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L’Oréal may not stay the world’s No. 1 cosmetics group forever. LVMH could eventually gobble up all or parts of the Estée Lauder Companies (ELC) even though the French luxury giant has denied any interest – for now, as Miss Tweed reported last week. Competition from rival groups Coty, Shiseido, Interparfums and Puig is set to intensify and new challengers are emerging such as Cartier owner Richemont and French luxury group Kering.

In September, Richemont announced the creation of a beauty division called Laboratoire de Haute Parfumerie et Beauté but it has yet to explain how it plans to build it up. After having lost more than €4 billion in the Yoox-Net-A-Porter (YNAP) and Farfetch debacle, the Swiss group may want to pause and think hard about investing more money into a high-stakes project such as beauty, industry insiders say.

“It’s not the best time to invest in beauty when part of your business is on fire,” one senior beauty industry insider said about Farfetch and YNAP. Richemont appears to have put on hold plans to sell Farfetch a minority stake in YNAP and use its e-commerce technology for its brands (see today’s Weekly highlights Nov. 27-Dec.1 for more details).

The Swiss group has hired Boet Brinkgreve from the fragrance and nutrition group DSM-Firmenich to lead its push into beauty. Brinkgreve is studying various options and preparing proposals he is due to submit to the board early next year, industry sources say.

“Boet is currently gathering intelligence and evaluating different proposals he will make to the board,” one senior industry source said. Richemont is expected to make a decision after Christmas, in the first quarter of next year, he said. “They want to become a bigger player in beauty and fragrance,” the source said. “This sector naturally complements their jewelry, watch and fashion brands.”

CARTIER

Cartier is a hugely successful jeweler, the biggest in the world in terms of sales, but its perfumes – like its handbags – were never a huge commercial hit. It’s not been able to stretch the brand much beyond watches and jewelry. Yet in the 1970s and 1980s, Cartier was making a lot of money with Les Must de Cartier items such as perfumes, accessories, lighters and watches. It was another era then.

Cartier has developed its perfumes internally for decades. It has legitimacy in the field. Its in-house nose Mathilde Laurent, previously at Guerlain, has been creating the brand’s fragrances since 2005.

Cartier’s “Panthère” and “Pasha” perfumes sell well, but the brand’s fragrance business is small relative to that of other big brands. Industry experts estimate Cartier generates around €70 million from its perfumes. It could easily bring that to €300 million if it invested in its distribution and in the brand’s marketing. But as of now, the activity is too small to serve as a basis to help launch other brands, beauty experts say.

It sells its perfumes mainly in its Cartier jewelry boutiques and through a few selected distributors such as Sephora in France and in duty-free shops in airports. Richemont does not publish separate figures for each of the brand’s category, but industry experts estimate that the wholesale business does not represent more than 30 percent of total turnover from Cartier fragrances.

BUYING BACK LICENSES

If Richemont is serious about making a push into perfume and cosmetics, it will have to make acquisitions and buy back some of its biggest licenses, industry analysts say. Richemont’ s two most important fragrance licenses are for French fashion brand Chloé and for luxury pen and watchmaker Montblanc. The Chloé license is being exploited by Coty and according to industry sources, its contract with the U.S. beauty company lasts at least another nine years. Industry insiders predict it will not be easy for Richemont to buy back the license from Coty. Chloé generates more than €300 million in fragrance sales. It would cost at least that amount to buy back the license, experts estimate, and Coty would have to agree – which is not a given.

Same for Montblanc, a top moneymaker for French fragrance maker Interparfums. In 2022, it generated revenue of €184 million for the Paris-based company, up 30 percent against the previous year. Buying back the Montblanc license could cost Richemont more than €700 million, or at least four times the annual sales the Montblanc license generates for Interparfums, sources close to Interparfums say. The amount of €700 million is exactly the loss Richemont reported for YNAP in the six months to Sept. 30.

The Montblanc license expires in seven years. Whatever deal is agreed, it is likely that Richemont will want to continue using Interparfums’ distribution network and work with the French company.

