Amid a booming luxury fragrance market, Richemont is ramping up investment in the space with the creation of its new Laboratoire de Haute Parfumerie et Beauté division.
The department will be headed up by division chief executive officer Boet Brinkgreve, formerly president of ingredients division and group procurement at fragrance manufacturer DSM-Firmenich, the company said on Wednesday.
The move comes as rivals, too, dial-up investment in the growing space. In June, Kering chose niche fragrance label Creed as its first beauty acquisition, paying $3.8 billion for the company; last year, Puig snapped up artisanal fragrance brand Byredo.
“Luxury brands are tapping into the beauty category to penetrate a wider consumer audience after increasing the prices of their main lines by more than [double digit percentages],” Bernstein analyst Maria Meita wrote in a note to clients. “However, beauty doesn’t come without its challenges: it requires scale.”
Richemont’s new division is designed to do just that, helping its brands that sell fragrances — Cartier, Van Cleef & Arpels, Chloé, Dunhill, Alaïa and Montblanc — reach “critical mass in this highly competitive field, where scale is crucial,” said group chairman Johann Rupert.
“Boet’s role will be instrumental in enabling our Maisons to reach their full potential in this dynamic market, broadening their clientele base whilst enhancing the Maisons’ capabilities to meet the needs of their highly discerning clientele,” he said.
In recent years, luxury fashion brands have made a concerted effort to ramp up control over production and distribution, giving them a tighter grip over the way their brand is communicated to consumers on the one hand, while also financially benefiting from higher margins on the other. Yet in beauty, many luxury houses still licence the development, manufacturing and marketing of beauty lines out to specialist companies like L’Oréal, Estée Lauder and Coty.
It’s not surprising: while vertically integrating beauty operations can be advantageous from a brand strategy standpoint, it can also be a challenging category for fashion companies to master. Back in 2013, Burberry ended its partnership with Interparfums and took its beauty business in-house, only to walk back the investment just four years later and sign with Coty.
“We are on our own, in an industry where there is lots of competition. By partnering with Coty with their sheer scale… we do feel that we will have a lot more force in the marketplace in terms of distribution and relationships with wholesalers, department stores and so on,” a Burberry spokesperson told BoF at the time.
But times have changed., In such a crowded and competitive luxury market, showcasing a consistent, coherent brand identity across all products and services is more critical for the industry than ever before. The setup has worked well for sector leader LVMH, which produces cosmetics and perfume for its own brands like Dior and Loewe, as well as a private label line for Sephora. It has also incubated new brands like Fenty Beauty. Last year, LVMH’s beauty division, which excludes Sephora revenues, generated €7.7 billion, or $8.2 billion, in revenue.
For other larger groups like Kering and Richemont, building out in-house beauty expertise may be worth it: they have the money to invest and multiple brands in their portfolios can benefit in the long term.
The move, however, could spell trouble for the companies that currently hold the licences. Beauty licenses for fashion labels can be highly lucrative for third party manufacturers; last year, The Estée Lauder Companies purchased the Tom Ford brand for $2.8 billion when faced with the prospect of losing its licence to manufacture the label’s beauty lines.
In the case of Richemont labels, Coty (which is already under threat of losing Gucci to Kering) produces scents for Chloe, while Interparfums manufactures fragrances for Dunhill, Van Cleef Montblanc. Although its Dunhill licence is due to expire at the end of this month. Montblanc and Van Cleef drove almost 30 percent of Interparfums revenues last year, according to Meita.
