Consumers are turning up their noses to high-end fragrances and celebrity perfume brands, leaving a bad stench in some of the world's largest cosmetic companies' bottom lines.
Elizabeth Arden reported the biggest quarterly loss in its history Tuesday and blamed poor sales on some of its star-status brands such as Justin Bieber and Taylor Swift.
The company, which also makes scents branded under Elizabeth Taylor's and Britney Spears's names, said revenue plunged a record 28 per cent to $191 million in the fourth quarter from $267 million in the same quarter last year, sending shares down 24 per cent to $14.85 in mid-day trading.
"The inventory destocking at a number of non-prestige customers ... continued through the fourth quarter of fiscal 2014 and led the company’s shipments to be below the rate of retail sales," the company said in a quarterly earnings release, signalling a slowdown in perfume demand at mass retailers like Walmart and Target.
Industry-wide scent slump
The decline is part of a wider trend in the industry. After growing by nine per cent in 2011 and by two per cent in 2012, U.S. sales of fragrances fell by two per cent in 2013, according to market research firm Euromonitor.
"Celebrity fragrances have slowly been losing popularity, as tweens and teens continue to like celebrity scents, but have less disposable income to spend on fragrances, as unemployment remains high amongst the youth population," said Euromonitor's fragrance report published last month.
More than 100 new fragrances hit the market every year. That, according to the Euromonitor report, has created consumer confusion — buyers are overwhelmed by the choices, making it difficult for a brand to stand out.
L'Oréal, which is the leading player in fragrances with 14 per cent market share, recently said sales for the first half of 2014 dropped 1.5 per cent.
Perfume market may rebound
This year's downturn could be a one-off.
A report from Companies and Markets estimates the industry will be worth about $45.6 billion in 2018, driven by "demand for celebrity-inspired scents." That's almost twice as much as the global fragrance market was valued at just two years ago.
In Elizabeth Arden's case, Justin Bieber's recent trouble with the law could have impacted sales of his scent "The Key." Earlier this month, the 20-year-old pop star pleaded guilty to misdemeanour charges of careless driving and resisting arrest in Miami Beach, following what police called an illegal street race. And Britney Spears hasn't been able to shake her reputation for the bizarre behaviour she exhibited back in 2007.
Consumers could also be tightening their purse strings this year. The latest reading of U.S. retail sales was unexpectedly flat, inching up just 0.2 per cent in July — the worst recording since January. But as the U.S. economy continues to strengthen, consumer spending should also improve.