The French connection

By Ranvir Nayar in Paris

I was visiting Marrakesh a long time ago," says Christian Courtin-Clarins, the chairman of the French cosmetics giant Clarins, "and I met this extraordinary looking Arab gentleman. He was dressed in a gorgeous, finely stitched suit, and he was selling some kind of handicrafts. He approached me and said in a very dignified manner, 'Sir, you will certainly be cheated in this market anyway, so why don't you let me be the one to cheat you?' Although I didn't buy anything from him, he was absolutely right. I did get cheated - and how."

That was two decades ago, and Courtin-Clarins has since become much wiser about the ways of the Arab world. In the years following his first forays into the souks of Marrakesh, he has moved cautiously into the major economic markets in the Middle East, cognizant of the traps that the region may have in store for an unwitting foreign businessman.

Global networks. With sales of nearly $700 million in 1999, Clarins is today the largest skincare company in Europe. Its stable of perfumes and makeup brands includes Azzaro and the haute couture label Thierry Mugler. The company has developed enviable distribution channels all over the world. Recently, the fast-moving consumer goods producer Procter and Gamble handed over its Hugo Boss brand to Clarins to distribute through its own network in some markets.

For two decades, Clarins did business in the Middle East the old-fashioned way: it relied on the region's traditional distribution networks, appointing local wholesalers as the main distribution agents for each country or region. Beginning this month, though, all that will change.

Clarins, in an unprecedented move, is taking control of its own distribution system. "We want to have a very rigid control over our products in the region," says Courtin-Clarins. "We will control totally the distribution in the entire region. Nobody will be able to open a new store without our permission, and nobody will be able to shut one without our agreement. We will look at quality of the store and the partnerships that it offers, as well as the atmosphere in the store and the staff-training methods."

Although Courtin-Clarins will not explicitly say so, the decision to closely monitor the distribution of his products in the region has everything to do with parallel, or gray, marketing. It is a problem affecting almost every major exporter to the Middle East, and is especially acute in the cosmetics industry, since the goods are easy to transport and hard to track.

Most companies, and many retailers, have watched helplessly as parallel marketeers have stolen their profits. The cosmetics industry alone is estimated to be lose several hundred million dollars each year to the gray market.
Courtin-Clarins says that the gray-market trail typically begins in Switzerland, where products arrive from Paris, and then heads to Dubai. In the UAE, some of the parallel goods are sold illegally, and the rest are re-exported to markets all over the world.

One reason Clarins decided to take control of its distribution network was to ensure that there was no conflict of interest between the distributor and the retailer. Clarins, like several other cosmetics companies, found that in the absence of a proper distribution channel on the retail end of the market, the importer of the product also becomes the distributor. This leads to a costly conflict of interest: the distributor/retailer will inevitably favor his own shops. All the samples and all the new products arrive at his own shop first. Good for one man, but bad for the company. In order to grow their business, Clarins decided to set up independent distributors that are not linked to any large chain of retailers.

The weakness of the euro throughout 2000 posed special problems for the cosmetics industry. Taking advantage of the 25 percent fall in the euro against the dollar, the gray-market players bought products in France and shipped them to be sold illegally in the United States, placed right alongside the "genuine" articles.

Courtin-Clarins says the problem arose because of loose distribution controls over the retail end of the market. "If people open a small store somewhere, you never know where the goods go afterwards," he says. "We want to have much better control of the distribution and to be sure that when we sell to the retailer, the products stay where they are supposed to. They should be sold to the customer one article at a time - not 24 at once.''

Code of conduct. Clarins has strictly prohibited its retailers in France from selling more than six of the same product to the same buyer. Courtin-Clarins says the company is serious about the implementation of this policy and that it has closed a number of retail outlets in France that did not follow the code of conduct - even though the company may have lost nearly $1 million in sales in the process.

However, Clarins is not totally breaking off its relations with distributors in the Middle East. It is instead overhauling its relationship with them by redefining their role. "We will keep the distributor for doing warehousing, shipping and other paperwork, since they have the organization," says Courtin-Clarins. "But we will be involved in defining our strategy. I want to be sure that our products are handled properly by a well-trained salesforce. I am very concerned about the long-term prospects because this part of the world is now a very sophisticated market. If you want to stay competitive, you have to think about distribution.''

