however, which recorded dismal results all round. Lip products were the worst hit, with losses of 4.6%, while eye products dropped 1.7% on the previous year.

The success in make-up kits has been attributed to an increase in consumption by teenagers, a group that is fast becoming one of the most important consumer sectors in the C&T industry. Products for babies also saw impressive gains, up 7.2% to reach a turnover of €79.88m. Pupa leads the way in terms of product innovation and popularity in the make-up kit sector, with seasonal and limited edition sets created in shapes ranging from flowers to Father Christmas, and all featuring a variety of brightly coloured eye, cheek and lip products.

"Make-up kits form the cornerstone of the Pupa brand and are always popular with teenagers; they define the fun, creative element of the brand," explains Lavinia Fazio, pr manager for Pupa.

Italian brand Perlier is also investing in products for the younger consumer. "Manufacturers are placing greater emphasis on targeting the younger consumer as they represent such potential," says Franca Fratti, pr for Perlier.

To this end, Perlier has launched several new initiatives specifically targeted at the teenage consumer from its La Voliga Matta brand. New products include five flavoured lip glosses designed to worn over lipstick. The sweet, fruity flavours include vanilla, strawberry, raspberry and mango, which Fratti says are perfect for teenagers.

The brand's Cacao Slim anti-cellulite treatment range also been extended, with three new products - a gel to target the first signs of cellulite, a revitalising cream and a body scrub. The packaging is smaller than average body products to encourage teenagers to buy. "The products are very sweet so ideal for the younger consumer," Fratti continues. "Girls in particular are buying treatment products younger and younger, adhering to the mantra that prevention is better than cure."

Call in the specialists

The growth in number of product launches aimed at the younger consumer in the last year has spanned all cosmetic product sectors, even to skin care where anti-ageing products normally hold sway.

La Prairie, which usually targets the more mature consumer with its prestige positioning and equally premium price point, has launched Anti-Aging Complex, described as an intervention cream to delay premature skin ageing. The new cream is aimed at a younger 25-40 year old consumer bracket and has a slightly lower price positioning (around €178) to encourage younger consumers to purchase. "We are trying to recruit younger faces to the brand," explains Bonaccorso Roselli Cecconi, general manager, La Prairie Group Italy. "This is the first time that La Prairie has addressed the needs of this younger age group and we hope this new approach will help grow the brand."

At the other end of the spectrum in the mature market, Rancé has targeted the increasingly important baby boomer generation with the launch of Hormovital, a three sku treatment line created for women undergoing the menopause. "These products target the concerns of women going through the menopause which are often very different from just straightforward ageing," explains Anna Lisa Marcioni of Rancé's export department. "We are seeing more and more demand for these specialised products."

The level of innovation and response to consumer demand for more specialised cosmetic applications has helped boost the skin care sector, which saw record growth in many of the sub categories in 2005. Overall, turnover in the sector grew by 2% to a value of €1,099.97m, with big gains made by cleansing wipes, up 9.9%, and anti-ageing and anti-wrinkle creams which grew by 5.5%. Depigmenting or lightening products, which made their debut on the Italian market in 2004, maintained an upward trajectory with an increase of 7.9%, while face masks and peels recorded sales of €36.5m, a growth of 5.3%.

A man's world

After a period of phenomenal growth, the male cosmetics sector looks as if it could be about to experience a period of consolidation in Italy. Consumption peaked in 2004 after the sector recorded a 30% hike in sales. However, 2005's results show the sector did not record anything quite as significant and only grew by 2.8% to a value of €286.9m. As a result, manufacturers are focusing on more specific, tailored products for the male consumer.

"Men are being more targeted in their choices," says Franchina. "A lot of taboos have been demystified and men are no longer shy to buy cosmetic products for themselves." According to Unipro, men's cosmetic products constitute a third of all beauty sales in Italy so it is important to keep this consumer group satisfied.

A direct result of this new drive for more specific male cosmetic products is the growth in treatment creams, which continued to register a significant increase in 2005. The sub sector grew by more than 30% in 2004 but still managed to notch up a 17.5% increase in 2005.

Notes of indifference

Despite a continued drop in sales in the fragrance sector, there has been plenty of acquisition activity to keep manufacturers' minds off the continued slow-down. Sales results once again fell, this time by 2.1%, bringing the total value of the sector to €833.53m.

The fragrance market has been awash with new license acquisitions and virtually every fragrance house has reported at least one new signing. P&G Beauté's announcement of the acquisition of the Dolce & Gabbana fashion license from Italian manufacturer Euroitalia was perhaps the most significant.

