Competitive landscape
·
Contributing 9% of its total
cosmetics and toiletries sales in 2005, The Body Shop’s fragrances activity is
limited to the mass market, where it competes with major cosmetics giants such
as Coty and L’Oréal. The mass-market sector has outperformed premium fragrances
by two percentage points CAGR over the 2001-2005 period, reflecting an intense
level of product development and marketing support driving the market, but,
with limited resources, The Body Shop was able to keep up with market
developments.
Strong competitive pressure in mass
fragrances hinders company growth
·
Despite a CAGR of 9% over the
2001-2005 period, the mass fragrances market has increasingly suffered from
downward pressure on prices and consumers’ willingness to trade up from mass to
masstige or prestige products, becoming increasingly widely available in
mass-market channels.
·
The company’s growth further
suffered from an unfavourable geographical mix, especially compared to the
leading companies in mass fragrances, such as Avon Products and Natura Cosméticos.
While The Body Shop’s main markets are Western Europe and Asia-Pacific, where
mass fragrances grew by a relatively slow 6% and 5% respectively in 2005, both
Avon and Natura Cosméticos are present in the faster-growing regions of Latin
America (24%, 2005) and Eastern Europe (18%, 2005). However, The Body Shop is
expanding its presence in Africa and the Middle East, where it outperformed the
regional market in 2005, helping to drive overall sales for the company.
·
In order to boost sales, The
Body Shop launched a new customised concept under the Invent Your Scent name.
Meeting a growing trend of originality among consumers, this range enables them
to mix their own fragrances with the help of a sales person. While this has
enabled the company to differentiate itself from a major part of the offerings
in the market, it remains to be seen whether it will dramatically improve its
fortunes in fragrances.
Prospects
·
While The Body Shop’s
increasingly masstige positioning should benefit sales of fragrances, the competition
provided by established names now available on mass-retail shelves at
comparatively low prices will restrict growth. Restricting product distribution
to its own retail channels may help to insulate The Body Shop from this trend,
but while its products may not lose out to competition at the point of sale,
their ability to draw consumers through The Body Shop doorway remains open to
question.
·
With a forecast CAGR of 4% and
an added US$2.4 billion over the forecast period, mass-market fragrances is an
attractive market despite increased competitive pressures. With The Body Shop’s
well-supported strategy to strengthen its position as a masstige brand in
combination some innovative product developments, the company should be able to
improve its position in this category, especially with further backing from
L’Oréal.
·
With a CAGR of 1%, Western
Europe is predicted to be one of the slowest-growing fragrances markets over
the 2005-2010 period for both mass and premium products. Asia-Pacific and
Africa and the Middle East are predicted to be more dynamic with CAGRs 5% and
7% respectively for mass fragrances over the forecast period, indicating that
these should be prioritised to ensure maximum growth developments for the
company.
·
North America is likely to be a
problematic region for the company, with mass fragrances expected to shrink
dramatically over the 2005-2010 period, with the premium fragrances unable to
sufficiently offset the loss, owing largely to the lower prices resulting from
their increasing sales through mass-market channels. More interesting
opportunities are found in mass fragrances in Eastern Europe (CAGR 8%, US$877
million, 2005-2010), in a region where the company is currently increasing its
overall presence through more store openings. While it will be difficult to
fight the competition, the company could do well in investigating the
possibilities to introduce its fragrance portfolio in this region.
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