To that end, Clarins has created a Middle East distribution subsidiary. The new company will provide guidance to retailers in marketing, distribution and training of their sales staff. Courtin-Clarins says that the subsidiary will set the company's long-term strategy for the entire Middle East region. "There was a tendency in this part of world to go for the quick money," he says, "but now the economy is more stable and people are thinking long-term. But only a parent company can have a long-term strategy: the local partner will always worry about the future of his relationship with the parent."

Nearly 25 years ago, Courtin-Clarins joined the business that had been started by his father. After obtaining a degree in business management in the United States, he returned to Paris and began to put his own stamp on the company. "My father has a very strong personality," he says, "so I wanted to create a new division, a new business that would not only keep me busy and help the company grow, but also keep me away from him."
In the 1970s, the French ruled the global cosmetics industry; the top five companies were French. But this dominance led to complacency. "They simply did not bother to take their products to the consumers across the world. Instead," says Courtin-Clarins, "they believed that since their products were good, the consumers would follow. But, over the years, this led to a loss in market share."

Clarins, though, was a relatively small operator in those days. This was partly because the company chose to use only natural products - rather than chemical byproducts - in the manufacturing of its cosmetics. Chemical-based cosmetics were all the rage in the 1970s, widely seen as high-technology and thus highly efficient. But Clarins persisted with its strategy.
Number one. In 1980, Clarins became the number one skincare player in France. "Before, we were knocking on the doors of retailers, trying to convince them to stock our products," Courtin-Clarins says. "Then, suddenly, we had everyone lining up outside our door for orders.'' Becoming number one in France opened doors to other markets. Soon, Clarins was selling in 15 countries around the globe. Today, Clarins is present in 120 countries on five continents. The success of Clarins is due not just to the quality of the product, but also to shrewd marketing. It also has a large laboratory to test all the products before they are sold.

Courtin-Clarins says these labs are the most powerful weapons in the Clarins armory, especially as they provide a way for Clarins to keep track of consumers' response to its products and their expectations.

"What is the difference between a three-star restaurant and an ordinary one?" Courtin-Clarins asks. "It is the know-how of the chef, since the ingredients are the same. We're the only company that uses the products every day in our labs. We test them and get customer reactions. We have 10 women who spend their lives with cream on their hands."

In the early 1980s, Clarins entered the Gulf market. The barriers to entry proved formidable. At the time, Gulf cosmetics sales were dominated by fragrances, which made up 70 percent of the market. Make-up accounted for 20 percent and skincare products the rest.

"My main challenge was getting shelf-space visibility," says Courtin-Clarins. "Since perfumes sold more, the retailers gave them best places in the shop displays. We had to struggle since we could only offer 10 percent of the volume of, say, Chanel Number 5."

Courtin-Clarins felt that the way to get ahead in the Gulf was through a highly motivated and well-trained sales force. One of their first steps was to train staff in how to help customers choose the right products for their skin type. "It's not like perfume, where the only thing that counts is the smell," he says. "We have a wide range of products, but if people choose wrong product, it won't work. The best way to serve the customer is not only to ensure that you have a good product, but also to make sure that she buys the right one."

For Clarins, a lot is riding on the success of its new Middle East distribution strategy and its new subsidiary. The company will surely make enemies as it shuts out powerful distributors and shuts down an old-fashioned way of doing business in the region. Today, Clarins has a steadily growing market share in the Middle East, and Courtin-Clarins has set ambitious targets for future growth: "Today, the region accounts for about 100 million francs ($15 million) in sales each year. We aim to double this within a year."

Part of his optimism comes from his experience in Saudi Arabia, where he recently overhauled his distribution system. "We reduced our doors by half and doubled our sales," says Courtin-Clarins. "It was done through good marketing, good sales, good techniques. Makki [the Saudi distributor] is very organized. They have everything that you can dream of or expect from a good distributor."

Clarins hopes to be able to duplicate its success in Saudi Arabia in other countries in the region, especially in emerging markets such as Egypt, which has a population of nearly 50 million.

Just like in Morocco more than two decades ago, however, Clarins' fate in the Arab world depends upon the strength and trustworthiness of its local partners. But this time, there is no elegant man in a finely tailored suit whispering advice in the chairman's ear. The company will succeed or fail in the Middle East based on its own strengths and and its own frailties. Which is exactly the way Christian Courtin-Clarins wants it.