The business Interparfums makes with Richemont’s other brand, Van Cleef & Arpels, is much smaller at around €22 million. It is unlikely Richemont will be interested in taking that one in-house. Its ambition has never been to build this perfume activity into a big business. The French jeweler makes good volumes with “First”, a fragrance created in 1976 by Jean-Claude Ellena, Hermès’ former in-house nose, and which sells for around €75 a bottle. It also developed with Interparfums a high-end, more confidential collection of perfumes with names such as “California Rêverie” or “Santal Blanc” that sell for €175 a bottle. “I think Richemont and VCA CEO Nicolas Bos do not want to change anything regarding that particular license with Interparfums,” a senior source close to Interparfums told Miss Tweed.

Richemont should be able to strike a deal with Interparfums. “Relations are good between Interparfums and Richemont, so they will be able to come to an agreement if Richemont wants to buy back licenses,” that source said.

The one fragrance license Richemont has available is for Alaïa. The French fashion brand has been enjoying a steady renaissance under designer Pieter Mulier. It’s on its way to generating annual sales close to €100 million. To leverage the brand’s popularity, Richemont may consider launching an Alaïa perfume collection – if it has the right teams and distribution in place. For that, it may also need Interparfums’ help. That’s one of the many options Richemont will be reviewing next year.

Investors may not be as enthusiastic about this new beauty venture as Richemont Chairman Johann Rupert. The Geneva-based group knows how to run jewelry and watch brands. It does not have a strong track record in fashion and its venture into e-commerce proved a disaster. Chloé, its biggest fashion brand, has been through two designers that were not cut out for the brand. As a result, Chloé lost six years in terms of reaching its full growth potential. Fashion critics hope Chemena Kamali, the brand’s new designer, will be better suited. Kamali will present her first collection at Paris Fashion Week next spring.

“I am not sure Richemont understands how complex the perfume business is,” a senior manager at one of the world’s biggest perfume companies told Miss Tweed on condition of anonymity. “It’s not just about putting a juice in a bottle, there are many sanitary norms you need to worry about and managing the supply chain is not easy either.”

Taking back licenses and producing in-house is a costly gambit. Burberry spent €181 million buying back its license from Interparfums in 2012 only to throw in the towel a few years later and sell the business to Coty. Two years ago, Dolce & Gabbana internalized its cosmetics and fragrance operations, but the company is such a black box from a financial point of view, it’s not clear yet how successful that move has been.

KERING

Richemont is not alone in wanting to bet big on beauty. Kering has similar plans. The owner of Gucci and Saint Laurent this year spent €3.5 billion on high-end fragrance maker Creed, its first acquisition in the sector. The price was very high, but industry sources say Creed is the biggest of so-called “niche brands” and its distribution network will be used to help other fragrance brands Kering plans to bring to the market.

The Creed acquisition is part of Kering’s ambition to build a beauty unit from scratch and produce in-house the fragrances of its own stable of brands including Alexander McQueen, Balenciaga and Bottega Veneta. The ultimate goal is to be big enough and ready in terms of distribution and brand portfolio to take back the Gucci license from Coty, which runs until the end of 2028. It is estimated to generate around €500 million in annual sales, as Miss Tweed reported in February. Kering will want to wait for its own beauty business to grow and to have the right people in place before it starts discussing the possibility of buying back the Gucci license, industry sources predict.

Kering aims to build a sizable fragrance and cosmetics business that generates at least €1 billion in annual sales, industry sources say. To achieve that, it will need to make more acquisitions. However, there are not that many brands with revenue of at least €100 million. In the past few years, major players such as Puig, L’Oréal, LVMH and The Estée Lauder Companies have already bought most of the strong and promising brands available. Puig has recently announced plans to do an IPO next year that could value the company at €8 billion. The flotation is designed to help Puig pay down its debt, taken on to finance its acquisition of Charlotte Tilbury for nearly €1 billion in 2020 and Byredo for roughly the same amount in 2022.

