BW Confidential

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Comment Inside CONFIDENTIAL Are beauty brands destined to become retailers in some shape or form? Will standalone stores become a necessary part of the retail mix? And will multi-brand retail begin to lose its dominance in the beauty business? These are the questions more executives are asking themselves when pondering the future of retail. Beauty brands setting up their own retail outfits is not new, but the trend is definitely intensifying. Luxury brands such as Chanel have opened their own beauty boutiques, and now even mass and masstige companies are looking more closely at this retail model—L’Oréal Paris for example opened its first French standalone store last month.

In addition, more brands are launching pop-up stores to test retail, while having a strategy that incorporates standalone boutiques is becoming a key criteria in the majors’ choice of acquisition targets.

Analysts say that given the major players’ dominance of some categories in certain markets and the number of brands they have (Coty in fragrance, for example), they could easily set up their own stores with a varied offer. Others say that in any case an unlimited offer is not what consumers are looking for today (they can easily find this on the internet); on the contrary, shoppers now are seeking more edited assortments and distinctive brands. They add that in fashion, there are few multi-brand retail offers, and that beauty could go the same way.

Going it alone The buzz 2 News roundup Netwatch6 Social media monitor Interview7 Kanebo Cosmetics president Masumi Natsusaka Insight9 Retail technologies Show review 12 TFWA World Exhibition Store visit 18 Armani Box pop-up store, Paris Oonagh Phillips Editor in Chief ophillips@bwconfidential.com www.bwconfidential.com The inside view on the international beauty industry November 3-16 , 2016 #138 News headlines daily on www.bwconfidential.com @BWCbeautynews Meet the BW Confidential team at: l Cosmoprof Asia, Hong Kong, November 15-18 l MakeUp in São Paulo, December 7-8

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L CONFIDENTIAL L CONFIDENTIAL www.bwconfidential.com - November 3-16 , 2016 #138 - Page 2 News roundup The buzz At a glance... Strategy US-based Estée Lauder Companies (ELC) is to acquire American make-up brand Becca Cosmetics. The acquisition is expected to close in November 2016, according to ELC. The terms of the deal were not disclosed. Becca Cosmetics launched in 2001 and its products, which include primers, concealers, foundations, blushes and highlighters, claim to use light to enhance the complexion. Since 2011, Becca has been led by president and ceo Robert DeBaker, and cfo/coo James MacPherson, and has been part of Luxury Brand Partners’ portfolio since 2012.

The brand is stocked in Sephora and Ulta Beauty in North America, and is also available in select department stores. While the majority of the brand’s sales are in North America, the company is expanding with Sephora in Southeast Asia, Europe and the Middle East. ELC highlighted that Becca Cosmetics has a strong social media presence, with one million followers on Instagram.

This deal follows L’Oréal’s announcement in July that it would buy color cosmetics brand IT Cosmetics for $1.2bn. It is also the latest in a string of acquisitions for ELC over the past three years, which have included By Kilian, Le Labo, Editions de Parfums Frédéric Malle, Glamglow and Rodin Olio Lusso. Japanese cosmetics company Shiseido has announced that its wholly owned subsidiaries Shiseido Japan and FT Shiseido are to take over the overseas brand management functions (excluding the Za brand) owned by Shiseido’s global cosmetics and personal care brands division. Shiseido Japan and FT Shiseido already have domestic brand management functions.

The company split will be effective January 1, 2017, and will involve Shiseido spinning off its business and Shiseido Japan and FT Shiseido taking it over. The move is part of the group’s Vision 2020 strategy. Since January this year, Shiseido has been operating a matrix organizational structure based on brand and region axes. The company is consolidating functions that had been dispersed across the group to drive growth.

French flavor and fragrance company Robertet has acquired Bionov, a producer of the antioxidant SuperOxyde Dismutase (SOD), a natural ingredient derived from a variety of French cantaloupe melon. SOD has applications in skincare, as well as food supplements and instant drinks. The acquisition will enable Robertet to expand the offer of its Health & Beauty division. Robertet said that the acquisition of Bionov will allow it to generate synergies on an R&D level, as well as add expertise in biosciences and encapsulation techniques. n n n Stay informed with our daily news headlines on www.bwconfidential.com n ELC to acquire Becca Cosmetics n Sulwhasoo opens 100th store in China n Natura gets new ceo BW Confidential 4 avenue de la Marne 92600 Asnières sur Seine, France contact@bwconfidential.com Tel: +33 (0)1 74 63 49 61 Fax: +33 (0)1 53 01 09 79 www.bwconfidential.com ISSN: 2104-3302 Publisher: Nicolas Grob Editorial Director: Oonagh Phillips ophillips@bwconfidential.com Journalist & Copy Editor: Katie Nichol knichol@bwconfidential.com Journalist: Hannah Ikin hikin@bwconfidential.com Contributors: Sophie Douez, Alex Wynne, Renata Ashcar, Mayu Saini, Raphaëlle Choël, Corinne Blanché, Naomi Marcoulet Subscriptions 1 year: electronic publication (20 issues) + print magazine (4 issues) + daily news: €499 or US$699 subscribe@bwconfidential.com Advertising advertise@bwconfidential.com BW Confidential is published by Noon Media 513 746 297 RCS Nanterre Copyright © 2016.

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L CONFIDENTIAL L CONFIDENTIAL www.bwconfidential.com - November 3-16 , 2016 #138 - Page 3 News roundup The buzz n n n Retail French niche skincare retailer Oh My Cream! has raised €6m in funds from Otium Capital. This second round of funding (the retailer previously raised €1.6m from business angels) is set to enable Oh My Cream! to continue developing online and to open more stores. The company, which was founded in 2012, plans to expand its brick-and-mortar footprint from five points of sale to 20 from next year. This year, Otium Capital also invested €3m in French hygiene products specialist Merci Handy.

