Latin America is a core region for fragrance despite its developing status, worth more than North America in 2015 at USD$10.7 billion. Demand clearly exists but economic turbulence has been to the detriment of the category’s identity, as purchases were dictated by the times and circumstance and not by consumer choice. Improving retail infrastructure will lessen reliance on direct selling, which will lower barriers to entry and improve accessibility and variety, as well as premium’s plight.
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The fragrances market in Latin America is sizeable and prosperous, despite substantial macro-economic challenges. With fragrances fulfilling a multitude of roles in the lives of consumers, from gateway luxury purchase, to aspirational, to acting as an economical pick me up or gift, the category has sometimes benefited from its own pitfalls, but is yet to find its rightful permanent place in the everyday routines of the masses outside urban centres, alongside hair and skin regimes.
Mass accounted for 83% of the fragrances market in 2015, largely a consequence of price preference in Brazil, but also a direct result of a lack of competition and of product variety, or at least accessible product variety. Direct selling is the cause of this, as the leading distributor of fragrances in the LATAM region, which in most countries in the region takes more than half of value sales. Most direct sellers are positioned in the mass or masstige segment, giving consumers little choice in product or brands.
With a view to the future, the retail landscape will change. The emergence of beauty specialists and expansion into smaller urban centres will increase consumer awareness and choice, and will stimulate competition, providing a way in for international and niche players. Whilst this will inevitably open up the floor for the premium segment, it will be a long hard slog to convince consumers of the added value in a non-performance product.
That does not mean to say that premium will not gain ground. In fact, most forecast drivers, both soft and hard, will be of benefit to these luxury goods, including increasing GDP per capita, higher unit prices and rising consumer awareness. Ultimately, these indicators will pave the way for a 6% CAGR for premium fragrances between 2015 and 2020, compared with a 3% CAGR for mass fragrances.