The Big Stink : Consumers Smell a Bargain as Perfumers Fume About Growing ‘Gray Market’ Sales to Drug and Discount Stores

More than a bottle of amber liquid, Parfums Givenchy USA is selling a style, an image, a mood--or, as President Robert Brady puts it, a fantasy. It is a bare shoulder, a sideways glance, “available at Saks.”

So what sort of fantasy is this, here at the cosmetic counter inside Drug Emporium, where small boxes of Ysatis de Givenchy--the name rolls like a whisper--are offered for sale on equal footing with $3 Austrian crystal earrings and stegosaurus-shaped bath soap?

Designer fragrances that used to be hard to get outside boutiques and department stores can be found in abundance this holiday season at drugstores near the cough syrup and on pallets and in bins at off-price outlets. Even Sears, Roebuck & Co. sells designer fragrances. You can pick up your Giorgio and your socket wrench in one stop.

Image-conscious designer fragrance manufacturers don’t sell to mass market retailers directly and aren’t happy to see their fragrances sold at such places. Several manufacturers have sued distributors and retailers to restrict unauthorized sales, with limited success.

While fragrance sales are mostly flat, sales at discounters are booming. Cautious about spending, consumers are passing up the ambience of department store counters and going for the bargains. Kmart put designer fragrances on special for $19.95 over Thanksgiving weekend, a discount of 20% to 40%, and all but sold out.

“Sales are good, really good,” says Angelica Mendez, a sales clerk at Drug Emporium. She sold 36 pieces last Sunday at the North Hollywood store, one every 12 minutes, to people with price comparisons written on scratch pads.

The banner day depleted her stock. “We’re out of Tresor and Anias,” she said, taking inventory. “Ysatis we reordered, and then it sold out, and now we have to reorder again.”

No prestige fragrance firm sells directly to Drug Emporium. The Powell, Ohio-based drugstore chain buys designer fragrances from a Miami distributor, which acquires them from various unauthorized sources around the globe. Moving across national borders to the dictates of consumer demand, much of the so-called “gray market” perfume ends up behind drugstore counters in the U.S.

Givenchy last year moved to stem sales of gray market fragrances to Drug Emporium, suing the chain in federal court in Los Angeles after it found the perfume Amarige on sale at the North Hollywood store--a cramped place awaiting a make-over that shares a parking lot with a Salvation Army Thrift Shop. Givenchy argued that it spent $5 million in 1992 to promote Amarige as a “high-quality, high-prestige luxury item,” and that sales by Drug Emporium damaged that image.

Givenchy won the suit, which turned on a quirk of copyright law. The court said that by selling Amarige in a box that had been granted a copyright, Drug Emporium violated a federal law that prohibits anyone from importing copyrighted material without permission. Drug Emporium is appealing the ruling, which affects only Amarige. Givenchy has since settled similar suits with other discounters, including Miami-based Perfumania and Walnut Creek, Calif.-based Long’s Drugs.

Last April, Giorgio of Beverly Hills took its distributor in Puerto Rico to court, claiming that it had sold perfume to unauthorized outlets, causing the “reputation and prestige of Giorgio products (to) have been diminished in Puerto Rico.” Giorgio sought to reduce sales to the distributor by two-thirds.

The case was settled, and neither side will discuss it.

Giorgio President Linda LoRe said that in general the company has slowed unauthorized sales of perfume either by dropping distributors or reducing sales to them. “It is almost impossible to eliminate diversion,” she said. “But we’ve gotten better control of it.”

Though discounters dispute it, manufacturers fret that unglamorous surroundings diminish the value of a product that is essentially vapor. In blind testing, Consumer Reports found that its panel of experts actually preferred cheap knock-off fragrances to some designer scents.

“Much of our value-added is imagery,” said Givenchy’s Brady. “Surrounding the product with terrible conditions--we’ve found it in gas stations and food stores--is very damaging.” Despite some manufacturers’ aggressive steps, some people question the willingness of the fragrance industry to shut off the flow of product to mass market outlets that account for about one-quarter of all designer fragrance sales. As department stores close, fragrance manufacturers have fewer outlets for their designer perfumes. What’s more, continual price increases during the recession have put prestige fragrances--at prestigious prices--beyond the reach of many consumers.

“Frankly, there’s an awful lot of product in the discount stream with the blessing of the manufacturer,” said Tom Ziemke, regional vice president for Drug Emporium in California. “The party line is that it is damaging and they would like it to go away. But when they have more product on hand than they can sell through primary distribution, they open the spigot. It all gets back to Economics 101.”

Peering down the pipeline, Ziemke observed: “Obsession for men is tough to get, Obsession for women is not a problem. Eternity is tough, Giorgio is not a problem--three years ago, it was a bear.”

Gray market fragrances are flowing freely this holiday season, a period which traditionally accounts for about 40% of designer perfume sales. At Marshall’s, an off-price retail chain, prestige fragrances are unceremoniously dumped in bins near registers, so customers can pick through them while waiting to check out. Gift sets are stacked at Ross Dress-for-Less like so many shoe boxes about to tumble.

American Drug Stores, the parent of Sav-on Drugs, mailed consumers guides to buying prestige scents. And CVS Stores, a discount drug chain based in Woonsocket, R.I., is giving customers gift guides featuring Elizabeth Taylor’s White Diamonds, Christian Dior’s Poison and Lancome’s Tresor.

As the holiday shopping season got under way last month, Sears opened designer perfume counters in 22 of its stores nationwide, including seven in Southern California. Sears is relying on the gray market for some fragrances, using the same distributor as Drug Emporium, though it hopes to eventually deal with manufacturers directly.

One of the new fragrance counters is in South Coast Plaza--a mall where Giorgio and Chanel have quiet boutiques with soft chairs, and where Nordstorm and Bullocks have traditional counters staffed with smiling clerks holding tester bottles, poised to spray. Carey Strombotne bought a Bennetton scent on a whim. She had parked outside Sears and was walking through the store on her way to the mall.

Robert L. Mettler, president of Sears apparel and home furnishings group, plans to open 300 more designer cosmetic and fragrance departments over the next two years, with fragrances accounting for 5% of his division’s overall sales. That is not the only benefit fragrances offer Sears. “It brings a bit of glamour.”