Estée Lauder Companies-owned Editions de Parfums Frédéric Malle opened a new Paris store at the beginning of October. The 20m2 (215ft2 ) store is located in the city’s Marais neighborhood and is intended to represent a box composed of a three- dimensional grid. The store features wooden, geometric structures, which house the scents and are intended to represent islands. The floor, walls and ceiling are covered with mirrors, and portraits of the perfumers adorn the walls. Columns to test the perfumes are integrated in the walls. The new store is intended as a space for consumers to relax and converse according to the brand.

Korea-based AmorePacific-owned beauty brand Sulwhasoo opened its 100th store in China at the end of October. Located in the Taikoo Li luxury shopping mall in Chengdu, the 95m2 (1,018ft2 ) boutique features a brand zone, a gift service area and a spa treatment room. It will offer VIP services including gift wrapping, and products exclusive to the store such as scented sachets and essential balms. Sulwhasoo entered China in 2011. The brand said it saw sales growth of more than 100% there last year. Sulwhasoo is planning further international expansion, and aims to become the number-one beauty brand in Asia by 2020.

Ralph Lauren has expanded its Fragrance Salon concept to its new flagship store in Beverly Hills, which opened at the end of September. Ralph Lauren’s Fragrance Salon debuted at its Madison Avenue flagship store in New York in June, coinciding with the launch of the Ralph Lauren Collection fragrances, 10 EdP that are said to express five different destinations. The Fragrance Salon space focuses on personalization, according to the brand. Fragrance leather sleeves designed for the new EdPs can be monogrammed, and a specially created silver collar can be engraved. The compact diffuser, candle and body cream, which are also part of the new fragrance collection, can be engraved.

Ralph Lauren Collection fragrances were created by Carlos Benaïm of IFF, Calice Becker of Givaudan and Firmenich’s Harry Fremont. They retail at $140 for 50ml and $240 for $240ml. Results Brazilian cosmetics company Natura posted consolidated net income of R$73.1m (US$23.3m) in the third quarter of 2016, a drop of 44.6%, impacted by lower revenues and the higher tax rate in Brazil. The company generated consolidated net revenue of R$1.9bn ($605.1m) in the quarter, a decline of 4.7%. Natura’s net revenue in Brazil n n n ©Roland Halbe

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The buzz News roundup n n n fell 7.1% to R$1.27bn ($404.5m), impacted by consumers trading down, particularly in fragrances, face and body care, which account for some 60% of the company’s sales.

International revenue for the period grew 0.5% to R$637.1m ($202.9m). Aesop posted growth of 18.6% in the third quarter, and now has 169 stores in 20 countries. Natura highlighted that it has opened four owned stores in shopping malls in São Paulo since April. Its online channel, Natura Network, continues to witness double-digit sales growth, the company said.

Japan-based Kao Corporation posted net sales of ¥1.06tn ($10.08bn) for the first nine months of 2016, a decline of 0.9%. Excluding the effects of currency translation, net sales would have increased 3.6%, Kao said. Sales in the group’s beauty care business grew 0.7% (+4.9% like-for-like) to ¥441.6bn ($4.2bn). Sales of cosmetics grew 3.1% to ¥180.7bn ($1.7bn). Skincare sales also increased, while haircare product sales were flat. Kao’s net income for the first nine months of 2016 grew 19.4% to ¥87.1bn ($832m). Profits were boosted by increased sales in the consumer products business in Japan and Asia and a decrease in the price of petrochemical raw materials, the company said.

Consumer goods group P&G reported net earnings of $2.5bn for the first quarter of fiscal 2017 (July-September), up 4%. Sales were flat at $16.5bn for the period. Organic sales were up by 3%, with growth witnessed across all business segments. Net sales in P&G’s Beauty division were down 1% to $2.99bn in the period. Organic sales growth was 3%, due to higher organic volume and increased pricing in both skin and personal care and haircare. Continued growth of premium brand SK-II drove organic sales in skin and personal care, while in haircare, mid-single-digit organic sales growth from Head & Shoulders and Pantene was partially offset by declines of smaller brands, P&G said.

P&G’s divestment of its Beauty Brands business to Coty closed October 1, 2016, and the group said it is now focusing on 10 large categories where it has leading positions. For fiscal 2017, the group anticipates organic sales growth of around 2%, and all-in sales growth of 1% due to the impact of foreign exchange and the divestment of minor brands. Consolidated sales at France-based Interparfums SA exceeded expectations in the third quarter of 2016, increasing 11.5% at current exchange rates (+13.7% at constant exchange rates) to €110.6m. Growth was driven by Jimmy Choo and Montblanc, the integration of Rochas and a better-than- expected performance from the new Coach women’s fragrance, Interparfums said.

Coach sales totaled €12.4m in the third quarter n n n I N S P I R I N G Y O U R I N N O V AT I O N Lipotec specializes in the research, development and production of innovative active ingredients - from peptides, synthetic and biotechnological molecules to botanical extracts - and delivery systems for application in cosmetics. www.lipotec.com ® 2016 The Lubrizol Corporation.

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n n n of 2016, while Lanvin sales increased to €19m (up from €18.8m in the prior-year period), boosted by the launch of Modern Princess. Montblanc sales, meanwhile, increased from €26.7m to €29.4m. Jimmy Choo sales stood at €24.5m for the third quarter of 2016, down from €30.3m in the third quarter of 2015 due to a strong basis of comparison owing to the launch of the Illicit line last year. Interparfums SA has raised its expectations for full-year 2016, and is now targeting sales of €350m.

