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manufacturers are optimistic about marketdevelopment in 2018. During a recentmembership poll, 68% of companies said thatthey expected 2018 to be a good or very goodyear for business.

LACKLUSTRE LUXURYThe German luxury C&T market continued tostruggle in 2016, according to figures fromtrade association Verband der VertriebsfirmenKosmetischer Erzeugnisse (VKE), whichrepresents around 60 leading perfumerycompanies. The market grew just 1.8% in 2016,reaching a turnover of t2.08bn.This result was lower than expected, says the

VKE’s Stephan Seidel. But colour cosmeticsturned out to be a growth driver for the luxurysector, increasing 4.9% thanks to the successfulperformance of lip colour products.

L ast year was another tempestuous12 months for the Germancosmetics and toiletries (C&T)market. The sector wascharacterised by a sluggish

performance from the mass market anddisappointing results in the perfumery sector. The country’s leading drugstore retailers

dm-drogerie markt and Rossmann continuedtheir intense rivalry for market share, drivingdown retail prices for mass-market beauty evenfurther. Meanwhile, the successful market entryof LVMH-owned perfumery chain Sephorashook up the German perfumery sector, and theongoing drama involving the Karstadt andKaufhof chains continued to keep the domesticdepartment store sector on edge.Still, according to personal care association

Industrieverband Körperpflege & Waschmittel(IKW), the German C&T market turned inmoderately successful results in 2017. Totalmarket turnover reached t13.6bn last year,which marks a meagre 0.5% increase comparedwith 2016. However, Georg Held of IKW saysthe association is satisfied with last year’s results. The pace of innovation was high among

IKW’S 420 member companies, Held says, andeven more importantly, Germany’s C&T

Top 5 categories by value, 2017

Source: IKW

FACE & BODYCARE+3.1%H3.09BN

HAIR CARE(INCLUDINGCOLOURANTS& STYLING)-1.5%H2.96BN

COLOURCOSMETICS

0%H1.84BN

ORAL HYGIENE+2.7%H1.5BN

WOMEN’SFRAGRANCES

-2.8%H976M

Turbulenttimes forGermanbeauty

country report germany

The highly anticipated return of Sephora to theGerman beauty retail landscape has not beenenough to alleviate sluggish cosmetics andpersonal care sales over the past 12 months, as Annemarie Kruse reports

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The selective face care category, on the otherhand, dipped 3.2%. According to Seidel, thismarket suffered as a result of the price pressureexerted by competing luxury retailers on theone hand and mass-market chains, such asdrugstores and supermarkets, on the other. For 2017, the VKE is expecting the market to

grow 1.5% at best. And while 49% of VKEmembers said that they estimated the marketsituation as ‘good’ or, in the case of 6%, ‘verygood’, there are concerns about the Germanconsumer goods market in general.According to VKE, its member companies

consider political confusion in Germany and thedip in luxury consumption that could resultfrom this situation as one of the major risks forthe premium market; an Angela Merkel-ledcoalition government has finally been formedafter five months of uncertainty following thenational elections. Other factors that give rise to concern are

ongoing consolidation within the luxuryperfumery market, the continuing pressure ofthe grey market and the increasing marketpower of drugstores and discounters in Germany.

TOUGH COMPETITION IN MASS The dm chain continued to lead the highlycompetitive drugstore market in 2017, withRossmann a close second. The Müller chainwith 541 stores was the third biggest retailer,while the small regional northern-GermanBudnikowsky chain was in fourth place.dm and Rossmann continued their ongoing

battle for market leadership last year,aggressively pushing their expansion inGermany while further slashing prices forpersonal care products and household goods. Infact, the price battle between dm and Rossmannhas become so intense that the Germansupermarket sector and discounter chains likeAldi and Lidl have now stopped trying to matchthe constantly decreasing product prices. With a combined total of more than 4,000

dm and Rossmann outlets across Germany,which translates into a very high store density,some industry observers believe that there is notmuch growth potential left in the market.This development was reflected in dm’s and

Rossmann’s domestic turnover last year. Bothretail chains reported single digit growth for2017 (a significant departure from the usualdouble digit turnover results of the past decade)with their international businesses growing muchmore vigorously than their German stores.

DOUGLAS LEADS PERFUMERY The Douglas chain continued to dominate theperfumery market in Germany in 2017, despitethe major changes that the retailer has beengoing through since it was acquired byLuxemburg-based financial investor CVC in summer 2015.

Over the past two years, CVC has streamlinedthe Douglas group’s corporate structure andretail strategy, cutting 280 jobs from the budgetand relocating the company’s headquarters fromthe city of Hagen to Düsseldorf. Douglas’ thenCEO Isabelle Parize announced an ambitiousexpansion strategy, starting with an increasedfocus on own labels and exclusive beauty brandsto draw in a younger demographic, as well asexpanding its omnichannel business andcontinuing international expansion.And Douglas’ European expansion has gone

quite well so far. In March 2017, the companyannounced that it had acquired Spanishperfumery chain Grupo Bodybell with 223stores. In May, Douglas bought Italian retailchains Limoni and La Gardenia (with a total of500 perfumeries) followed by the acquisition ofSpanish perfumery chain Perfumerías If (103outlets and an online store) in July 2017. With these three acquisitions, Douglas has

become the perfumery market leader in Spainand Italy. According to Douglas’ current CEO,Tina Müller, who took over from Parize inNovember 2017, the Douglas group nowoperates around 2,400 perfumeries in 19European countries and online stores in 17 countries. While the European business might be going

very well indeed, the German market is provingto be more difficult. With 430 domestic outlets, Douglas is still the

market leader in Germany’s fragmented luxuryperfumery sector. However, according to theannual report, Germany was the only segmentamong Douglas’ sales regions that did not showa net sales increase. The reason for this negativedevelopment can be traced back to the storebusiness, Douglas explains, which has sufferedfrom an industry-wide lower footfall.

