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Comment Inside CONFIDENTIAL There may be worries about the impact of a trade war with the US and a weaker sales outlook, but Chinese consumers are still spending. This year's Singles' Day saw China's Alibaba set new records, as it racked up $30.8bn in gross merchandise volume (gmv) for the shopping festival. Singles' Day was viewed by many as a barometer of China's consumer market, and based on these sales the future looks bright. This is even if the growth rate of 27% that Alibaba reported for the festival was lower than the 39% seen in 2017. It is worth noting that this was the 10th edition of Singles' Day, and as the festival matures, it is only normal that achieving spectacular growth will become more difficult. And at the same time and when put in perspective, +27% is hardly slow growth. In the beauty market, China has seen what has been described by key beauty players as extremely high double-digit growth in recent months. And while certain issues like the situation with the US or less favorable economic data could put a damper on the market, growth is predicted to remain high—just like Alibaba's Singles' Day performance. Singles' Day and China sentiment The buzz 2 News roundup Netwatch 6 Social media monitor Interview7 Alkor & Co head of Perfumery Division, Private Labels Department Varvara Kulaeva Insight9 US prestige retail Show review 13 Cosmetic 360 Store visit 16 I Found It at The Strategist, US Oonagh Phillips Editor in Chief ophillips@bwconfidential.com www.bwconfidential.com The leading publication on the international beauty industry November 15-28, 2018 #178 News headlines daily on www.bwconfidential.com @BWCbeautynews NEWGet the essential beauty news of the week in one quick-read email every Friday with BW Confidential's ALSO INVIDEO THISWEEK IN BEAUTY A video highlight of the week's key news headlines in just under a minute

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L CONFIDENTIAL L CONFIDENTIAL www.bwconfidential.com - November 15-28, 2018 #178 - Page 2 News roundup The buzz At a glance... Strategy US-based Coty ceo Camillo Pane has left the company and is to be replaced by Pierre Laubies, who until recently was ceo of coffee company Jacobs Douwe Egberts (JDE). Laubies also becomes a director of Coty. In addition, the group announced that director Peter Harf will replace Bart Becht as chairman of the board. News of Pane’s resignation comes just after the group posted a 9.2% decline in sales for the first fiscal quarter of 2019. On announcing the results, Pane said he was disappointed with the performance. The decline was in part due to disruptions in the supply chain, which some analysts say are due to difficulties Coty is having in integrating the P&G Beauty Brands, which it acquired in 2016. The group’s new ceo Laubies is credited with successfully integrating the ex- Mondelez coffee business while he was ceo of JDE and reducing the group’s debt. Coty also said that its board of directors had begun what it calls a renewal process designed to bring new perspectives to the company and strengthen independent director representation. In addition to Harf taking on the role of chairman, the group will add two new independent board members with what it describes as deep commercial and financial experience. The board has also appointed Erhard Schoewel as its lead independent director. US-based beauty retailer Ulta Beauty has acquired QM Scientific and GlamST, two artificial intelligence and augmented reality start-ups. The acquisitions, which are the first for Ulta, are intended to help the retailer personalize the shopping experience at its stores. Ulta has also made investments in its digital workflow partner, Iterate, and online booking tool partner, Spruce. In addition, Ulta announced the November 17 launch date for Kylie Jenner’s Kylie Cosmetics brand in all its stores and online, starting with the brand’s best-selling lip kits. The retailer is also adding Kim Kardashian West’s KKW Fragrance line, bringing the top four of the seven-scent line to its stores as an exclusive brick-and- mortar partner.

The retailer also said that it was refining its US store target to between 1,500 and 1,700 doors, and revealed that it plans to open 80 stores in 2019, 75 stores in 2020 and 70 stores in 2021. In terms of online, Ulta said that it has set itself a new target for e-commerce fulfillment of two-day delivery by 2021, thanks to the opening of a Fast Fulfillment Center in 2019 serving e-commerce-only orders, and implementing ship-from-store in select doors. n n n Stay informed with our daily news headlines on www.bwconfidential.com n Coty ceo Camillo Pane steps down n Ulta Beauty acquires AI and AR start-ups n Revlon announces cost-cutting program BW Confidential 17 rue Louis Rouquier 92300 Levallois-Perret, 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: Monica Defrances mdefrances@bwconfidential.com Contributors: Sophie Douez, Alex Wynne, Renata Ashcar, Mayu Saini, Corinne Blanché, Naomi Marcoulet, Kevin Rozario, Tina Milton Subscriptions 1 year: Beauty Insight (20 issues) + Print Magazine (4 issues) + This Week in Beauty + Daily News + Collector’s Guide: €549/US$769 subscribe@bwconfidential.com Advertising advertise@bwconfidential.com BW Confidential is published by Noon Media 513 746 297 RCS Nanterre Copyright © 2018. All rights reserved. Reproduction in whole or in part without permission is strictly prohibited.