People Brazilian cosmetics company Natura has named João Paulo Brotto Gonçalves Ferreira as ceo.

He joined the company in 2009, and is currently commercial vice president of Natura. The appointment follows the resignation of Natura’s current ceo, Roberto Oliveira de Lima. Launches LVMH-owned Dior is to unveil three new products in its Dreamskin line, part of the Capture Totale franchise, in 2017. The brand has reformulated its Dreamskin Perfect Skin Creator, which first launched in 2014. Dreamskin Advanced contains a combination of active-biomimetic ingredients, which are said to boost luminosity and provide an enhanced soft-focus effect thanks to 3D Cell Shapes and a new generation of mica.

Dior will introduce the Dreamskin 1-Minute Mask, which claims to rejuvenate skin in 60 seconds. The mask, which transforms from a gel into a cream upon application to the skin, combines salicylic acid, glycolic and citric acids and flower acids for their exfoliating properties. Dior will also launch a new shade of its Dreamskin Perfect Skin Cushion, which was introduced this year. The new shade, an apricot nude, adds to the three shades already available.

The products will launch in France in January 2017. Dreamskin Advanced is priced at €140 for 50ml, Dreamskin 1-minute mask costs €69 and the Dreamskin Perfect Skin Cushion retails at €78.50. Following its first foray into fragrance this October with the launch of three scents, French luxury shoe and accessories brand Christian Louboutin has unveiled perfume oil versions, set to launch in December. The perfume oils—Bikini Questa Sera, Tornade Blonde and Trouble In Heaven—come in bottles designed by Heatherwick Studio, and are applied to the skin using a glass rod. According to the brand, they can be worn alone or layered with Louboutin’s fragrances of the same name.

The perfume oils will be available in a selection of Christian Louboutin points of sale and on the brand’s e-boutique, priced at €320 for 30ml. n L CONFIDENTIAL www.bwconfidential.com - November 3-16 , 2016 #138 - Page 5 The buzz News roundup

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Netwatch BW Confidential reports on what’s being said about beauty on social networks Social media monitor The launch of online fashion retailer Missguided’s first make-up collection has interested bloggers who like the competitive prices and the clever timing for the launch in the run-up to the Christmas season. Writers particularly like the kit concept for the products, like the Selfie Pout Lip Kit, which makes good gift ideas. Models Own’s newest collection K-Kushion has been described as an innovation. Inspired by Asian trends, the brand’s applicators and packaging are a hit with bloggers.

Products come in tubes and have foam applicators, which are not seen often in make-up. Discussions around magnetic face mask trends, which require a magnet to remove the mask, have gained traction in the blogosphere. Although some are skeptical of the benefits, many writers say the masks are fun to use and praise the on-going innovation in the category.

In reaction to the slew of Advent calendar launches, many bloggers are wondering if the trend has reached saturation point. In addition to subscription boxes and other sampling initiatives, brands are finding it hard to stand out with innovative ideas, according to bloggers. The views expressed in this section are those of bloggers and do not represent the opinions of BW Confidential VISITOR’S GUIDE Dates: January 23[Mon] - 25[Wed], 2017 Venue: Tokyo Big Sight, Japan Organised by: Reed Exhibitions Japan Ltd. Concurrent Show: All inclusive guidebook to plan your visit! CONTENTS - Show Hightlights - Hotel/Transportation Information - Useful Information for overseas visitors and more!

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L CONFIDENTIAL L CONFIDENTIAL www.bwconfidential.com - November 3-16 , 2016 #138 - Page 7 Interview Japanese beauty company Kanebo Cosmetics, owned by Kao Corporation, has been revamping its portfolio to focus on fewer, stronger brands including high-end line Sensai and the new KANEBO brand, which launched in Japan in September. BW Confidential talks to Kanebo Cosmetics president Masumi Natsusaka about the company’s expansion plans and growth ambitions Next steps What initiatives are you putting in place to achieve your ambition of making Sensai a global brand?

Sensai is only in Europe and the Middle East, so we have to bring it to Asian markets.

In Europe, retailers are benefiting from customers from Asia, so we cannot be only in Europe. We are planning to launch Sensai in Asian countries in 2018 or 2019. To get to the next level, we need some new innovations for Sensai. It is a good brand, but it looks a bit traditional. We plan to launch a very innovative new product, but not next year. So far, only Kanebo’s technology was incorporated into Sensai, but now Kao R&D has become one, so we really want to [focus] all our efforts on Sensai as a leading brand for our group.

You created a separate division for Sensai in 2014 and repositioned it. How is the brand now performing? Last year was tough, but in the first half of 2016, we grew by 7%. We were a bit worried about the brand awareness of Sensai, because so far in Europe we had been doing business with the Kanebo name, and we changed the name from Kanebo to Sensai. Now, brand awareness for Sensai and Kanebo is almost at the same level, so this is very good for us, and we expect a lot for the future of Sensai’s expansion. How has the new KANEBO brand been received so far on the market, and what are your expansion plans for the brand?

In Japan, it’s been very well received. We have changed our store counters, and by replacing them, it gave the image that we were launching a new brand and customers were aware of that. The day cream is very popular. This year, we [launched KANEBO in] Japan, Singapore, Thailand and Malaysia. Next year, we plan on launching in Taiwan, Hong Kong, Germany and Russia, then Italy. What are your ambitions for the prestige segment? We are not thinking of acquisitions at the moment, because we have brands whose potential is not fulfilled: Sensai and KANEBO, which recently launched, [in skincare], and RMK and Lunasol [in make-up].