WELCOME BACK, SEPHORA The German market re-entry of Frenchperfumery Sephora in 2017 marked the business’

German drugstorechains dm andRossmann continueto competeaggressively on price

Germancosmeticsmarketturnover,2017

Source: IKW

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second attempt to break into the lucrativeGerman market; in 1999, the retailer openedseveral perfumeries in Germany. However, thecombined market might of Douglas and theMüller drugstore chain, which offers luxuryperfumery departments in its larger southernGerman stores, proved too much competition.After a very brief dalliance with the Douglaschain (the two retailers had considered apartnership), Sephora quietly closed down its fivestores and left the German market in 2002.However, that was over 15 years ago and the

retail situation in Germany is now quitedifferent. Douglas has changed hands twicesince Sephora’s first market attempt, whileGermany’s two leading department store chains,Karstadt and Kaufhof, also have new owners –Karstadt went to the Austrian Signa group in2014 while market leader Kaufhof was acquiredby Canadian department store retailer Hudson’sBay Company (HBC) in summer 2015.After HBC took over Kaufhof, the store’s

perfumery departments, which used to stockmass-market personal care brands, wererestructured to focus on luxury labels. In early2017, Kaufhof and LVMH generated mediaheadlines when the two companies announcedthat Sephora would launch branded storeboutiques in selected Kaufhof outlets acrossGermany. When the first Sephora opened inMunich in June 2017, German consumersqueued outside the building for hours beforethe store was set to open. As of early 2018, thereare five Kaufhof Sephoras in Germany.Unlike the large standalone Sephora stores in

other European countries or the US, Kaufhof ’sSephoras are compact shop-in-shop retail spaces. LVMH says that the Kaufhof cooperation has

proven to be so successful that Sephora is nowplanning to roll out standalone stores inGermany, in addition to the Kaufhof boutiques.According to media reports, LVMH is planningto open three Sephora perfumeries in 2018, andadd a further ten outlets per year.

ALL CHANGE AT KARSTADTThere are also drastic changes ahead for thelong-suffering Karstadt chain. In May 2017,Karstadt’s CEO Stephan Fanderl announcedthat he wanted to reposition Karstadt as an

omnichannel marketplace rather thancontinuing the retail chain as a classicdepartment store.The new Karstadt concept will focus on

merging online and offline retail, Fanderl said,drawing attractive online and offline retailconcepts into Karstadt’s bricks-and-mortarstores, including the own label fashion brands ofother retailers.As a first step in this new retail strategy,

Karstadt signed a distribution deal with Sfera, afashion label subsidiary owned by Spanish retailchain El Corte Inglès. And in late 2017, Sfera’schildren’s and teen fashion collections wererolled out across Karstadt’s German stores andthe domestic online store.At the same time, Fanderl announced that

Karstadt would trial an ‘off-price’ store section:selling well-known international fashion andaccessories brands at reduced prices. Then followed the next step in Karstadt’s new

retail strategy. A recently formed joint ventureof Karstadt owner Signa Group and theKarstadt chain acquired the majority of sharesin online retail platform hood.de, said to beGermany’s largest e-commerce marketplace.Karstadt’s own online store karstadt.de was

then integrated into hood.de’s onlineinfrastructure. This means that karstadt.de nolonger sells only the fashion, beauty andaccessories brands that are available in its bricks-and-mortar stores. Now third party sellers canalso sell their own merchandise throughkarstadt.de. And there could be even more changes ahead

for the German department store sector.The international business division of Kaufhof

owner HBC Group has had a difficult year. Thegroup’s store chains Saks Fifth Avenue andHudson’s Bay registered an increase in the thirdquarter of 2017 (at least in the Canadianmarket) but the group’s European expansion isturning out to be more expensive thananticipated.HBC has just launched its Hudson’s Bay

chain in the Netherlands and this seems to begoing well, but the costs associated with turningaround the Kaufhof chain have pushed HBC’sgroup turnover into the red.There are already rumours that HBC might

decide to streamline some of its Europeanactivities and perhaps sell off Kaufhof (or atleast the Kaufhof real estate). René Benko’sSigna group has just made its third unsuccessfuloffer to acquire Kaufhof, following a firstattempt in 2011 and then again in 2015. And although a merger between Kaufhof and

Karstadt seems to be off the table, at least forthe moment, the uncertainty surroundingHBC’s plan for its German operations iskeeping the entire department store sector onedge. All in all, 2018 is shaping up to beinteresting for Germany’s department stores

The country’sleadingdrugstoreretailers,dm-drogeriemarkt andRossmann,continued theirintense rivalryfor marketshare, drivingdown retailprices formass-marketbeauty evenfurther

The Kaufhof-Sephoraboutique concept hasproved so popularthat Sephora nowplans to openstandalone stores in Germany

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