This article has been updated to correct an error regarding Coty’s status as a privately-held company. In the early 1960s, the publicly-held Pfizer bought Coty. Pfizer sold Coty to the privately-held Joh. A. Benckiser in the early 1990s.
What do Jennifer Lopez, Gwen Stefani, Victoria Beckham, and Tom Brady have in common? Aside from their gift for grabbing headlines, these celebrities all lend their names to Coty Inc. fragrance lines. To CFO Michael Fishoff, each represents a revenue stream that contributes to the private company’s annual sales, which are now north of $3 billion. The 55-year-old Fishoff, who has overseen the venerable French perfume purveyor’s finances since 2002, is part of the team leading the company’s expansion into cosmetics and personal-care products. He recently told CFO about the yardstick he uses to measure brand performance — and why he sometimes must slow down a marketing machine fueled by Hollywood hype.
Coty brands run the gamut from new brands, like Sarah Jessica Parker, Vera Wang, and Adidas, to classics like Jovan. But more often than not Coty licenses rather than owns the brands, is that correct?
About 80 percent of the brands within the Coty portfolio are licensed. The characteristics of the licenses essentially provide ownership, but in a true legal sense we own only 20 percent of the brands. Consider our recent acquisition of the Unilever fragrance business. The biggest piece of that was the Calvin Klein fragrance, which we license from the owner, Phillips Van Heusen.
Why is Coty content to license something as important as its core brands?
There’s a symbiotic relationship between the brand or celebrity and our success. We depend on each other for public relations, advertising campaigns, merchandising, and reputation. [The brands] are very sensual, and we feed off of that. [The celebrities] feed off of us because some of our fragrance campaigns can be, you know, scintillating. So whether you own the brand or license it is almost a minor detail. It’s really sort of an accounting and cash-flow issue more than anything else.
How do the celebrity branding deals work?
Celebrity deals are, in principle, the same as designer deals. Most have the same basic template — royalties (a percent of sales), support-spending parameters, collaboration criteria. I will not discuss specific royalty rates, but they are variable costs, not [part of inventory].
Is it true that packaging represents most of the product expenses in the fragrance business?
For fragrances, the ingredients and packaging can represent between 70 percent and almost 90 percent of the total cost to produce. It depends on the complexity of the product design — quality of glass, overcaps, add-ons. But as the products become more expensive, it is usually the packaging rather than the pure ingredients [that cost more], although the ingredients are more complex in the more expensive products. It is not unusual in higher-cost products for packaging to represent two-thirds of the total cost.