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News roundup The buzz n n n US-based Revlon is to cut $150m in costs by the end of next year. The company said the cost-cutting measures would result in some job losses. Revlon said the new plan, which it calls the 2018 Optimization Program, would focus on improving supply chain through a reduction in warehouses and office locations, and simplifying business processes. The company also said the program would enable it to shift resources to what it calls higher-priority growth areas. Japanese group Shiseido is to establish a joint venture in the Philippines with Singapore- headquartered distributor Luxasia Partners. Shiseido Asia Pacific will own a majority stake in the joint venture, which will start operating in July 2019.

France-based Creations & Parfums has acquired French fragrance house Floressence, a subsidiary of ingredients supplier Elixens. The two companies are both based in Grasse and are of similar size and profitability. Floressence currently has a strong presence in Russia, Europe and Asia, while Creations & Parfums is strong in Africa and the Middle East. Creations & Parfums intends to keep the two legal entities separate. The new group targets consolidated revenues of €40m in the medium term.

Swiss flavor and fragrance company Givaudan is to invest CHF20m ($19.78m) in France-based Expressions Parfumées, which it acquired in June 2018. The investment in Expressions Parfumées’ facilities in Grasse is designed to expand and modernize the R&D laboratories, as well as the production units with new robotics and digitalization of operations. Set to be completed in the first half of 2020, the expansion aims to support the growth of local and regional customers, and broaden the NATCO range of fully natural fragrance compounds.

In other news, Givaudan has teamed up with digital media company The Coveteur and communications agency Nike Communications to launch a campaign focusing on its perfumers. Called Behind the Bottle, the campaign aims to show the diversity of its perfumers’ work. Spanish company Perfumes y Diseño has signed a fragrance license with Madrid- based fashion brand El Ganso.El Ganso has almost 180 retail outlets across nine countries including France, Portugal, Italy, Germany and the UK. Retail China’s Alibaba reported record gross merchandise value (gmv) for this year’s Singles’ Day shopping festival of RMB213.5bn ($30.8bn). This figure was 27% higher than last year, although the growth rate was lower than the 39% reported in 2017. More than 180,000 brands participated in the shopping event through Alibaba. Some 237 brands, including Estée Lauder and L’Oréal, exceeded RMB100m ($14.4m) in sales. Over 40% of Alibaba shoppers made purchases from international brands. The top-five countries selling to China were Japan, the US, South Korea, Australia and Germany. This year marked the 10-year anniversary of Singles' Day or 11.11, which has evolved from online sales to include physical events and in-store promotions. Events included a ‘See Now, Buy Now’ fashion show broadcast live on 10 platforms, including Taobao and Weibo, and an opening gala held at Shanghai’s Mercedes Benz Arena. n n n L CONFIDENTIAL www.bwconfidential.com - November 15-28, 2018 #178 - Page 3

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The buzz News roundup n n n US-based digital beauty brand Glossier has opened its first flagship store, called Glossier Flagship, at 123 Lafayette Street in New York City. It is the same address that housed the brand’s founding office and then became a ‘shoppable showroom’ in December 2016, where online shoppers could meet the brand in a physical space for the first time. The brand says the pink-hued two-story store was imagined as an ‘immersive community space’, for customers to get to know the brand in real life, hang out and try and purchase products. Glossier Flagship has areas for testing products or just taking a break, as well as an experiential ‘Boy Brow Room’, named after the brand’s brow product and where customers can take selfies with giant models of the product.

Glossier was founded in 2014 by Emily Weiss of popular beauty blog Into The Gloss. The brand has so far raised $86m in funding and has previously opened physical retail spaces in cities including LA and Chicago. French retail chain Monoprix, owned by the Casino group, has opened a lifestyle store on Paris’ avenue des Champs-Elysées. The 2,000m2 (21,528ft2 ) store offers a 200m2 (2,153ft2 ) beauty space along with apparel, gifts and homewares. The beauty area has been modeled on Monoprix’s new Beauty Drugstore concept, and is imagined as a make-up trend workshop. The space aims to be trend-driven and accessible, with more than 300 brands and 15,000 skus. The store has a focus on natural and organic brands as well as the beauty needs of busy city-dwellers. The store offers tutorials via screens in-store, a photobooth for capturing and sharing beauty looks, touch-screens with personalized skin and hair analyses as well as a sample bar. Other services include Click&Collect, payment using Monoprix’s Monop’Easy app or Alipay and delivery to hotels. Gap-owned apparel brand Banana Republic has partnered with luxury beauty retailer Cos Bar for a beauty shop-in- shop in Banana Republic’s San Francisco flagship store. The shop-in-shop measures 418ft2 (39m2 ) and opened on November 8. Brands for sale include prominent Cos Bar brands such as Clé de Peau, ReVive and By Terry, more exclusively distributed lines like Bastide and Dr. Sturm as well as clean beauty brands including Grown Alchemist and Tata Harper.

