In the last three years, Russian online perfume store haves achieved impressive growth. To remain successful in the future, they will have to turn their sites into full-fledged portals.

Lev Nikitin

This spring, one of the leading Russian online retailers, eHouse, released sales data for its online perfume stores. Over the course of 2003, earnings doubled and exceeded $2 million. eHouse’s competitors, the ParfumShik.ru and Parfumchik.ru chains, also reported similar growth. This means that perfume retail online has grown from $1.1 million to $3 million in a year. These growth rates significantly exceed those of other online retail sectors. The most important accomplishment of the perfume retailers: they have almost succeeded in convincing their clients that it isn’t absolutely necessary to smell perfume before buying it.

Online chains

Today, someone who has decided for the first time to buy perfume or cologne online will probably end up at one of the leader’s stores, the better known and more trafficked sites listed first by search engines in response to “perfume-related” requests. There are three leaders: eHouse Holding, that owns eight sites including the biggest, Aromat.ru, controls around half of the turnover in this segment, ParfumShik.ru, and Parfumchik.ru which both run two online stores each.
Opening several sites at once offers site owners a whole range of advantages. The consumer, unhappy with the service at one store, can choose another, often without realizing that it is basically the same store. At the same time, several sites can be optimized for search engines from a purely technical point of view. Due to the peculiarities of search algorithms, each site from a certain chain, linked to all the other sites in the chain, has a higher chance of being listed first among the search results. Maintaining seven sites is only slightly more expensive than maintaining one. Sites, in contrast physical stores, use exactly the same infrastructure and delivery services.
According to Evgeny Baranov, the General Director of ParfumShik.ru, “the broader the online store’s network, the more chances it has that a customer will end up there.” Sergei Kutsev, Director of Aromat.ru, has a similar point of view: “If we don’t open these stores, our competitors will.”

Sniffing out success

Thus, a potential customer ends up at one of the online stores. Regardless of whether the site is “expensive” or “cheap,” prices on the internet are at least 20% lower than offline, due to online retail’s lower costs. This alone would be enough to interest visitors. Customers don’t require much to place an order. They want to be sure the perfume is not a cheap imitation and they want to know what it smells like. This is when things get interesting. While product quality at online stores is confirmed by numerous certifications, it is harder to deal with customers’ desire to sample the product.
All potential online perfume buyers can be divided into two groups. The first group knows exactly what they want and are simply looking for their scent at the lowest possible price. As a rule they come to the site via search engines after running a search for a perfume’s name. The online stores survive thanks to these customers, who focus on the lowest possible price to the detriment of the site’s attractiveness or information content. These buyers don’t care. They simply place their order and leave the store’s site, often never to return. The next time, they will again search for the “cheapest store” and buy where the price is lowest.
The second category of customer holds the most promise for the more informative sites. They are innovators unafraid of “blindly” selecting a scent. They participate enthusiastically in online discussions of perfumes and actively look for help from online consultants. As a rule, these customers are more than mere purchasers. They are interested in perfumes, and are willing to share their opinions and debate the merits of various scents. They form the core of frequent visitors who “hang out” on the site. This group, much like a snowball rolling down a mountain, continues to attract more and more customers.

A whiff of business

Of all the various online perfume stores, the most successful among them share one characteristic. Online retailers provide their customers with an assortment of goods that includes everything that Russian wholesalers have to offer. Traditional retailers cannot boast this, regardless of whether they sell perfumes or not. The fact of the matter is that at present two basic online perfume sales models are forming that differ in their degrees of “virtualness.”
The model applied by traditional stores and wholesalers who have set up retail outlets on the internet uses a pre-existing warehouses and product selection. On one hand, this allows them to complete orders more quickly. On the other hand, they have only a half or a third of the selection of stores operating only on the internet. It is not profitable for traditional retailers to keep rare perfumes in stock, for which demand is unstable. For this reason the majority limit their selection to the most popular products.
The second model assumes that no stock or warehouse exists. The entire selection presented on the site is created virtually on the basis of several wholesale suppliers. To put it more simply, several computer price lists are united, resulting in the virtual shop window of an online store. Prices in this window are 20-25% lower than regular retail thanks to savings on warehouse and physical stores. By working with several suppliers at once, online retailers can offer the greatest possible selection.
Of course, the virtual warehouse does have its drawbacks. As a rule, goods are only received 24 hours after an order is placed. A more substantial problem is that changes at suppliers’ warehouses are reflected with a delay on the site. As a result, the online store sometimes takes orders for goods the wholesaler no longer has. This is particularly common before holidays. Evgeny Baranov recounts that “the demand before certain holidays is so great that we already stopped taking orders December 28th, for instance, and simply delivered goods. At the same time, their actual availability at the suppliers’ warehouse also changed quickly and we were not able to fill some orders. This is a problem shared by all online stores.”
Theoretically, all retailers could start operating online using the second model. But in order to use internet technology successfully, they would have to give up regular forms of trade and their existing warehouses. In other words, they would have to realize they were dealing with a completely different kind of business. Experience shows that this is very difficult accomplish psychologically.

Selling information

Broad networks and wide selection have allowed internet perfume retailers to attract the above mentioned innovative customers, ready from the start to buy perfume online. However, now according to the retailers themselves, these customers have already been divided up among the sites and will not be able to create rapid growth for the segment in the future. For this reason, online retailers now have to attract new customers who formerly avoided internet stores.
Evgeny Baranov is confident: “Perfume purchasers go online for three reasons: selection, price, and convenience.” This not only applies to customers who have already made up their minds that online stores have served until recently. To attract everyone else, sites need to give them the possibility to select perfumes right then and there. The more visitors come to online stores to do more than simply make a purchase, but to also select a perfume, the more important the information supporting the purchase becomes. This idea has encouraged retailers to create online encyclopedias of scents, to support user forums, and to provide consultation via email or ICQ. Trying a scent before buying is not absolutely necessary for a significant number of customers. Sergei Kutsev notes, “As strange as it may seem, online consulting actually works. A person talks to a specialist, describes himself, his styles, and says what perfumes he likes. After this, the experienced consultant can already recommend particular scents. Our experience has demonstrated that there are practically no mistakes or complaints from customers that the scent didn’t work for them.” The information content of a site further increases its popularity. This means that once they wind up at the site and make a purchase, customers will come back. That is how an online store creates a brand name.
Thus, the quality of a site’s information is becoming one of the key success factors in the online perfume business. Clearly, in time customers will be increasingly focused on portals where it will not only be possible to buy something, but also read about the latest trends, find out important information about a product, learn from reviews by other customers, and get online help.
However, the majority of market players are still caught up in “weaving their webs” online, and are doing so in the easiest and cheapest way by opening a plethora of identical stores. This policy of setting up unknown sites only catching customers due to their sheer number can only be justified while the number of internet users is growing rapidly and they know little about shopping online. These days, even according to online perfume retailers themselves, are coming to an end.

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