For skincare, Sensai and KANEBO are enough for us. For RMK we have already expanded into some Asian countries, and its sales in Japan are picking up and it’s on a growth track. Lunasol is a strong brand as well. Globally, n n n Kanebo Cosmetics president Masumi Natsusaka “ ” Kanebo Cosmetics president Masumi Natsusaka This year, 15% [of sales will come from international markets]. By 2020, I want it to be 30%, but in reality we think it will be 20%

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L CONFIDENTIAL L CONFIDENTIAL www.bwconfidential.com - November 3-16 , 2016 #138 - Page 8 Interview n n n the prestige make-up market is growing fast. In make-up, RMK and Lunasol are only distributed in some countries. But the problem is that shades have to be developed. Japanese consumers have their own preferences. And while Japanese and Chinese [consumers] are not that different, if you go to Thailand, shades are very different from in East Asia; in Europe they are also different. So we have to develop more shades, but RMK has the potential to be rolled out globally. [Our] prestige make-up brands have to be strengthened.

In 2012, you announced plans to grow international sales from 10% to 30% of business by 2020. How are you progressing with this ambition? This year, 15% [of sales will come from international markets]. By 2020, I want it to be 30%, but in reality we think it will be 20%. We had an internal issue at Kanebo where we had to recall some of our products in Japan and Taiwan [in 2013, Kanebo issued a major recall of many of its whitening products due to adverse skin reactions], so we had to solve that, and that’s also why we had to revise that target. What are your priorities for expanding the prestige business internationally? The priority is Asia.

In Asian markets, we are a latecomer, but in some countries we can change this into a strong position. In China, we cut brands from 12 to three and reduced skus from 1,500 to 300. But now business is healthy and e-commerce is growing, so we can have a good combination of e-commerce and retail stores. We are already quite strong in East Asia, so one of our top priorities would be Singapore. And then how to expand the business in Indonesia is a question. The Indonesian market is growing and we are strong in prestige there; we are thinking of the mass market, but timing is a question for us. Our second priority is Europe and the Middle East, not the US.

Travel retail is also important, but we are a latecomer in this channel as well. How are you dealing with the slowdown in skincare?

If you look at the history of Kanebo, we did not really focus on brands and products. In the past we brought a lot of brands and products [to the market] with no continuity. That was a problem for Kanebo skincare. We have to focus on a few brands and keep supporting specific core products. Now we have decided to focus on two core brands: KANEBO and Sensai. Kao Group recently opened a new R&D facility in Odawara in Japan to combine research activities for the Kao and Kanebo brands. What will that mean for Kanebo?

We have invested €100m in R&D and the factory and production capacity is now 50% higher.

In the past, Kanebo R&D and Kao R&D were separated, and they were somehow competing. Now it’s changing, we can fully integrate our technological assets. We equipped [the Odawara facility] with functional MRI medical tools and we are the only company in Japan to use this kind of equipment. We are trying to identify the relationship between the body and the brain, how they work, and that kind of study has just started, so we expect to bring a lot of innovations [to the market thanks to this research]. n s Kanebo Cosmetics plans to focus on expanding its two core brands: KANEBO and Sensai “ ” Kanebo Cosmetics president Masumi Natsusaka We are not thinking of acquisitions at the moment, because we have brands whose potential is not fulfilled: Sensai and KANEBO, which recently launched, [in skincare], and RMK and Lunasol [in make-up] Kanebo Cosmetics president Masumi Natsusaka

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L CONFIDENTIAL Insight L CONFIDENTIAL www.bwconfidential.com - November 3-16 , 2016 #138 - Page 9 Retail technology BW Confidential analyzes technologies that brands and retailers should be looking at to provide a better digital shopping experience Connecting the dots The internet is changing consumers’ shopping expectations and both brands and retailers are looking closely at how to incorporate new technology to provide a better experience in-store. This is seeing a focus on new solutions for more efficient, quicker mobile payment, simulation devices to digitally try on make-up, new ways of offering sampling and personalization technologies.

UK-based future consultancy The Future Laboratory trends analyst Victoria Buchanan says that in the area of digital try-ons, smart mirrors are moving past augmented reality to deliver more personalized recommendations.

Having become used to online services, consumers are increasingly expecting instant delivery from physical stores too. According to Buchanan, the “Phygital Signpost” trend is seeing beauty brands using their brick-and-mortar stores as a “place to signpost, and lead people back to their online ranges”. “The role of the physical store is definitely the future for beauty, but it’s about bringing together the cutting-edge technology that we are seeing in the e-commerce world into the physical store too,” she explains. This means that brands with traditionally large stores, such as Sephora, can now introduce smaller, more urban formats, while still offering their full product range via digital technology.

Buchanan adds that bringing together engagement, education and entertainment is a key focus in beauty stores, and the industry should be working on technology to achieve this in-store.

The popularity of digital apps, which respond well to the needs of connected millennials, are set to increase medium- to long-term, notes Anaïs Dupuy, business development manager at Kantar Worldpanel. However, finding ways to convert people not accustomed to using these applications could prove challenging for beauty brands, she warns. Technology to watch out for Belgian company Selinko aims to provide products with a digital identity to connect them to the Internet of Things, with the goal of offering brands improved authentication, gray market detection and consumer engagement. Cosmetics packaging for example, can be marked with an NFC tag, which can be read via a mobile app developed by the brand.