Beauty retailer Sephora (LVMH) has partnered with Google and its Home Hub smart display (a smart speaker with a screen) to offer voice-controlled make-up tutorials. The retailer has created a catalog of beauty how-to videos, which can be viewed on the Google Home Hub. n n n STAY INFORMED WITH OUR DAILY NEWS SERVICE News headlines daily on www.bwconfidential.com BW Confidential, the inside view on the international beauty industry •All major news on the industry published every day on our website •News headlines complement analysis and interviews in our Beauty Insight and print magazine •BW Confidential is the destination for keeping up-to-date with what’s going on in the industry and staying ahead of the competition @BWCbeautynews Thewebsite-dailynews •BeautyInsight-everytwoweeks •ThisWeekinBeauty • Theprintmagazine-fourtimesayear •TheCollector’sGuide-onceayear

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The buzz News roundup L CONFIDENTIAL www.bwconfidential.com - November 15-28, 2018 #178 - Page 5 n n n Users can pause, skip ahead or go back with voice commands. The Google Home Hub is set up as a ‘Dream Vanity’ experience for shoppers to try at 10 Sephora flagship stores across the US. The device is on sale at these 10 stores and on Sephora.com. People Shiseido’s Marc Rey is to add chief growth officer to his remit, effective January 1, 2019. In the newly created role of chief growth officer, Rey will develop a new business model and will oversee global M&A for the company in collaboration with Shiseido’s headquarters in Japan.

Rey will continue in his current role of president and ceo of Shiseido Americas, remain in charge of regional business activities in the Americas, as brand holder of prestige make-up brands bareMinerals, Nars and Laura Mercier and oversee Shiseido’s Centers of Excellence for Makeup and Digital. The newly established Technology Acceleration Hub, which is based in Cambridge, Massachusetts, and is dedicated to creating new business models for consumer engagement, experience and value, will also report to Rey. Jim Mainard, previously evp of digital strategy and new business development at DreamWorks Animation, has been appointed president, Technology Acceleration Hub.

Ron Gee, cfo of Shiseido Americas, has been named global M&A leader. He will head up a team dedicated to global M&A across all geographies and categories including emerging technologies. Fragrance house drom has appointed Vincent Ricord as perfumer. Ricord has worked at French fragrance house Expressions Parfumées since 1999. UK-based fragrance house CPL Aromas has appointed Alexandra Kosinski senior perfumer. Kosinski was previously perfumer at Swiss flavor and fragrance company Givaudan, where she worked for 15 years.

Data Sales of prestige beauty products in the US grew by 7% to $4.1bn in the third quarter of 2018, according to The NPD Group. NPD highlighted the acceleration in skincare during the third quarter, which it says is growing at more than twice the rate of fragrance and 15 times faster than make-up. “We continue to see natural brands and entry-price categories fuel the skincare category, but the big shift this year is the renewed interest in new products from legacy classics in the anti-aging category,” said The NPD Group beauty industry analyst Larissa Jensen. Skincare sales were up 15% to $1.3bn in the third quarter of 2018. Natural brands, which account for more than one-quarter of skincare sales, grew 24%. Make-up sales were up 1% to $1.9bn. Eyebrow make-up was up 7%, while eyeshadow sales fell 6%. Lip color sales declined by 10%, although lip gloss sales increased 4%. Fragrance sales increased 6% to $783.6m, driven by a 9% increase in sales of fragrance juices. n US prestige beauty sales* July-September 2018 Category Q3 2018 sales $bn % Change Q3 2018/Q3 2017 Make-up 1.9 +1 Skincare 1.3 +15 Fragrance 0.784 +6 Hair 0.177 +27 Source: The NPD Group, total measured market *dollar sales

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Netwatch BW Confidential reports on what’s being said about beauty on social networks Social media monitor Social-media users have praised brands posting un-retouched shots of models. These include models with freckles or facial hair, and are seen as a trend reflecting the demand for authenticity, according to many commentators. Beauty brands are said to have upped their game with the latest limited-edition collections. Examples include Fenty Beauty's Chill Owt collection (pictured) of shimmering and metallic shades for the cheeks, eyes and lips, and Charlotte Tilbury's Luxury Lipstick Wardrobe K.I.S.S.I.N.G. set containing 10 lipsticks and retailing at £220 ($290).

Beauty app Wow How is liked for its split-screen technology, which allows the user to simultaneously follow tutorials and try out the looks. The app offers tips and guidance and lets users create their own 3D model for experimenting with shades and looks. Beauty Kitchen's all-natural and sustainable petroleum jelly alternative, Natruline, has been called a game changer. It features castor seed oil, carnuba wax and beeswax to moisturize the skin while allowing it to breathe. A vegan formula without beeswax is also available.

The views expressed in this section are those of bloggers and do not represent the opinions of BW Confidential

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L CONFIDENTIAL L CONFIDENTIAL www.bwconfidential.com - November 15-28, 2018 #178 - Page 7 Interview Varvara Kulaeva, who heads up the Perfumery Division, Private Labels at Alkor & Co (owner of Russia's L'Etoile perfume and cosmetics chain) explains how Russians consume beauty and what the retailer is doing to keep their interest Seeking new scents How have recent economic difficulties impacted the fragrance market and consumer habits in Russia? Russia has faced several economic crises [and is still going through the most recent one]. This has influenced sales in the beauty industry, but we are working hard to give a proper offer to our customers, to meet their requirements and keep them satisfied.

