The companies behind the most important fragrances in fashion

The fragrance business is booming.

In the US, the category continues to grow steadily, after its leap into the pandemic era. Already in 2023, sales are up 19 percent year-over-year, according to NPD, driven by behavioral changes in Gen-Z consumers and an increase in interest in the Chinese market.

“It defies logic in how strong it continues to be,” Larissa Jensen, NPD vice president and beauty industry adviser, said of the sector.

While independent brands carved out a space in the market and received attention and interest in doing so, such as Puig’s acquisition of Byredo in 2022, it is still designer fragrances from the likes of Dior and Gucci that dominate the market. .

But typically, it’s not these brands or their parent companies that predominantly reap the benefits of their fragrance’s success. Most luxury brand perfumes and colognes are made and sold by a handful of beauty companies that have signed lengthy licensing agreements with the brands. L’Oréal, for example, has held the fragrance and beauty licenses for Ralph Lauren and Giorgio Armani, respectively, since the 1980s. Several companies, including Interparfums and Parlux, base all of their businesses on fragrances, operating licenses for companies like Abercrombie , Coach and Guess (Interparfums) and Tommy Bahama and Jason Wu (Parlux).

These licenses are big business and can generate hundreds of millions of dollars in revenue for their operators, especially in the prestige segment, where the margins are higher. L’Oréal’s Saint Laurent license, which encompasses makeup, fragrance and skincare, is said to generate more than $1 billion in annual sales. For Coty, which has licensed Gucci since 2016, the fragrance accounted for 60 percent of its 2022 annual revenue.

As the industry grows, the vast network of fragrance licenses is changing. Most notably, on February 3, Kering laid the groundwork to eventually take the beauty business in-house with the formation of her own beauty arm, Kering Beauté. Dolce & Gabbana, which was previously licensed by Shiseido, took over the beauty in-house earlier this year. Estée Lauder, in an attempt to maintain Tom Ford’s beauty business (including his Oud Wood cologne), bought the company in November 2022.

More recent news, such as Coty’s December sale of the Lacoste license to the brand, which then signed a deal with Interparfums; the transfer of DKNY to Interparfums by Estee Lauder in 2022; the sales of the Tommy Hilfiger license to Give Back Beauty and Michael Kors to EuroItalia, in 2022 and 2021, once again give analysts talk.

“There is a lot of activity there because the industry is very hot,” Jensen said.

Read on for BoF’s report on the companies dominating the fragrance space behind the scenes as it goes from strength to strength.

Who is behind most of the world’s perfumes?

For licensees, beauty is a revenue driver, but for luxury brands, it’s a marketing tool. Fragrance is an entry point for consumers to first become familiar with a brand, said Mario Ortelli, managing partner at luxury strategy advisory firm Ortelli&Co. For that reason, the companies that own the licenses often invest large marketing budgets behind the fragrances and turn to celebrities for the campaigns.

Licensing allows brands to tap into that marketing machine without having to navigate complicated fragrance development processes, supply chains, and wholesale procedures on their own. The downside is that it often means giving up some control over how the brand appears and who reaps the benefits of brand equity.

“(The beauty conglomerates) have the manufacturing, the science, the technology, they have the distribution, the relationships,” said Korine Wolfmeyer, a senior equity research analyst at Piper Sandler. “It’s much simpler for them.”

The licensors of the brands’ fragrances buy them for fixed amounts and then handle manufacturing, marketing and wholesale. Competition for top brands is fierce, as deals often last for more than ten years.

Still, the two biggest players, LVMH’s Chanel and Dior, keep their fragrance business in-house, which means they retain profits and full control over the image.

Going solo doesn’t work for everyone. Burberry, for example, tried to take its scent in-house in 2013 and ultimately decided to tie up with Coty in 2017.

“The risk in insourcing is if you don’t have a critical mass to attract the right talent into your organization, or the critical mass to successfully partner with distributors or producers,” Ortelli said.

Amid the activity in the space, companies are shaping their specific strategies for how to approach business, Wolfmeyer said. L’Oréal and Coty are doubling down on cachet: L’Oréal acquired licenses from Valentino and Prada in 2018 and 2019, while Coty sold Lacoste and has instead been pushing Gucci, Marc Jacobs, Burberry and Chloé. Estée Lauder is focusing on Jo Malone and his recent acquisition Tom Ford, while Puig appears to be turning its attention away from licensing to its own brands, which include Dries Van Noten and Nina Ricci.

Interparfums chief executive Jean Madar said the number of brands approaching the company about possible partnerships has increased in recent years. The company’s revenue has also increased, from $714 million in revenue in 2019 to $1.09 billion in 2022. Due to the growth, some brands are reassessing their partnerships and others are looking to enter the space for the first time, he said.

“When brands see the fragrance business growing at a very fast pace, some of them say, are we with the right partner?” Madara said. “And the fashion houses that have always been told they have time before they get into this category now think it’s a good time for them, and we see them knocking on the door.”

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