SCENT BEAUTY

Scent Beauty is a new player that harbors big ambitions in beauty. Founded in 2019 by former Coty CEO Bernd Beetz and Steve Mormoris, who was chief marketing officer at the U.S. beauty company, it aims to rival big groups.

Scent Beauty specializes in the celebrity fragrance market, a segment on which most big groups have turned up their noses. It’s too mass-market and cheap for them. They prefer to focus on best-selling designer brands and expensive niche fragrances. “This has created opportunities for smaller players to recuperate brands the big groups no longer want and give them the love and care they need to grow,” one adviser to beauty executives told Miss Tweed.

Scent Beauty is growing fast by developing fragrances named after celebrities such as singers Dolly Parton, Kylie Minogue, Whitney Houston and Sabrina Carpenter and brands such as Stetson, the hat maker. The latter name is one of its strongest-selling labels. It makes good money selling gift boxes during the holiday and festive seasons. “I believe in celebrity perfume. It has a strong connection with customers. It allows them to be part of that celebrity’s story,” explains Beetz.

Scent Beauty took several brands from Coty including Kylie Minogue and Stetson. Mormoris said about the famous hat maker: “We built it as a transgender brand. The story is that ‘my father used it, my grandfather used it’ and we moved it from cowboy to hipster.” Sabrina Carpenter’s Caramel Dream, launched in the spring, has been a top best-seller at Walmart, he said.

“We are brand builders,” Mormoris told Miss Tweed. “I feel that we are like the Warner Brothers in the 1950s.” Mormoris said that the company did not have a distribution bias and was raking in big sales at stores such as Walmart. Scent Beauty is looking to take on more licenses and, like Coty and the Estée Lauder group, it plans on opening an office in Paris to be closer to perfume and marketing creatives and production and distribution partners. After having secured growth with mass-market brands, Scent Beauty is looking to expand into high-end niche fragrance brands - the sweet spot of the market. Only it’s not alone. Puig, LVMH and L’Oréal are also keeping their eyes peeled for the next target. “Everybody’s on the prowl for acquisitions,” Mormoris said.

HIGH-END PERFUME

Every major player wants higher exposure to the fast-growing market of high-end perfume brands. Coty and Interparfums have plans to create their own exclusive fragrance brands. “There is a premiumization of the market with high valuations attributed to niche brands such as Creed and Parfums de Marly and the company is not yet very present in that segment,” a senior source close to Interparfums said. Interparfums is going unveil its new brand in 2025.

Coty, on the other hand, is ready to launch its new brand next year. Called Infiniment Coty Paris, it will feature a collection of 14 fragrances. The initiative unveiled at an event in Grasse, France’s perfume Mecca near Cannes, was described by Coty CEO Sue Nabi as “its most ambitious and most premium fragrance project to date.”

The company twinned the announcement of its new fragrance line with the launch of a new serum product by Orveda, a high-end skincare line founded in 2014 by Nabi and her partner Nicolas Vu, a hip-hop music producer and boxing and judo champion.

Coty and Nabi declined to comment on the fact that there could an ethical issue around Coty’s relationship with Orveda. Nabi is the CEO of Coty, which is exploiting the license for Orveda, and she is spending a lot of Coty’s money on advertising the brand. Coty declined to reveal how much Nabi’s partner still owns in Orveda, saying only that the Coty CEO no longer has a stake in the company.

Orveda is Nabi’s pet project. Even though Coty says she is no longer involved in the company, she is the one in charge of the license.

When Coty hired Nabi, it agreed to invest in Orveda. The move was a smart one since Coty is under-exposed to skincare, one of the best performing segments of the beauty industry. Orveda uses natural prebiotics from fermented potatoes, which feed the good bacteria on skin, as well as bio-fermented marine enzymes and bio-fermented Kombucha black tea. In skincare, Coty only has Lancaster, a brand strong in sunscreens, and Philosophy, which also sells perfume.

The maps of the beauty industry are being redrawn. The battle for world domination by the biggest luxury groups has only started. L’Oréal cannot rest on its laurels.