With the fluctuating exchange rate, it has become a bit difficult for some customers to buy the products that they used to buy, because the prices doubled. That’s why products that are made in Russia are a good solution to this problem. [With these], we can keep the prices slightly lower and offer our customers a good-quality product that is still affordable. Has discounting become a bigger part of the local retail environment? Discounting has always existed and is a part of the game. Customers are always waiting for good offers and discounts. So it doesn’t go away, but that doesn’t mean that we’ve discounted all of our products. I wouldn’t say that we discount more now.

How is L'Etoile performing in the current climate? Because of the difficult economic situation, we are trying to find quality products that are affordable—or trying to produce them ourselves. Because we offer quality products that are not expensive, when [consumers] try them and understand that the quality is high, they are no longer afraid to buy something slightly cheaper. How is niche fragrance performing? Russian consumers are very knowledgeable about perfume. When our Western colleagues come and see the range of niche perfumery in Moscow, they are surprised because they don’t have as many brands in their stores [as we do]. And our customers are very well-educated. They discuss it on our social media, on Instagram—you can see that they have quite high expertise in skincare, make-up and perfumery.

Niche fragrances are very popular in Russia and they are attracting more n n n Alkor & Co head of Perfumery Division, Private Labels Department Varvara Kulaeva ” Alkor & Co head of Perfumery Division, Private Labels Department Varvara Kulaeva With the fluctuating exchange rate, it has become a bit difficult for some customers to buy the products that they used to buy, because the prices doubled. That’s why products that are made in Russia are a good solution to this problem “

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L CONFIDENTIAL Interview Alkor & Co head of Perfumery Division, Private Labels Department Varvara Kulaeva ” Alkor & Co head of Perfumery Division, Private Labels Department Varvara Kulaeva Compared to the Western world, Russia is probably not as developed [when it comes to] internet shopping. But it is growing and developing— each day more customers buy through this channel “ www.bwconfidential.com - November 15-28, 2018 #178 - Page 8 n n n interest. In our chain, we have almost 1,000 stores and 350 of them have dedicated niche corners. We have very nice collections of niche perfumery and from what we can see, this interest in niche brands is growing in Russia. What about e-commerce?

Of course [at L’Etoile] we have an e-commerce site and it is developing. We are studying the trends in this area and are trying to be modern. Compared to the Western world, Russia is probably not as developed [when it comes to] internet shopping. But it is growing and developing—each day more customers buy through this channel, even beauty products. Perfume is a difficult product to sell through a webstore, but if you know your fragrance and what notes you prefer, you can do it. Social media is a very important part of the game. Instagram, of course, and Russia also has its own social network, VKontakte. When you know your target audience, when you clearly see the portrait of your customer, you can understand how to approach them. So, for example, Western-oriented people who are well-educated, 30+, they are mostly on Facebook, while young generations are mostly on Instagram or other social media aimed at youth. So, if you are offering products for young generations, you need to be on Instagram. Russia also has a social-media platform called Odnoklassniki, [which is for finding old classmates]. This is for generations that are older than those on Facebook, maybe 50+.

What key projects are you currently working on to meet consumer demand? My colleagues and I travel around the world and we are trying to find suppliers that can sell us their know-how in terms of textures and ingredients. There is a key beauty trend everywhere, such as with Korean beauty, [which] is huge in Russia because [the products] are affordable, good quality and fun. What do you see as the biggest beauty trends in Russia? The co-creational beauty trend is big. We have a brand in our chain called Soda, and for each product there are stickers that you can stick on your eyeshadow palette, for example, and make it your own. There is also a trend towards conscious products, such as eco, organic and vegan. It is not such a wide audience, but it is growing every day.

[Russians] like beautiful products and when they pull the product out of their bag they like it to have a nice design. [However], in niche perfumery, minimalistic packaging can work. We are now doing some private- label products and we experimented with minimalistic packaging, [which] worked very well. n s The G.ART (short for Gallery of Art) Collection is one of L'Etoile's private-label fragrance brands

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L CONFIDENTIAL L CONFIDENTIAL www.bwconfidential.com - November 15-28, 2018 #178 - Page 9 Insight How store closures, the renewal of department stores, online and the continued rise of specialty stores are impacting the beauty market All change US prestige retail Times are changing for prestige beauty retail in the US. The number of retailers shutting up shop has continued this year, with the high-profile bankruptcy of Sears revealed a few weeks ago, the bankruptcy of department-store chain Bon-Ton, which is closing its 256 stores, and also the announcement that L Brands would close the Henri Bendel specialty store, which has 23 doors.

This comes on top of other retailers that are already in the midst of cutting their door count in the face of increased competition from online and dwindling mall traffic. Macy's, for example, announced in 2016 that it would close 100 doors. All of these store closures are seeing many brands lose large chunks of sales, but they are also providing existing retailers, particularly specialty players, with opportunities to gain new consumers and increase sales and are forcing some players—such as Macy's, for example—to up their game, especially in terms of online and attracting younger consumers.

