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Fine Fragrances Fight Back in 2006—Part 1

Posted: May 1, 2007

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Sales of fragrances in Asia-Pacific grew by 5% in US dollar terms in 2006, a slight increase on the previous year. Growth was driven primarily by advances made in developing markets, such as China, Vietnam and India, underpinned by rising affluence, especially amongst white collar workers. In addition, enhanced media exposure, in the form of cable television and fashion magazines, raised consumers’ awareness of the various international premium fragrance brands while spreading Western beauty norms. In Japan, however, 2006 value sales of fragrances declined by almost 1% in current value terms. The main reason for this was that many fragrances, especially imported products, were sold at discounted prices through department stores, drugstores and discount outlets.

China Shows Promise

Looking forward, Euromonitor International predicts that the Chinese market will be a key source of growth in the region, driven by rising disposable incomes and improved distribution. International specialist perfumeries such as Watson’s, Sasa and Sephora, have all indicated their commitment to expand further in China. China was one of the world’s top 10 countries in terms of GDP growth measured at purchasing power parity between 2000 and 2005. This newfound prosperity is putting more money in the hands of consumers who are proving increasingly willing to spend it. BMW sold more Bentley Mulliner 728 limousines, which at US$1.2 million are the world’s most expensive car, in Beijing than in any other city in the world. In contrast to the West, conspicuous consumption is the done thing, and labels rather than quality prevail. In addition, the problem of counterfeiting is being taken more seriously by the Chinese government, due to the lobbying efforts of the leading manufacturers and the European Union. Legislative changes will also be influential in the medium to long-term. First, the Chinese tariff on premium fragrances was reduced from 30% to 10% at the beginning of 2005, thereby encouraging new brands to enter the market. At the same time, the repeal of the ban on direct sales in 2006 should further assist the growth of fragrances as companies such as Avon, Oriflame and Mary Kay spread the sector into rural areas and offer more affordable products.