Internet World Article 12/7/98
internetworld.com
A Web Store That Doesn't Slash Prices
Fragrance Counter banks on big perfume selection and convenience
By Elizabeth Gardner
Is it possible to sell on the Net at list price and continue to stay in business?
The experiences to date of online parfumerie The Fragrance Counter suggest
that it's possible as long as:
(a) the store has a selection of products large enough to keep the customer
from looking elsewhere;
(b) there's no charge for shipping and gift wrapping;
(c) the store has sewn up marquee positions on every major portal;
(d) there's no one with an equally large inventory selling the products for less.
The Fragrance Counter has been selling a full line of perfumes and colognes
online since 1995, when it signed up to be the exclusive fragrance retailer on
America Online. After a whirl with IBM's ill-fated World Avenue shopping
mall, the company opened its own Web site in 1997, and is on track to do $5
million in sales this fiscal year, up from $1 million last year. It's gearing up for a
Christmas season it expects to be six times busier than last year's.
Shopping-channel deals with AOL, Excite, Yahoo, and Lycos have given The
Fragrance Counter first crack at more than 80 percent of all Web surfers,
albeit at a price: Parent company Allou Health and Beauty Care blamed
Fragrance Counter promotional costs for a million-dollar dip in net income
during the most recent quarter. "We'd be turning a profit if we weren't
advertising," said Fragrance Counter CEO Eli Katz, only half joking. Details
of the portal agreements have not been disclosed.
But the marketing deals are worth it for building the brand, he added. "Just as
in the real world, the three rules for being online are location, location,
location," said Katz. He expects profitability sometime in fiscal 2001, which
begins in April 2000.
The Fragrance Counter recently commissioned a study from the market
research firm Cyber Dialogue that found, perhaps not surprisingly, a rapidly
growing online market for fragrances and cosmetics. The study projected
online sales of $20 million by year's end--up from about $5 million last
year--and $340 million by 2002.
Without a "RealAroma" plug-in to convey the nature of the product, one might
not think the Web was an ideal place to buy perfume, but Katz said 70
percent of all Fragrance Counter purchases are made by people replenishing
an existing supply, either for themselves or as a gift. Of the remainder, 36
percent have already sniffed their target scent in a department store, and most
others have smelled it on a friend or on scent strips in magazines. Only 5
percent buy a perfume completely unsniffed.
The Fragrance Counter carries about 2,000 fragrance and cosmetic products
(sold through its sister site, The Cosmetics Counter), with a steady supply
assured through its parent company. Allou distributed $300 million worth of
health and beauty products last year, and supplies such giants as Wal-Mart
and Sears.
The site's products are all sold at the same list price charged by department
stores, except for occasional specials and gift packages. The cosmetics site
signs up between 5 percent and 10 percent of its customers for an automatic
replenishment service, where they can order their favorites and have them
delivered on a regular schedule.
As for discounting, Katz said the practice is frowned on by many fragrance
manufacturers. "The reason our business works is that to have the latest and
best products, you need to maintain prices." Instead of straight pricing
discounts, The Fragrance Counter offers the classic department store tactic of
a free gift (such as a tote bag or moisturizer) with specified purchases, and the
site provides free shipping and gift wrapping--in effect, a discount from such
sources as Macys.com, which charge for both.
If it's out of stock on a certain size, the company will upgrade the customer to
a larger size for the same price. Starting in January, the company will offer
frequent-flier miles through Netcentives' ClickRewards program.
The company's main competition is FragranceNet, which sells about 1,000
fragrance products at discounts ranging from 5 percent to 70 percent.
FragranceNet characterizes itself as the "World's Largest Discount Fragrance
Store." FragranceNet CEO Jason Apfel threw down the gauntlet in a late
November announcement of a site redesign, stating in an unusual press release
that FragranceNet's site surpasses The Fragrance Counter's "on all levels."
Apfel said the two sites are regularly linked in the media as the most prominent
in the fragrance-selling space, and since comparisons were inevitable, he
thought it best to make them explicit.
"They're the only e-commerce company that thinks they can sell at full price,"
Apfel said. FragranceNet's revenue levels are similar to The Fragrance
Counter's, but FragranceNet is turning a profit because of lower marketing
costs, he added. The company depends on an affiliate program with 2,000
members, and on unpaid listings in portal and search-engine shopping guides.
"In the fragrance category, it's always us, Avon, and The Fragrance Counter,"
Apfel said.
Katz dismissed the challenge, comparing The Fragrance Counter to a classy
Fifth Avenue boutique. "We look at most discounters as being flea marketers,"
he said. "If we weren't No. 1, people wouldn't take potshots at us." The
Fragrance Counter does tend to have a larger number of products than
FragranceNet for any given scent. In a product search last week, it offered a
dozen products for Calvin Klein's cK one, while FragranceNet carried one.
For Elizabeth Arden's Red Door, The Fragrance Counter offered eight
choices to FragranceNet's three.
Forrester Research retail analyst Maria LaTour Kadison said pricing in itself
will probably not be The Fragrance Counter's Achilles heel, because online
shoppers don't necessarily fixate on price.
"The winners will be stores with the biggest selection and the most convenient
replenishment service," Kadison said. "The Fragrance Counter and others will
also have to fight off drugstore.com and other larger suppliers that can offer
one-stop shopping for a lot of products besides perfume. Their best bet is to
focus on the gift market."
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