In spite of the wave of brick-and-mortar store closures, prestige beauty continues to see strong growth. In the six months to June 2018, prestige beauty sales in the US grew 9%, according to The NPD Group. When announcing its fiscal first quarter 2019 results, Estée Lauder Companies (ELC) said that its overall retail sales in the US turned positive. It added that if the impact of the Bon-Ton closures were excluded, it would have seen its fastest growth rate in more than two years. The company said that it has had to face the closure of the equivalent to $150m in net sales of department-store doors in the past two years. ELC n n n US retail factfile Ulta: 1,124 stores (at August 4, 2018) Sephora: 350 stores, plus 590 Sephora Inside JCPenney Macy’s: 652 stores (at end of Q2) Bluemercury: 152 stores (at end of Q2) Bloomingdale’s: 38 stores (at end of Q2) Saks Fifth Avenue: 39 stores (at end of Q2) Nordstrom: 116 stores (at end of Q2) Neiman Marcus: 42 stores (+1 Bergdorf Goodman) s Retail changes: (from left to right) Sephora, Ulta Beauty, Bluemercury and Macy's

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L CONFIDENTIAL www.bwconfidential.com - www.bwconfidential.com - November 15-28, 2018 #178 - Page 10 - Page 10 L CONFIDENTIAL L CONFIDENTIAL L CONFIDENTIAL www.bwconfidential.com - November 15-28, 2018 #178 - Page 10 Insight US prestige retail n n n has offset this with its push into specialty multi and online (the company has worked hard in recent years to reduce its dependence on department stores in the US, notably by partnering with Ulta as the retailer expanded its prestige beauty offering), and also said that it improved its business with its department-store customers. Indeed, despite the gloom over brick and mortar, retailers are making investments in new areas. “We’ve seen retailers revamping their beauty floors, looking at how they can reinvent their spaces, how they can make it easier for the consumer [and create] a more beautiful, inviting space to come in and experience beauty,” comments The NPD Group beauty industry analyst Larissa Jensen. “There’s a lot of growth in areas that were struggling before. We’re starting to see growth in brick-and-mortar across every category,” she comments.

Macy's' sharper approach Macy’s, in particular, despite its wave of store closures, is garnering praise for its sharpened focus on beauty. After naming Nata Dvir head of beauty in September last year, the company has been working on enhancing its beauty advisor training to be less brand-focused, recruiting 1,000 new BAs and launching a new online campaign, Macy’s Deeper Beauty, earlier this year. “We’re migrating our strategy from a brand-centric to a customer-centric strategy,” said ceo Jeff Gennette during the retailer’s second-quarter conference call in August. It has also reportedly enhanced the execution of its Impulse open-sell concept intended to draw in younger consumers. Fragrance was one of Macy's strongest categories in the first half, and select color and treatment brands also did well, according to the retailer. “Macy’s has been very aggressive, not just in its flagship Herald Square store, but also in its regional department stores, which is a good sign,” comments retail consultancy WSL Strategic Retail ceo Wendy Liebmann. “Macy’s is an example of the willingness to look beyond traditional brands, traditional categories, and push out to welcome that broader audience of Sephora/Ulta clients.” Kelly Kovack, founder and ceo of consultancy BeautyMatter, agrees. “It feels like Macy’s has a more long-term view to fixing the problem,” she says. With Bluemercury, meanwhile, which Macy’s acquired in 2015, the retailer’s focus has been on expanding the concept’s standalone footprint, rather than open Bluemercury departments within its stores, of which around 20 are in operation. Macy’s had expanded the Bluemercury footprint to 152 stores at the end of the second quarter, up n n n Online sales: What next?

Online sales continue to grow faster than the market overall, according to The NPD Group, with double-digit growth across all prestige beauty categories in the six months to June 2018. Online is estimated to now represent around 20% of US prestige beauty sales, a higher penetration rate than in mass beauty despite the issues with selling online still cited by brands. The market has been boosted in recent years by department stores’ improved execution of their omnichannel proposition, sales from brand sites, and pure players like Cult Beauty and Net-a- Porter, which move the online discourse away from discounting. Amazon remains the devil in the room, however, as it seeks to tap into the prestige beauty market, notably debuting its Indie Beauty store earlier this year. Despite many brands’ ongoing reluctance to embrace Amazon, having a strategy for the e-commerce giant is becoming increasingly essential. “I don’t think the not selling to Amazon because of some perception of what it will do to brand equity applies [any more], because consumers don’t go to Amazon to have a brand experience,” says Kelly Kovack, founder and ceo of consultancy BeautyMatter. “If you don’t have an Amazon strategy, someone will do it for you, so you may as well figure it out.” According to Coresight Research, beauty and personal care is the second-most shopped category on Amazon after books, with more than half of Amazon Prime members purchasing in the category over the past year. In consulting firm AT Kearney’s most recent Beauty and the E-Commerce Beast report from last year, Amazon was the most-cited website for consumers searching for and purchasing beauty products online at 69%, followed by Sephora at 41%, Ulta at 37%, Walmart at 36% and Macy’s at 33%.