By scanning the connected product with their mobile, the user can check the authenticity of products, access information on its ingredients, make secure purchases and learn about brand news and new product launches. Brands can also see who is scanning its products in real time, and access data on the consumer’s profile. This information could include the age, e-mail address and location of the user. n n n

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L CONFIDENTIAL Insight L CONFIDENTIAL www.bwconfidential.com - November 3-16 , 2016 #138 - Page 10 Retail technology n n n Kik Interactive, the maker of chat platform Kik, which claims to make shopping more social for consumers, recently launched a fashion and beauty bot shop category on its platform. The category features new branded and concierge bots which aim to mimic the social aspect of shopping with friends. The goal is to allow users to “experience all the elements of the shopping journey—discovery, research and sharing—with their friends,” explains Kik founder and ceo Ted Livingston.

“This provides a more direct way for brands to connect with teens in their native environment and demonstrates how services continue to evolve in chat,” he adds. The category features branded bots (such as Sephora), concierge bots (such as BeautyTube) and influencer bots such as Youtuber GettingPretty. Consumers can include multiple bots in chats with friends. For example, when looking for a particular product in the Sephora bot, the user can introduce the BeautyTube bot to provide tips and how-to videos related to the product. Users can also invite friends to join for their beauty advice.

Kik has more than 300 million registered users, according to the group. US-based company Modiface, a provider of augmented reality technology for the beauty and medical industries, recently revealed its new Skin AI technology. Created with dermatologists, the technology is designed to detect individual skin concerns such as dryness, uneven skin and fine lines, as well as measuring and assessing each specific concern. The user can then see simulations of changes to their skin in real-time video, and compare the before and after looks. As well as skin assessment, the technology will also be available as an app module providing product visualizations on live video.

Hong Kong-based Internet of Things company actiMirror launched its connected smart mirror platform in April. The platform aims to help brands to create an emotional connection with consumers, as well as gathering consumer data. When shoppers approach the smart mirror in-store, sensors activate a display showing personalized content in real-time, based on factors such as age, products skus and embedded sensors. Content such as interactive product demonstrations or n n n

L CONFIDENTIAL Insight Retail technology n n n tutorials designed to suit the person’s needs can then be shown.

If the consumer gives consent, before and after pictures or recordings of the tutorial can be emailed to her as a memory of her shopping experience, and shared on social media. actiMirror can also provide companies with anonymous consumer data, including product sales per consumer type and trending color schemes by age group. Women’s magazine Marie Claire and online supermarket delivery company Ocado teamed up to launch a new retail concept called Fabled. The concept includes an online store and a brick-and- mortar flagship in London. The online store allows consumers to select a one- hour delivery time slot seven days a week to shop for products including skincare, fragrances and make-up.

Shoppers can have their order delivered for free at the same time as their Ocado groceries. The Fabled.com site features editorial content on beauty trends and techniques courtesy of Marie Claire. The brick-and-mortar flagship, meanwhile, offers products selected by Marie Claire staff. n Beauty in Travel Retail more than 100 pages of insight and analysis of the beauty category in travel retail Everything you need to know about beauty in the travel-retail channel: • Global shopper habits • Digital strategies • Online sales • Reaching millennials • Creative retailing strategies • Pricing • Performance by beauty segment • New product trends • Packaging...

Plus all the latest data, industry predictions and listings on the channel’s main players Collector’s Guide NEW order your copy by email subscribe@bwconfidential.com

L CONFIDENTIAL Show review L CONFIDENTIAL www.bwconfidential.com - November 3-16 , 2016 #138 - Page 12 The fast-changing nature of the travel-retail business was a key theme at this year’s TFWA World Exhibition in Cannes. Talk centered on the transformation the industry is undergoing driven by changing passenger profiles, different ways of traveling, the rise of millennials in the channel and new technology. Many executives highlighted the need to do more in terms of digital and online strategies to better target passengers throughout their journey and to avoid becoming less attractive than e-commerce players that can offer better prices.

Indeed, many were anxious about the impact of passengers comparing prices on their phones while at the airport, and underlined that brands and operators need to make price secondary by focusing on better services, gifting, personalization and creating more attractive stores to give passengers a reason to shop the channel. In his keynote speech at the opening conference, Julian Diaz, ceo of operator Dufry Group, said that the industry needs to better adapt the offer to today’s consumers, especially millennials. Diaz outlined the need to offer a fast, convenient and personalized shopping experience, where the focus should be on in-store digitalization, experience, real-time relevance and e-payments, while getting away from all stores looking the same.

“We need to be inspirational again, create a different experience and have more exclusives for travel retail,” he said. “The stores are different, but not perceived to be by the customers; we need to communicate that shops are unique.” He added that there is a need to change the way the stores are designed with social media corners or millennial areas, and predicted the return of thematic shops and more localized offers. Diaz called for the industry’s stakeholders of airports—which he stressed are putting more pressure on operators in terms of rent—operators and suppliers to make an effort to work together.”We need to work with airports to change the model and landlords need to understand that the business has to change.

We need to increase the size of the cake together; today we are cutting up the cake independently. We need to change the system before it changes us,” commented Diaz.

Slower growth All this change is coming against a background of slower growth. Hit by terrorism and declines in traffic from key passenger groups such as the Russians, last year global duty- free and travel-retail sales were down by 2.7% to $62bn, according to Generation Research. Perfumes and cosmetics managed to buck the trend and reported a sales increase of 2.5% to $19.7bn. However, there are signs that the industry is inching its way back. Duty-free sales in the first quarter of 2016 rose 0.8%, with growth led by Asia Pacific, up 5%, and industry executives said that even the tough situation in Latin America is beginning to bottom out.

