The French connection (page 1 of 3)

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.