” WSL Strategic Retail ceo Wendy Liebmann “[Sephora] had that specialty market to itself for a long time. There’s a lot going on [in specialty beauty retail. It needs someone] who can see what it will look like for the next decade “

Insight US prestige retail n n n from just 63 when it acquired the retailer. “Bluemercury is pretty much going to be following a separate track and opening more independent freestanding stores,” observes consulting firm Unity Marketing founder Pam Danziger. Others cite Macy’s acquisition of the Story retail format earlier this year as another area to watch as it potentially seeks to implement a pop-up style strategy of rotating concepts. Retail renewal Beyond Macy’s, other department-store players are also reviewing their offer. Saks debuted a new beauty department in its New York flagship in May, moving the space up to the second floor and expanding its size by 40% to 32,000 ft2 (2,973m2 ). Offering 120 brands, 58 of them newcomers, the experience-focused space offers a range of services. While most observers praise the execution of the space, some question its potential for boosting the category, and wonder how the shift in focus might be implemented elsewhere in the HBC-owned retailer’s portfolio. “I’m interested to see how that translates to some of the regional stores,” says Liebmann.

Elsewhere, department stores are looking to tap into specialty-store territory with the addition of younger, trendy brands thanks to the integration of pop-up spaces, for example, that allow faster brand rotation than the traditional beauty floor model. Barneys recently announced a series of rotating pop-ups for emerging beauty brands in its Madison Avenue flagship, while Nordstrom and Neiman Marcus have both built pop-up spaces in recent years. But some question the business sense of such moves. “Beauty is all about the repeat purchase, so if you’re cycling in and out of indie brands, what’s really the purpose?” questions Kovack. “Is it just to get more traffic into the stores, or is it really making a commitment to smaller brands. I give department stores a lot of credit for trying to fix what is clearly broken, but you can’t fix something by putting a Band-Aid on it […] I don’t know what the business constructs are for these relationships.” Ulta vs Sephora In the specialty universe, competition continues to heat up between Ulta and Sephora. Ulta continues to grow its prestige portfolio, adding new brands and is also expanding geographically and boosting its services and loyalty program. Ulta Beauty said its prestige beauty sales grew 2.5 times faster than the market in the period from February to July, and now represents 23% of the US prestige beauty market.

The retailer expects to further grow its share thanks to continued brand rollouts and the addition of Kiehl’s in the second half. It will also add digital-native brand Kylie Cosmetics exclusively in all doors and online later in the year. This is considered as a coup in a market that is witnessing upheaval as consumers increasingly switch to such brands, which are eating into market share for heritage prestige players, especially in make-up. “It definitely is a game changer in terms of such an established retailer like Ulta being able to snag such a hot digitally native brand,” observes NPD’s Jensen. The move could allow Ulta to better compete with Sephora, which has in the past tended to appeal to younger, more trend-focused consumers than its competitor. The retailer also just acquired two AI and AR start-up companies in a bid to create a more personalized shopping experience. This is the first time Ulta has made an acquisition.

Despite having been less active on the expansion front recently, Sephora continues to perform strongly, boosted by its exclusive brand offering that ties in with consumer appetites for novelty. In the meantime this has opened up opportunities for Ulta to n n n ” The NPD Group beauty industry analyst Larissa Jensen We’ve seen retailers revamping their beauty floors, looking at how they can reinvent their spaces. There’s a lot of growth in areas that were struggling before. We’re starting to see growth in brick- and-mortar across every category “ L CONFIDENTIAL www.bwconfidential.com - November 15-28, 2018 #178 - Page 11

Insight US prestige retail n n n expand with mainstream prestige brands from outside the LVMH stable. Sephora opened the second door of its smaller Sephora Studio concept, with a focus on personalized service, in Hoboken, New Jersey during the first half, and was planning for further rollouts later in the year. Sephora also continues to do well with its corners in JCPenney, for which it was one of the top-performing divisions during the second quarter, the retailer said. “In malls where there is a Sephora store and a JCPenney store with a Sephora outlet, there seems to be no cannibalization between the two,” Unity Marketing's Danziger observes.

