• by Karlene Lukovitz  @KLmarketdaily, April 4, 2007

While the demand for celebrity gossip is apparently unquenchable, the market for celebrity-based fragrances may not be a bottomless well after all. Celebrity-branded scents remain the leading driver of growth for the fragrance industry, but new data from key researchers points to a slowdown in their momentum--at least in the U.S.

U.S. sales within the prestige fragrance market totaled $2.8 billion last year--down 2% from 2005, according to global market research firm NPD Group. Celebrity scents accounted for 7% of the total, but sales of women's prestige celebrity scents decreased 17%, to $140 million. This despite a tenfold jump in the number of celebrity launches compared to 2003, the first full year reflecting the re-igniting of the celebrity craze following the 2002 launch of Glow by Jennifer Lopez.

Last year, no women's celebrity scents broke into the top 10 prestige launches--in contrast to 2005, when four made the list, according to NPD: Fantasy by Britney Spears (Elizabeth Arden), Lovely by Sarah Jessica Parker, Baby Phat Goddess by Kimora Lee Simmons, and Live by Jennifer Lopez (all from Coty).

Men's fragrances are helping to pick up the slack. Sean "Diddy" Combs's Unforgivable, from Estee Lauder's Sean John Fragrances division, not only made the top 10 prestige launches, but was the fastest-growing fragrance of the year. And Euromonitor International estimates that combined U.S. men's and women's celebrity fragrances did grow last year, by 12.1% (to $389.5 million).

However, Euromonitor projects that the overall (women's and men's) U.S. prestige fragrances market will increase by a paltry 1.8% between 2006 and 2011, from $4.87 billion to $4.95 billion. (The U.S. trend is counter to that in most other markets: Euromonitor projects worldwide growth in prestige scents at 11.6% for the same years.)

The celebrity/premium slowdown is in part reflective of the overall trend in the U.S. women's fragrance category. Mintel International estimates that those sales totaled $4.2 billion last year in food/drug/mass retailers (excluding Wal-Mart), a decline of 13% when adjusted for inflation. "While numerous launches have regenerated interest in the category, it has only translated into sales growth in constant terms during one of the past six years, 2005," Mintel's analysts point out.

Further, while launches will support the market, the aging population and older women's tendency to use less fragrance is likely to limit growth: Mintel projects that U.S. women's fragrances will reach $4.7 billion by 2011--a 12% increase over 2006, but a decline of 6% in constant terms.

Still, marketers see distinct opportunities among the younger set. According to NPD's Women's FragranceTrack 2006, women ages 18 to 24 are more involved in the fragrance category, more likely to own fragrances purchased across a variety of retail channels, and more likely to purchase celebrity brands and newer designer brands.

Also, while there are more heavy fragrance users among this age group, less than 60% reported actually purchasing a fragrance during the past year (versus 63% to 64% for other age groups)--meaning that fragrance makers stand to reap bonanzas if they can persuade young women to divert more of their dollars toward scents.

This, of course, is no cinch. While NPD notes that younger American women are more influenced by the media than older women, the millennial generation in general is also less brand-loyal and known for rebelling against the perception of being marketed to, as Coty vice president for global marketing Lori Singer noted to The New York Times last month. Less brand loyalty and a thirst for novelty mean shorter lifespans for celebrity and other products.

So, on one hand, fragrance makers are continuing to launch celebrity brands that provide new interest and quick sales infusions. Some fall 2007 entries will employ U.S. stars with international appeal--a là Coty's Gwen Stefani and Procter & Gamble's Christina Aguilera brands. Others have particularly promising regional appeal. Examples include Coty's Kylie Minogue and Intimately Beckham brands, which will launch in Australia and the U.K., respectively, before rolling out to other markets.

On the other hand, experts say that makers are also trending toward greater emphasis on product quality and designer brands.

Citing saturation and consumer confusion created by the juggernaut of recent celebrity releases, Euromonitor predicts that manufacturers will increasingly look to move away from "fast-turnover innovation" and toward a quality-driven approach that stresses ingredients and educating consumers in order to drive sales and justify higher prices.

Diana Dodson, senior industry analyst for Euromonitor, says the trend will be driven in particular by high-end niche brands. One recent example: Jo Malone's Pomegranate Noir, which seeks to capitalize on the current popularity of the "super fruit."

And while Dodson points out that fragrances from fashion designers--often with celebrity spokesmodels--are hardly new, some predict more emphasis on designer cachet, sold through innovative channels, going forward. A major case in point is this month's launch of the CK in2u brand from Calvin Klein and Coty, the most aggressive purveyor of celebrity brands. The new CK brand, which retailers clearly believe will be a big hit (the launch was delayed by a month in order to allow for a production increase), is being marketed in nontraditional ways, including an online social networking community being fed by videos from film school students.

Marie Lena Tupot, a partner and research director for the New York-based research and branding consultancy ScenarioDNA, suggests that creating identification and a perception of authenticity are the real keys to appealing to younger consumers, whether through celebrity or designer names.

While today's consumers are somewhat wary about celebrity, "if the celebrity has something to say in the design, we're up for it," she says. "Gwen Stefani doing her fragrance is believable. You recognize that she is a part of the creative process in a good way. She has a history of product development, starting with Hewlett-Packard and their camera brand."

Consumers are also more and more accustomed to "getting design everywhere" and are looking for "the ingenuity and innovation that you can get from fashion designers like Vera Wang and Stella McCartney," she adds. "They're looking for interesting concoctions and design."

Tying into the point that young people buy fragrances across more channels, Tupot says that mass-market fragrances won't necessarily be looked down upon. "You'll see some of these designer fragrances come through Target," she says. "If it smells good, and the consumer can identify with the celebrity/designer, it'll do fine."