In recent years, the beauty business was one of the most lucrative in the world. Its steady growth has led some experts to conclude that it was one sector that would surely withstand the onslaught of the crisis. Nevertheless, “the most recent results of large companies showed that this is not a recession-proof market,” says Bernd Beetz, chief executive of Coty, a U.S.-based fragrance company.
For example, in the first quarter of 2009, L’Oréal, the French cosmetics company, reported that sales in its cosmetics division had dropped by 3.9% compared with the same period in 2008. And during the first half of this year, the operating earnings of LVMH, the French maker of luxury products, fell 12%.
Beetz joined Coty in 2001 after overseeing the perfume and cosmetics division of Moët Hennessy Louis Vuitton (LVMH) and heading Christian Dior’s perfume division. During his two years at Christian Dior, he launched one of the world’s best-selling perfumes, J’Adore, which doubled the profits of the company.
A native of Germany, Beetz knows how to combine a strong German work ethic with the free-and-easy business style so popular in the U.S., adding his knowledge of the particularities of each country where has worked, including France, Italy, Switzerland and Turkey. “I have always been a bit of a vagabond, moving from one place to another every two or three years," he says. "I don’t identify myself with any one place or culture, and I call many places home."
Entrepreneurship, Agility and Consumer Focus
Under Beetz’s leadership, Coty, which comprises the perfume brands of Calvin Klein, Marc Jacobs, Chloé and Chopard and the cosmetic brands of Lancaster, Rimmel and Astor, has become the world’s largest perfume company. Annual revenues at the multinational, headquartered in New York, have increased from US$1.4 billion seven years ago to US$4 billion today, thanks in large part to a series of acquisitions. Coty’s chief executive stresses that the strengths that have propelled the company’s growth have been “an entrepreneurial culture, skill at making decisions in an agile way and the fact that we are close to consumers.” With this strategy, the company has made a place for itself in the sector.
That’s no small feat. According to a report by Harvard Business School, entitled, “Bernd Beetz: Creating the New Coty,” 90% of new perfumes fail, with the average life span of a new fragrance steadily shrinking to less than two years — approximately the same time that it takes a company to create a perfume.
Despite the growth that the sector has experienced in recent years, it has not escaped the crisis. Some, such as Estée Lauder and Elizabeth Arden in the United States, announced at the beginning of this year that they were cutting their headcount. On the other side of the Atlantic, L’Oréal confirmed that it would do the same.
According to Beetz, his company’s results this year “will not be as good as they were last year…. Since 2001, success has always been on our side, with double-digit growth. But the situation has changed and we will have to change the way we are structured.”
So far, partnerships have been important. For the past seven years, Coty has been the U.S. distributor for Catalonian manufacturer Puig Beauty & Fashion. “We have a similar way of handling situations, and both of us are family-owned companies,” says Beetz. Puig, founded in Barcelona in 1914, has a presence in more than 150 countries. Through Coty, it has brought to the U.S. and Canada such prestigious fragrances as Prada, Nina Ricci, Carolina Herrera and Paco Rabanne. The newest fragrance in its portfolio is from actor Antonio Banderas, introduced at the start of 2009. Beetz does not dismiss the possibility that Puig can eventually enter the U.S. on its own. However, he is quick to add that “the U.S. is a very complex market, and if you make a mistake, it can ruin you.”
Acquisitions have also been vital for Coty’s growth trajectory. According to Beetz, one of Coty’s strengths is its ability to integrate acquisitions. Since 2000, Coty has completed three major acquisitions. In 2003, it bought the perfume arms of designers Kenneth Cole and Marc Jacobs. Two years later, it acquired the cosmetics division of the Anglo-Dutch consumer goods firm Unilever, which includes the perfumes of Calvin Klein, Vera Wang, Chloe and Cerruti. The most recent major acquisition came last year, that of Del Labs, which has such brands as New York Color, which it will introduce to Spain this year.
“You have to be clear about the goals of each company," says Beetz. "Ours has been to grow in the U.S. and we have accomplished that.” He reckons that Coty will continue acquiring other companies "because the crisis will generate new opportunities, and you mustn’t let current conditions influence your long-term business plans.”
Sweet Smell of SuccessThe history of Coty goes back to the start of the twentieth century, when Corsican-born François Spoturno moved to Paris at a time when the cosmetics industry was growing rapidly. Thanks to contacts in artistic circles, he opened a small perfume shop in 1905. Twenty years later, his enterprise had become one the world’s most important cosmetics companies. The spectacular growth of his U.S. subsidiary, Coty, led the company to move its headquarters to New York.
Despite its growth during its first 30 years, the company reached 2000 with a fragmented product portfolio, after having passed into the hands of various new owners — first U.S. pharmaceutical firm Pfizer, then Reckitt Benckiser, the UK maker of household, personal health and cosmetic products. In a study published by Harvard University in 2008, Beetz recalls a conversation with Peter Harf, then president of Reckitt Benckiser, who told him: “We have a company, Coty, that doesn’t work and we are prepared to give you the keys to it. Let’s see if you can fix the company. If, within two years, you see that you can’t fix it, you leave with a good bonus.” Beetz accepted the challenge.
One of the devices that helped re-launch the company was marketing perfumes associated with celebrities. The first celebrity fragrances date back to 1934, with actress Mae West putting her name on a perfume, but celebrity fragrances didn’t hit the big time until White Diamonds, Elizabeth Taylor’s perfume, launched in 1991.
In 2002, Coty launched J-Lo Glow, a perfume developed in collaboration with singer-actress Jennifer Lopez, which recorded sales of some €80 million in its first year. Since then, Coty has created fragrances carrying the names of Kate Moss, Celine Dion, David and Victoria Beckham, and Sarah Jessica Parker, among others. Bentz believes that the key to success is “achieving the maximum collaboration with the celebrity in question…. We only work with those people who are prepared to spend a lot of time with us, and really put their soul into the project,” he explains. Twenty-three percent of all perfumes on the market are related to celebrities, and Coty commands 80% of that business.
‘Never the Same Again’
Medium-priced perfumes, like those associated with celebrities, are performing better in the current market conditions than those at the high end. A connoisseur of the world of luxury, Bentz confirms that cosmetics firms are feeling less of the negative impact of the crisis than the fashion industry. Overall, he says, “sales of Coty brands at the more prestigious shopping malls have fallen by as much as 40%.” On the other hand, sales at the likes of Wal-Mart have increased by 7%. The market the most affected is the United States.
“I went to the West Coast at the start of the year, and the situation was distressing," he recalls. "The supermarkets were empty; consumers had closed themselves up like oysters." Nonetheless, he is confident that as dramatic as the drop in consumer demand was, so, too, will its recovery be. "But no one knows if the market will ever be the same again.” For now, Beetz asserts that he has not changed his plans, “because you have to know how to think over the long term.” With that in mind, he continues to keep an eye on acquisition targets, while not ruling out one or two in the coming months. As he says, “Periods like the current one offer great opportunities.”