The agreement, which does not officially come into effect until June, has not deterred P&G from pressing on with its plans to give the brand a more upscale positioning. A new female fragrance, entitled The One, will launch in the second half of this year and will be priced above the brand's existing lines. To emphasise the premium positioning it will feature a heavy glass flacon with a gold top. The juice will feature notes of mandarin and peach, which blend into a heart of jasmine. Finally, the dry down consists of vanilla, amber and musk. A new men's fragrance is also scheduled to launch in the first quarter of 2007.

The last few years have seen a boom in celebrity fragrances but 2005 heralded the return of the fashion labels, injecting some much needed luxury back into the waning sector.

ITF led the way with the signing of cult fashion brand Dsquared2. The agreement will see ITF producing and distributing a line of fragrances and cosmetics for the label, the first of which will launch in the second half of 2007, with a second scent following a year later. The fragrance joins a portfolio line-up that already includes fashion giants Roberto Cavalli and Gai Mattiolo and the company has high hopes for the newest arrival.

Estée Lauder, meanwhile produced its first fragrance for Italian knitwear label Missoni. The fragrance contains notes of Italian bergamot, peony, fresh rose, Gianduia (a chocolate from Turin) and liquid amber and departs from the traditional olfactory pyramid, instead using accords that characterise the generations of the Missoni family - from grandparents to grandchildren. "The fragrance encapsulates the Italian notion that life is beautiful and uses only Italian ingredients," says Sergio Garza, divisional director, Aramis and Designer Fragrances. "The first perception of the fragrance has been very good and the packaging has been very impactful; the flaçon is wrapped in a small fabric swatch of Missoni's famous stripes."

Elsewhere, Monarimport acquired the license to distribute the Everlast fragrance franchise in Italy. The two scents - Original 1910 and Uppercut - launched in April and are only available in perfumeries. Aimed at the young sporty consumer, it is hoped the fragrances will revive Monarimport's fortunes in the perfumery channel. "Everlast gives us a new way to go into perfumeries and will appeal to a completely new consumer than our other brands," explains Angela Patelli, marketing manager fragrance. "Fragrances have not been performing well so we want to bring something new to the market that will attract consumers into buying again."

In addition to new signings, many fragrance houses have unveiled high profile launches, which they hope may kick start Italy's sluggish fragrance market.

L'Oréal started the year with the launch of Armani Code Donna, the first female scent from the signature line since Mania in 2004. The fragrance, based on Sicilian oranges, is closely tied to the fashion side of the Armani label, featuring similar colours and textures. "We are really focusing on Armani in Italy," explains Camilla Schiavone, brand director for Giorgio Armani Parfums, Viktor +Rolf and Helena Rubinstein. "Armani is already a leader in the men's market in Italy - Acqua di Giò is ten years old this year and still the number one brand in Italy and we would like to see the same results for the women's market."

At Ferragamo, the fashion brand launched a second flanker to the Incanto collection. Incanto Charms is linked to the seasonal fashion collection and aimed at a slightly younger audience. It is expected to be particularly popular in Italy and Japan, its main markets.

"In Japan, Incanto Dreams was the number one selling perfume in 2005," says Ferragamo Parfums md, Luciano Bertinelli. "But Incanto Charms has already surpassed the success of Incanto Dreams at its launch so we have high hopes for the fragrance."

He also revealed plans to launch a new female fragrance to replace the original Incanto scent. F by Ferragamo, created by Francis Kurkdijan, is slated to roll out worldwide from September.

Morris has also had a busy 12 months with the launch of new female fragrances from La Perla, Krizia and Fiorucci. A new duo line from Sergio Tacchini entitled Feel Good and inspired by the Italian passion for La Dolce Vita, is also due to hit shelves in May. While at Selectiva, a new men's fragrance has been created for the company's Aquolina brand. Blue Sugar is a gourmand scent created to accompany the successful Pink Sugar female scent which launched in 2002. "The fragrance has the same concept as Pink Sugar and has been very successful since its launch in September," explains Antonella Pascale, marketing manager, Aquolina.

Despite a high level of innovation and a move by manufacturers to address growing consumer demand for more qualitative, niche products, the outlook for Italy's C&T market remains overcast for the imminent future. The signs do seem to show that Italy is not experiencing the revival other European markets are currently enjoying, even though its export market has surpassed expectations.

But the results have not disheartened everyone. "Our industry is doing well and is growing. Italian cosmetics are increasingly competitive abroad due to continued in-vestment and research," enthuses Franchina. "The cosmetics market is responding well to the general recession and performing better than other related sectors in Italy."