One of the biggest challenges for the LVMH-owned retailer, however, is perhaps its search for a new president and ceo for the Americas after Calvin McDonald stepped down in late July. “It needs to have somebody who’s thinking about the next big vision,” says WSL Strategic Retail's Liebmann. “It had that specialty market to itself for a long time. There’s a lot going on [in specialty beauty retail. It needs someone] who can see what it will look like for the next decade.” The jury is still out on the long-term impact of the many changes in the US prestige beauty landscape. The impact of other players—retailers like Cos Bar, direct-to-consumer brands, pop-ups and potentially the sale of Space NK, which could add another dimension to the mix—could all shake things up further. This is likely to make the outlook all the more interesting for prestige beauty in the US. n Beauty & Digital more than 100 pages of insight and analysis on How digital is disrupting beauty • Artificial Intelligence • Online sales • New distribution channels • Voice technology • Data and CRM • China’s tech trends • Blockchain • Big tech • The future Plus all the latest data, industry predictions and trends NEW Collector’s Guide order your copy by email: subscribe@bwconfidential.com

L CONFIDENTIAL Show review L CONFIDENTIAL www.bwconfidential.com - November 15-28, 2018 #178 - Page 13 Show review Natural ingredients, eco-design and connected packaging were buzzwords at this year's edition of trade show Cosmetic 360, organized by French cosmetics industry cluster Cosmetic Valley and held in the French capital’s Carrousel du Louvre. The fourth edition of the show, which is positioned as an event devoted to innovation, welcomed 220 exhibitors and around 5,000 visitors across 4,700m2 (50,590ft2 ) of space. The show’s Start-Up Zone, sponsored by Coty, industry cluster Beauty Tech Chartres and start-up incubator The Place by CCI28, welcomed 30 digital cosmetics start-ups. The area also hosted the Coty Start-up Studio, new this year, where interviews were organized between start-ups and established companies. The show’s second-annual hackathon focused on sustainable development and 3D printing. Sponsored by LVMH, software company Dassault Systems and 3D-printing company I3DP, it welcomed 50 participants. This year's winner was JUNE (Just Use of Natural Essential oils), an online personalization service for essential oils, created by three young, female scientists.

This year, organizers chose Japan as the country of honor. The show featured a ‘Japan 360 Innovation’ village, where about 10 companies from industry cluster Japan Cosmetic Center presented their innovations. Other highlights of the show included the Cosmetic 360 Awards on October 17, which recognized the top six innovations at the show (see box) and some 16 conferences, covering topics such as eco- conception, wellbeing, regulation and the Russian market. n n n BW Confidential reports on what was seen and heard at the fourth annual edition of trade show Cosmetic 360, which took place in Paris on October 17-18 New ideas Cosmetic 360 Cosmetic 360 Took place: October 18-19, Paris Exhibitors: 220 (+10% vs 2017), from more than 30 countries Visitors: About 5,000, +12% vs 2017 The Cosmetic 360 Awards The Cosmetic 360 Awards, presented on October 17, honored the most impressive innovations at the show. The awards were presided over by a jury of seven journalists, including BW Confidential editor-in-chief Oonagh Phillips, with one winning company chosen for each of the six expert categories. This year’s categories and winners were: Raw materials: Ceapro, a Canada-based company that specializes in the development and commercialization of active ingredients, won for its oat ingredients, which can treat conditions such as eczema and psoriasis. OEM, Formulation & Laboratory equipment: Zurich-based biotech firm Innovendo Lifestyle Technology won the award for its Clixperience technology, a system including different beauty sheets and formulations that are activated with a single click.

Testing & Analysis: France-based Microfactory, which specializes in microfluidics, won for its Smart-Pore biomimetic pore, designed for cosmetic measurements. Packaging & Manufacturing equipment (sponsored by BW Confidential): French mobile technology start-up Mobeefox took home the prize. It offers connected-packaging solutions, which include services such as sounds and video delivered via a mobile cloud application. Retail & Brands: The winner of this category was BeautyMix, a France-based company that created a connected blender for making beauty products at home. Support functions for cosmetic industry: San Francisco-based Veeva won this award. It provides cloud solutions to ensure compliance for companies in regulated industries such as cosmetics and pharmaceuticals.

Cosmetic 360 L CONFIDENTIAL www.bwconfidential.com - November 15-28, 2018 #178 - Page 14 Show review n n n Seen in show Brussels-based biotech company ChemCom presented a biological nose, a technology said to be capable of imitating human olfaction. Using this technology, the company has developed molecules that can control human olfactive receptors and fight unpleasant smells, such as sweat. Instead of masking these odors with another scent, the molecules block the specific human receptors that pick them up. The company has also developed molecules that boost human receptors which pick up pleasant odors. The molecules can be added to products such as deodorants, perfumes or home fragrances. Japanese company Aroma Bit showed the Aroma Coder, a desktop instrument for measuring, visualizing and analyzing odors. The device has 35 odor absorption films that translate a scent to mass and then to resonance frequency, which in turn can create a visual pattern. Aroma Bit managing director Kenichi Hashizume explained to BW Confidential that the technology can be useful for packaging and e-commerce, for example, to help add a visual description to fragrance or taste. Malaysian group Natural Wellness showed its Polished by Sama Sama range of nail polishes that are water-permeable, breathable, vegan-friendly and 10-free. The range comes in 103 colors and is especially suitable for Muslim consumers, the company says, as the product's water-permeability means it does not need to be removed before prayer. The product is developed and marketed by Sama Sama Spa, a women-only spa in Malaysia and social entrepreneurship initiative aimed at empowering underprivileged young women.

