I must confess I was quite shocked when I heard the news. First I could not believe it was true and second, everything I knew (or I thought I knew) vanished with just a little piece of news: Mugler and Azzaro were sold to L’Oréal. This news was like a bomb for all fragrance aficionados around the world. It sounded like in a movie if the bad guys would win at the end. Everything that Mugler and Azzaro stand for was philosophical against what L’Oréal would do generally.
After I while, especially when emotions went down (it took me a while), I realized that finally, it was not such a bad thing after all. It might sound crazy but maybe it was the right move for Mugler and Azzaro. These are the three main reasons why it is probably a good thing.
1- Clarins Did Not Have The Financial Power Anymore To Play In Fragrance First League
With more than a thousand fragrance launches every year, the market is crowded and perfumery shelves are full. According to Euromonitor, last year, there were at least one hundred new fragrances launched from luxury brands in the main market place. When you look to the list of best sellers, there were barely any changes to the list. We know that a brand has generally two years to establish its new product in the market and if it takes longer than that you surely end into a niche. The fragrance industry became the entry door to luxury and the market is a global one. Launches are happening every day and seasonality is an urban legend now. Therefore, the game became more intense, the scale much wider and to impose your fragrance in such a crowded area, you need a lot of money.
According to Bloomberg, the fragrance industry spent USD 800 million in advertising and we consider that a global important launch would cost to the brand around USD 20 to 40 million. It is a lot of money to “bet” blindly. I say blindly because you can spend all the money in the world, you will never be 100% of longterm success.
What is also interesting to note is that overall the fragrance market is growing. According to NPD, the fragrance market in the prestige segment grew by 4% in 2018. The top 5 prestige brands had even a double-digit increase thanks to certain regions like South America. Indeed, Brazil rose by 20% and Argentina improve sales by 30%. Another interesting fact to note: Online sales are growing by 7 to 10% year on year which helps to consolidate the market. Not so many industries are operating with sustainable growth. Obviously, there is an entry price to pay and the ticket is getting more and more expensive.
When you are an independent group like Clarins, you look like David fighting against the Goliath of beauty. The fragrance business is a very competitive market and it requires more and more money to stand out. In this sense, I believe it is not a bad thing that Clarins sold Mugler and Azzaro to L’Oréal. For the last 5 years, we could see these two amazing brands trying hard to exist in this very crowded market. Angel by Mugler and Azzaro pour Homme are two amazing iconic best-selling fragrances but they are not sufficient to build a future sustainable business for both brands. Meanwhile, giants like Dior will smash the market with their Joy and other commercial blockbusters.
Mugler has been struggling to launch a new fragrance franchise. Instead, they have been capitalizing on their existing main pillars: Angel, Alien and A*Men. From lighter versions to olfactory variations, Mugler made good success in the past couple of years. Last big launch was Womanity in 2010 and the latest feminine fragrance struggled to find its place in the market. In a market populated by mainstream blockbusters, it is harder and harder to find room for more complex and sophisticated launches.
Azzaro was a sleeping beauty for a while. The brand would comfortably live on Azzaro pour Homme and Chrome. But recently they launched Azzaro Wanted for him and for her, which was supposed to rejuvenate the brand and bring more energy into the fragrance portfolio. They did a very successful launch but compared to brands like Armani, Dior, Saint Laurent or even more
In today’s perfumery world, a couple of groups became driving forces in the launch mechanics. P&G, L’Oréal, LVMH or Unilever created huge worldwide machinery to launch blockbusters at the world scale. L’Oréal might be the most interesting one for a fragrance brand because they have strong know-how in fragrances but also in cosmetics, which is a strong added value to a fragrance line. Clarins, as an independent group, would struggle to maintain Mugler and Azzaro in the top level and the two brands would have potentially slide towards a more niche dimension.
2- Distribution Is The Key Element For Success And L’Oréal Has Nailed It.
You might have the best fragrance in the world, if you cannot distribute it properly, it will remain a nice project on a shelf. Distribution is key for good success. If you cannot reach a certain scale in terms of distribution, it means you might not have the means to develop your product line as it should be. The challenge is huge and mastering your distribution represents an important portion of your business. L’Oréal is a powerful global player with a five-digit retailers list. What many brands can accomplish in several years of sales, L’Oréal can do it in one year. Although they do not own distribution (like LVMH owns Sephora), L’Oréal group owns an important number of brands which give them a lot of negotiation power. Here
- Lancôme
- Giorgio Armani
- Yves Saint Laurent
- Biotherm
- Kiehl’s
- Ralph Lauren
- Shu Uemura
- Cacharel
- Clarisonic
- Diesel
- Viktor & Rolf
- Urban Decay
- Guy Laroche
- Paloma Picasso
- Roger & Gallet
We can imagine that Mugler and Azzaro will benefit from the group economy of scale to obtain better prices and also to manage better their launches timings. Thanks to the power of L’Oréal, it might bring a certain acceleration to Mugler and Azzaro, helping them to achieve scale much faster. Joining distribution forces, it will also benefit other L’Oréal brands like Yves Saint Laurent or Viktor & Rolf.
3- The Fragrance Battlefield Is Full of Giants, Better Play On Their Side To Survive
In the past five years, small and medium brands (from a sales point of view) were pretty much seduced by selling their companies to big groups. This has helped them to achieve a better scale and to insure a comfortable business stability.
- Estée Lauder purchased Le Labo and Frédéric Malle in 2014, later they also took over By Killian.
- Puig acquired Penhaligon’s and L’Artisan Parfumeur in 2015
- L’Oréal purchased Atelier Cologne in 2016
- LVMH acquired Maison Francis Kurkdjian in 2017 and Jean Patou in 2018
They were wise strategic moves. The latest 2019 financial results from these companies reveal that not only are luxury artisanal brands experiencing some of the strongest growth in their portfolios. According to Cosmeticbusiness.com, L’Oréal’s first quarter 2019 results picked out notable growth from Atelier Cologne, which it says “continues to attract new consumers”, and Puig’s 2018 results reported that L’Artisan Parfumeur has “shown through its excellent performance in its owned stores and in large department stores that it is ready to be scaled up to the international market”. Meanwhile, Penhaligon’s enjoyed double-digit growth above the market rate.
While sales numbers and finance seem to show positive trends, another important aspect of such acquisitions is the key area of attracting talents. By belonging to wider groups, talented people will find themselves in a strong positive trend with important means and scale. Their talents can be deployed in order to create great launches. Many often when brands lack scale, talented people might feel a bit limited in their choices and actions. When Tom ford joined the Estée Lauder group, it has guaranteed his freedom of creation within his brand and a worldwide distribution network to spread his talent.
When L’Oréal announced the purchase of Mugler and Azzaro, it might be good news. If the French group intention is to develop the two brands within the respect of their true natures, it can only be a success. Mugler and Azzaro will have a new dynamics and potentially better means to achieve new launches. Let’s bet and hope this audacious acquisition is therefore a good thing. Only the future will tell.
José Amorim
Information sourced by the author for luxuryactivist.com. All content is copyrighted with no reproduction rights available Images are for illustration purposes only.
