Coty's Push For Star Status

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Gwen Stefani has a new release in the works -- but don't look for it in music stores. The platinum-haired California rocker, famous for her song Hollaback Girl, has just signed a licensing deal with perfume maker Coty to develop her L.A.M.B. [Love Angel Music Baby] line of fragrances, starting next year.



Fame may be fleeting. But for Coty, it arrived just at the right moment. Over the past five years a portfolio of celebrity perfumes, including those of Jennifer Lopez, Celine Dion, and Sarah Jessica Parker, has helped the Paris-based company double sales to $2.9 billion. It's now the world's biggest perfume maker, and No. 8 in the beauty-products industry overall. Now Chief Executive Bernd Beetz says, "Our objective is to become one of the top five beauty companies in the world," ahead of such stalwarts as Estee Lauder (EL) and Germany's Beiersdorf, the maker of Nivea products.



To reach that goal, though, Coty will need a lot more than celebrity scents. The fragrance business is relatively slow-growing, with an estimated 12% increase in sales worldwide over the next five years compared to almost 20% growth in sales of skin-care products, according to forecasts by London-based market consultancy Euromonitor. And while Coty has expanded into the U.S. from its traditional European base, it's still a relatively minor player in Asia.



New Markets for Calvin

That's why Beetz is pushing hard to strengthen Coty's product lineup while broadening its geographic reach. He's introducing Coty's Rimmel line of cosmetics in Asia this year, and plans to launch its Lancaster skin-care brand -- now sold only in Europe and the Middle East -- in the U.S. and Asia. He's also developing new markets for Calvin Klein perfumes, which Coty bought in 2005 as part of an $800 million acquisition of the cosmetics and fragrance business of Unilever (UN).



Privately-held Coty was badly in need of a makeover when the German-born Beetz took over as CEO in 2001, after a stint running the Christian Dior perfume business at Paris-based LVMH Moet Hennessy Louis Vuitton. More than half of Coty's revenues came from slow-growing Europe, and two-thirds of its perfume business was in mass-market fragrances, low-margin brands typically sold in drugstores and supermarkets.



Things started looking up in 2002 when Coty teamed up with Lopez. Her Glow, part of the JLo line of perfumes, was a smash hit, with $80 million in sales the first year. Equally important for the company, Glow was a higher-margin, "prestige" fragrance, sold in department stores and other upscale outlets. Such brands now account for 55% of Coty perfume sales, up from only 35% in 2001.



Desperately Disappointing

After the success of Glow, Beetz inked a string of other licensing deals with celebrities, ranging from fashion designer Marc Jacobs to country singer Shania Twain. "Celebrities really touched a nerve with female customers," especially in the U.S., Beetz says. An estimated 35% of Coty revenues now come from the U.S.



True, not every celebrity scent has been a bestseller. Beetz acknowledges that Coty's Desperate Housewives perfume brand, launched earlier this year, has been less successful than some others. And while he's optimistic that rocker Stefani's brand will be a winner, Beetz says Coty's future growth will depend primarily on three core brands: Calvin Klein, Rimmel cosmetics, and its adidas line of fragrances and skin-care products.



Can Coty keep delivering double-digit annual growth, as it has for the past five years? The push into Asia, which now accounts for only 13% of sales, should help. But Coty still gets two-thirds of its revenues from perfumes, while Asia's beauty market tilts heavily toward skin-care products. Sales of skin creams and lotions in Asia will top $24 billion this year, compared to $6.5 billion for fragrances, Euromonitor says.



That's why some analysts expect Beetz will look for acquisitions to balance his product portfolio. While focusing on organic growth, the CEO says he's "certainly prepared" to make acquisitions as needed. Even if the scent of celebrity fades, Coty looks set for a sweet-smelling future.