Beihao France, a division of Chinese cosmetics group Beihao, presented the Midflower range of beauty masks composed mainly of fresh flower water and a sheet made of plant fibers. The flower water is obtained through steam distillation of fresh, hand-picked flowers, and the sheets are 100% plant-based. The range has four different flower water masks: A Rosa Damascena Invisible Mask, a German Chamomile Invisible Mask, a Bitter Orange Black Mask and a Rosa Damascena Biocellulose Peel Off Mask. Distribution is through pharmacies, department stores, perfume shops and e-commerce. n n n

Cosmetic 360 L CONFIDENTIAL www.bwconfidential.com - November 15-28, 2018 #178 - Page 15 Show review n n n French company Mobeefox presented its connected packaging solutions, including QR-code and NFC technology. The company offers brands geo-localization through its connected solutions, giving brand owners the opportunity to communicate with clients in a more personalized way, for example by suggesting skincare products according to specific weather conditions or UV concerns. French start-up Dinov presented its influencer network for the cosmetics industry. The company hosts a platform that currently counts a stable of 126,500 influencers from 55 countries. Set for launch in 2019, co-founder Christophe Douane explained to BW Confidential that the platform will give brands and influencers greater transparency, thanks to its direct access to influencers’ statistics and by running content through its platform. Zurich-based Innovendo Lifestyle Technology presented Clixperience, its two- chamber system for skincare products. The system includes a beauty towel and a cosmetic formulation that are mixed together upon breaking a seal in the packaging, allowing for more natural formulations with fewer preservatives.

US-based CMSmartConnect showed its connected packaging solutions, including QR-code, NFC and augmented reality technology. According to the company it is the only player to offer these three different solutions, with an augmented reality application set to launch in January 2019. CMSmart Connect sales manager Europe Alain Dancoisne explained to BW Confidential that QR technology has been a hit with Chinese consumers, while slower to take off with European consumers, who prefer NFC. The QR and NFC codes are activated by scanning the packaging with a smartphone and the customer is then taken to a landing page where a video, image or message can be shown. As for the augmented reality technology, it will be connected to an app, through which consumers can watch effects, such as the packaging virtually changing its pattern or shape. n

L CONFIDENTIAL Store visit The Strategist, a shopping website run by New York Magazine (New York Media), is taking a curated, social-media friendly approach to its first brick-and-mortar store. Called I Found It at The Strategist, the 2,000ft2 (186m2 ) holiday pop-up features a selection of editor-approved brands, beauty services and a roster of expert talks and demonstrations. The store has a focus on beauty, and shoppers can browse The Strategist editors’ favorite products. Participating brands include Korean men's skincare brand Jaxon Lane, ‘safe’ cosmetics brand Beautycounter, subscription-based fragrance company Scentbird and Ohii, a make-up brand by Urban Outfitters. Other beauty brands available are Hairstory, sundays, Cosrx, Herbivore, TULA, Cocokind, Freck, Peet Rivko, Rikumo, My Beauty Diary and LOLI Beauty.

The store includes try-and-buy product stations, as well as a schedule of beauty services. For example, ‘pure’ skincare brand LOLI Beauty (or ‘Living Organic Loving Ingredients’) offers custom beauty blending with natural ingredients; haircare brand Hairstory offers complimentary blowouts and haircuts; and 10-free nail polish brand sundays will provide free manicures on November 17 and 24. Tablets are used in different ways throughout to tie together the pop-up and the online stores of the different brands sold there, such as the Scentbird online store. At Scentbird’s station, a tablet is locked to a landing page so customers can sign up to its fragrance subscription service, while elsewhere, iPads display editorial content from The Strategist that corresponds to different stations in-store (for example, the ‘This Thing's Incredible’ station has products from the website category by the same name).

The store also has a space called the New York Media lounge, which will host editors, influencers and insiders for live demonstrations and expert-led talks throughout the pop-up’s seven-week run. The program has so far seen a beauty panel focused on sustainability, hosted by The Strategist contributor Rio Viera-Newton and with panelists including beauty expert Alexis Page and fashion and beauty director Julee Wilson. On November 28, a How I Get It Done panel will be hosted by Kathleen Hou, beauty director at New York Media-owned women’s digital media platform The Cut. I Found It at The Strategist is open from November 8 until December 30 and located at 347 West Broadway in Soho, New York. n L CONFIDENTIAL www.bwconfidential.com - November 15-28, 2018 #178 - Page 16 The Strategist’s first physical store offers a curated collection of cult beauty brands plus expert-led talks promoted on social media Online to offline I Found It at The Strategist l Location: 347 West Broadway, New York l Size: 2,000ft2 (186m2 ) l Special features: Try-and- buy product stations; free beauty services such as haircuts and manicures; a New York Media lounge that hosts special guests for live demonstrations and talks

s In addition to its editor-approved brands, the store also hosts expert talks and demonstrations s The pop-up features a curated selection of brands, including Rikumo (left) and LOLI Beauty (right) Store visit L CONFIDENTIAL L CONFIDENTIAL www.bwconfidential.com - November 15-28, 2018 #178 - Page 17 credit: Getty Images

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