The news was even better for perfumes and cosmetics, where sales in the first quarter of this year rose 7.8%. TFWA president Erik Juul-Mortensen said that the fundamentals remain strong for the channel, citing growth in passenger numbers and continued retail investment. n n n BW Confidential reports on what was seen and heard at this year’s TFWA World Exhibition, which took place from October 3 -7 in Cannes, France Changes in the air TFWA World Exhibition TFWA World Exhibition Took place: October 3-7, 2016 in Cannes Exhibitors: 492 Fragrance & cosmetics exhibitors: 130 (26% of total) Visitors: 6,443, -2% vs 2015

L CONFIDENTIAL www.bwconfidential.com - www.bwconfidential.com - November 3-16 , 2016 #138 - Page 13 - Page 13 L CONFIDENTIAL L CONFIDENTIAL Show review Show review L CONFIDENTIAL www.bwconfidential.com - November 3-16 , 2016 #138 - Page 13 TFWA World Exhibition n n n Talking heads: the industry on the state of travel retail “Online commerce is a huge disruptor and e-commerce is robbing travel retail a little of its advantages because [historically] the two pillars of travel retail were price and convenience—but what is more efficient than Amazon in terms of price and convenience? The shops have to be more compelling, more interesting and there has to be service and entertainment and not just a label saying 20% off.

Online is a disruptor, but we can also combine and leverage digital tools. We are focusing on the consumer journey and each of the touch points and not thinking we are going to grow just because the traffic is growing. We also need to bring the airlines into this, as people spend more time onboard than in the airport and digital is the connecting link. One of the issues airlines have is the physical limitation of how many units can be carried. But if there were a page on their online program there would be no physical limitation on units and they could work with a retailer at arrival. The question becomes how do you allocate revenue and profits? Working together and breaking these silos could be very beneficial to the airline, the airport, the operator and the supplier.” Estée Lauder Companies group president international Cédric Prouvé “Business in travel retail has been volatile, but one has to look beyond short-term volatility.

Traffic growth projections are around +4% and beauty sales growth projections even higher at around +7%. It is a luxury to have this sort of traffic and in that sense we are sitting on a gold mine. The point is how can we turn this traffic into buyers. There has been a great evolution in the channel in terms of investments from landlords, operators and brands, but still the industry has a long way to go in shaping its value proposition to consumers. It is not only a matter of price, but having the right environment, service, gifting and personalization in order to turn the experience into something special and different from what consumers can find in other channels.

If it was just about price and convenience consumers would buy on the internet. The old economics theory of perfect competition—full availability of information for the consumer— was yesterday a theory and today it has become a reality due to online. Technology is a huge opportunity but it requires a transformation of our operating models. In several years both travel retail and e-commerce, the two fastest-growing channels, will account for a large part of the market. The role of the store is changing and its performance will not only be measured by direct sales. We are in the midst of a huge transformation: consumers have the power and a lot will change in terms of channels, the way we build brands and how companies are organized.” Puig coo Javier Bach “I don’t see any official preparation for the impact of online in the airport; I see only shops.

But consumers don’t want to carry products, they want to travel light and fast. The future is the transformation of shops into showrooms, where you see the product, can touch and smell it and then have it delivered to your home. This is the evolution travel retailers need to have. But for the moment there is little transformation and airports are always the same. They need to reinvent their business.” Ferragamo Parfums ceo Luciano Bertinelli n n n

L CONFIDENTIAL www.bwconfidential.com - www.bwconfidential.com - November 3-16 , 2016 #138 - Page 14 - Page 14 L CONFIDENTIAL L CONFIDENTIAL Show review Show review L CONFIDENTIAL www.bwconfidential.com - November 3-16 , 2016 #138 - Page 14 TFWA World Exhibition n n n “We are trying to distance ourselves from price discussion and concentrate more on added value, as consumers are comparing prices more. Travel retailers need to work on the shopping experience and think of it on a wider basis from when the traveling consumer leaves home to when they return, so including digital and home delivery.

Operators could have their own lounges, treat their consumers in a more pampered way and prioritize key consumers, but this is not being done. There needs to be better service in terms of gifting, personalization and going towards to the consumer.” Bulgari perfume business unit managing director Valeria Manini “Travel retail has a lot of advantages such as strong traffic and captive consumers. But we are far from having an optimum level of service in airports and here operators have a real card to play given that service has gone down in local markets due to aggressive discounting. The idea is to create a real retail experience in airports for the long term.

But one of the fundamental problems is the system of over-bidding for concessions, and so operators find themselves with fewer resources to invest in good service. [Another issue] is that some operators are raising their prices, which means they will probably lose consumers for good as the stores will be perceived as too expensive.” Sisley president Philippe d’Ornano “Consumers are much more informed than before and they are combining tourism with getting the best prices when they travel. A lot of brands tried to make some cash by having pricing strategies that were different from one market to the next, but today they are paying for that.

The industry needs to pay attention: if they don’t invest in service and retail and if it is just about price, consumers will choose what is easy and convenient.” La Prairie vice president travel retail Laurent Marteau “Every travel group is in an airport so you have to have the portfolio to cater to that, from the very high-end luxury collections to more accessible products. Travel-retail exclusives are becoming more important and they mean that you are out of the price comparison game; the product entices the consumer and enables them to have something different.” Coty senior director global marketing travel retail Markus Stauss “Airports have to bring in new experiences, they need to do something to become more innovative and have a more democratic approach.

