The Smell of Money

Making scents of the world's perfume industry.

Like Kraft Makes Cheese

Despite, or perhaps because of, the masstige challenges, Coty, LVMH, Procter & Gamble, L’Oréal, Estée Lauder and the like have been churning out perfume products “like Kraft makes cheese,” as Dana Thomas puts it in her new book, Deluxe: How Luxury Lost its Luster (Allen Lane, 2007). Indeed, the number of perfume launches is skyrocketing. Industry researcher Mintel reckons there were 220 launches of women’s fragrance in 2006, more than double than in the 1990s.

One major consequence is an ever-shrinking “lifespan” of a fragrance. Mintel reckons that only 5% of new perfumes will still be on the market two years from its launch — a remarkably short period given that a fragrance can take six to 18 months to develop.

Meanwhile, as many industry watchers fear the commoditisation of their products, squeezing money out of perfume is getting harder. Diana Dodson, senior cosmetics and toiletries analyst at Euromonitor International, notes that unit prices in the US — the largest perfume-buying country — were stagnant from 2001 to 2006 (in constant terms). She forecasts a global decline of 0.7% a year from 2006 to 2011, with prices in western Europe shrinking by 0.2% a year over the same period.

In response, perfume companies are adjusting business models to take advantage of masstige, including using the price points associated with luxury goods while also tapping into high-volume distribution channels.

Red-Carpet Treatment

The idea of combining mass marketing and fine fragrances isn’t entirely new. One company that has had more practice at it than others is $3.3 billion (€2.2 billion) Coty.

Not long after founding the company in Paris in 1904, François Coty began searching for ways to offer beauty products at prices that even shop assistants could afford. By 1912, he opened subsidiaries in New York and London, and a few years later, the firm launched Chypre de Coty, a ground-breaking perfume that became a classic with long-lasting appeal, alongside Chanel No 5.

A century later, Coty positioned itself in the vanguard of the industry once again. After rival Elizabeth Arden launched a hugely popular perfume bearing Elizabeth Taylor’s name in the 1990s, Coty unveiled its first “celebrity” perfume in 2002 under a licensing agreement with pop star and actress Jennifer Lopez. For Coty — now a New York–based private firm owned by Germany’s Joh A Benckiser — it’s been a major success, with J Lo’s fragrance line generating a steady revenue of $100m a year since 2004, “no matter whether her personal commercialism rises or falls,” says Michael Fishoff, who joined the firm as CFO in 2002.

Lots of other perfume makers have hopped on the celebrity bandwagon for the quick-hit revenue appeal of masstige. But even for CFOs familiar with the rapid turnover of products in the world of consumer-goods manufacturing — such as Clairol, the hair-products company where Fishoff previously worked, or Procter & Gamble, where his CEO Bernd Beetz spent 20 years — celebrity fragrances bring their own idiosyncratic challenges. With few exceptions, “celebrity perfumes have a short, explosive life: they hit the market with a tsunami of publicity, sell vast amounts to the middle market and then disappear,” according to author Thomas in Deluxe.

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