We are bringing in a new category that is complementary to what [retailers already have]. It is also very giftable, has an accessible price and attracts both men and women and older people and young consumers” Rituals founder and ceo Raymond Cloosterman n n n

L CONFIDENTIAL www.bwconfidential.com - www.bwconfidential.com - November 3-16 , 2016 #138 - Page 15 - Page 15 L CONFIDENTIAL L CONFIDENTIAL Show review Show review L CONFIDENTIAL www.bwconfidential.com - November 3-16 , 2016 #138 - Page 15 n n n Heard in show The fast pace of change in travel retail was a key message at L’Oréal’s annual press conference at the show. These changes are impacting all aspects of the business: the assortment, passengers and stores. “Some 20 years ago four big brands took half the space in travel-retail stores; however today it is totally different. Travel retail is changing because the consumer is changing, with millennials, the Chinese and Brazilians and we need to enlarge the portfolio in travel-retail stores.

Travel retail is changing at the speed of light […] a new paradigm of travel retail is a much greater assortment,” commented L’Oréal Travel Retail managing director Vincent Boinay. L’Oréal Travel Retail digital manager Thomas Laroia added that “digital is the only future for travel retail because digital is all about the customer. Travelers have gone 100% digital—they book tickets and hotels online and share comments on Facebook and Instagram, but shopping is the only behavior that has not gone digital because we have not been able to apply a retail model. We want to change this.” The group unveiled a new virtual tool aimed to help retailers design stores.

The tool shows images of stores and how they can be changed or developed according to region or passenger group. Boinay singled out three L’Oréal brands that are set to see key developments in the channel: NYX Cosmetics, due to its strong social-media element and the growth in the make-up category; Roger & Gallet, which is being rebuilt in China and expanded from there, and Atelier Cologne, L’Oréal’s recent acquisition, which focuses on service and is expected to “mushroom in travel-retail stores around the world”.

Make-up is forecast to be the fastest-growing category for the next five years, due in part to millennials and room for expansion among Chinese consumers. L’Oréal Travel Retail consumer products division general manager Stefania Fabiano said that make-up drives penetration and that the group would put color at the center of retail design. In terms of skincare, the group said that it wants to re-energize the category, which has been slowing, partly because of the growth in make-up and different consumer expectations focused on what L’Oréal calls new naturality and safety. Citing figures from Generation, L’Oréal global general manager travel retail professional and active cosmetics Pier Marco Luzzatto-Giuliani said that skincare does sales of $7.8bn in travel retail, has a 12.6% share in the channel as a whole and a 39.5% share of the beauty sector.

Clarins is looking to offer more differentiation in its approach to travel retail based on a strategy that focuses more on consumers as travelers. “Travel retail is coming up against more competition from the local market and more consumers are checking prices. We need to be closer to the consumer and look at how we can service travelers’ needs,” comments Clarins marketing director travel retail EMEA Deborah Seckler-Tarac. This was the thinking behind the brand’s retail installation focused on the needs of travelers. Called The Best Skin Essential for Travellers, the display classifies products based on concerns faced specifically by travelers with explanations of their benefits.

The categories include Best for Jet Lag and Best for Sun Protection. The display was introduced at Dublin airport at the beginning of the year and the brand is now looking to roll it out. n n n TFWA World Exhibition

L CONFIDENTIAL www.bwconfidential.com - www.bwconfidential.com - November 3-16 , 2016 #138 - Page 16 - Page 16 L CONFIDENTIAL L CONFIDENTIAL Show review Show review L CONFIDENTIAL www.bwconfidential.com - November 3-16 , 2016 #138 - Page 16 n n n Cartier presented a new point-of-sale display for testing fragrances, a concept taken from the Scent Room of the brand’s newly refurbished New York flagship store. The display presents the brand’s fragrances with a small Cartier box positioned in front of it, which when opened diffuses the scent and triggers a video on a screen explaining the fragrance and how it was made.

“This provides consumers with an experience as it puts her in the head of our perfumer and focuses and on what the scent makes the consumer feel. With sound and visuals it provides a 3D experience, whereas in fragrance the experience is often 2D with a blotter and a spray,” says Cartier managing director fragrance Léa Vignal-Kenedi.

Israel-based Moroccanoil plans to double the number of its travel-retail doors by the end of 2017. The brand is now in 100 doors in the channel. In October it opened a new shop-in-shop in Rio and São Paulo airports and will also launch in Buenos Aires airport in Argentina. “Our strategy for 2017 is to go back to our existing business in Europe and the Americas and build a stronger foundation through better space and location. We will then go to Asia and look at new opportunities in Singapore, Korea, Malaysia and Indonesia,” explains Moroccanoil vice president retail and travel retail sales John Gates.

This year the brand launched in Asia Pacific with DFS in Hong Kong. The company says it has also built a strong business outside its original offer of haircare. “Bodycare is our fastest-growing category and we have built awareness among the industry and consumers that we are a multi-category brand and not just a haircare company,” says Gates.

Italian company Mavive revealed that its Merchant of Venice brand is gearing up to open its fifth standalone store in December. The new store will be its first in Milan. The brand already operates three standalones in Venice and one in Verona. The company says it hopes to have 10 standalone stores next year. The brand is now sold in a total of 30 countries in key department stores and travel- retail doors, including the new T Fondaco dei Tedeschi by DFS in Venice. The brand showcased three collections of perfumed jewelry (necklaces, bracelets and earrings) to be launched in mid 2017.

Perfumer’s Workshop International is fast expanding its Amouroud line internationally.

This year the company launched in Russia where it is now in 109 L’Etoile doors, in a string of Asian markets (it will be stocked in Luxasia’s niche store Escentials in Singapore this month) and in the Middle East including the UAE. It plans to open in Saudi Arabia this month with four doors. Skincare brand Filorga is expanding its travel-retail presence with the opening of its first door in Hong Kong with DFS at the operator’s T Galleria at Hysan Place. The brand has secured a gondola in the store. In travel retail, Filorga is currently sold in seven terminals in France with SDA (Lagardère Travel Retail).

In four of these terminals it is expanding its shelf space and will begin selling its complete range. Filorga is also exploring airlines and will be listed on Air France with its Optim-Eyes and Time-Filler products from the first quarter of 2017.n n n TFWA World Exhibition

L CONFIDENTIAL www.bwconfidential.com - www.bwconfidential.com - November 3-16 , 2016 #138 - Page 17 - Page 17 L CONFIDENTIAL L CONFIDENTIAL Show review Show review L CONFIDENTIAL www.bwconfidential.com - November 3-16 , 2016 #138 - Page 17 TFWA World Exhibition n n n Coty has put increased focus on travel-retail exclusives and gifting. The company showcased stickers depicting illustrations representing different cities that can be added to the CK One fragrance bottle as a way of personalizing the scent and to give it gift appeal. The company also unveiled an easy-to-carry collapsible fragrance gift box with a ribbon.

New launches Clarins revealed that it will launch a new version of its Double Serum in September next year. The product has a new formula based on turmeric extract, which claims to improve communication among cells. In fragrance, the company plans to introduce a major new Mugler scent at the end of next year. LVMH-owned brand Bulgari presented a high-end fragrance collection for men under the Le Gemme name. Le Gemme for women first launched in 2014. The men’s range of six scents created by master perfumer Jacques Cavallier is intended to be an interpretation of precious stones. The scents come in bottles designed by Atelier Oï and are supposed to resemble obelisks and are topped with a colored stone.

“No one has an offer for men in the high-end segment and we wanted to be a pioneer in this, as around 45-50% of our business is done in men’s. We think most of our business in this line will be done in travel retail,” explains Bulgari perfume business unit managing director Valeria Manini. The fragrances will launch globally from the beginning of next year and in travel retail are priced at €224.

Elizabeth Arden presented two key launches for spring 2017. The brand will launch a new fragrance called White Tea, which aims to tap into the wellness trend. The fragrance will be accompanied by bath and body ancillary products, a range that will be expanded in the future. The fragrance is described as a musky, woody, floral and was created by Rodrigo Flores-Roux, Guillaume Flavigny and Caroline Sabas of Givaudan. The scent will launch in April and is priced at $24 (30ml), $37 (50ml) and $49 (100ml EdT). The line also includes a body cream ($25 for 400ml), shower gel and hand cream. Also for the beginning of the year is a revamped version of the brand’s Ceramide Capsules, which first launched in 1990.

The product comes in three versions: 30 capsules, 60 capsules and 90 capsules. In travel retail, the 30 capsules item will retail at €38.

France-based INCC unveiled its new women’s fragrance for the Mercedes-Benz brand. The fragrance is described as a gourmand scent with top notes of gardenia and blackcurrant leaves, a heart of orange blossom and jasmine and a base of sandalwood, vanilla and musk. It was created by Honorine Blanc of Firmenich. Swiss brand Mavala put the focus on facial skincare and showcased its new night cream called Anti Age Pro Time Release System Night Care. The cream claims to be synchronized with the skin’s natural biorhythm. It contains Swiss watercress extract to detoxify the skin, Alpine rose stem cells to help rejuvenate the skin and a lipo-amino acid, which claims to rebuild the skin’s natural collagen network.

The formula also features an anti-dark spot complex to even out skin tone. It retails at €49. n

L CONFIDENTIAL L CONFIDENTIAL Store visit Armani Box pop-up store l Location: Paris l Open: mid October - end December l Size: 40m2 (430ft2 ) l Special features: exclusive products including the Urban Gorilla Red lipstick shade; complimentary personalization service with product engraving; photobooth; beauty video tutorials on iPads; makeovers with in-store Face Designers Digital has been put front and center at Giorgio Armani Beauty’s (L’Oréal) first pop-up store. Called Armani Box, the 40m2 (430ft2 ) store is located in Paris in the city’s Marais neighborhood, and will be open from mid October until the end of December.

Consumers can have their make-up done by in-store Face Designers, and have video tutorials of makeovers recorded and sent to them by email or text message. They can also take photo booth-style photos and create gifs to share on social media. The brand has created four new beauty looks for the store, each of which has its own video tutorial, displayed on an iPad. Cards detailing the products used to create each look, as well as the products themselves, are displayed.

Armani Box will stock a range of the brand’s products, including limited-edition items. Exclusive to the store is the Urban Gorilla Red lipstick shade, priced at €35, of which only 200 are available. The store features a red resin gorilla sculpture by Italian artist Raimondi Malerba, which also serves as a logo for the store, and is featured on some of the products. Giorgio Armani fashion accessories, including clutch bags, are also stocked, as are scents for men. The store will have three different themes for the duration of the pop-up: Red Lips Weeks (which focuses on lipstick), Armani Runway (which draws inspiration from the brand’s fashion collections) and Night Light (which focuses on evening looks).

Armani Box’s store window has been decorated by artist Camille Walala for the duration of Red Lips Weeks.

The store offers a complimentary personalization service, allowing consumers to have their initials engraved on certain products. The brand says that it may open more pop-up stores in the future. n Giorgio Armani Beauty opens its first pop-up store with a strong focus on digital Digital goes pop L CONFIDENTIAL www.bwconfidential.com - November 3-16 , 2016 #138 - Page 18

L CONFIDENTIAL www.bwconfidential.com - November 3-16 , 2016 #138 - Page 19 Store visit s The store boasts a photo booth, where consumers can take photos and create gifs, which they receive by email and text message, and can share on social media (left).

The brand has created four new beauty looks for the store, each of which has its own video tutorial, displayed on an iPad (right) s The pop-up store sells a range of exclusive items, and is home to a host of digital features

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