Inside the Success of the Luxury Fragrance Market

The luxury sector is going on one of its periodic spending sprees, with leading names shelling out tens of millions in a furious attempt to reach new customers and outperform their rivals. In previous years, the three industry behemoths — LVMH, Kering and Richemont — have been buying up makers of high-end clothing, bags, shoes and watches. Now they’re putting a new product category into their vast shopping baskets: beauty and fragrance.

For decades, luxury houses have been producing fragrances as a way of allowing a mass customer base to buy into their brand. You might not be able to afford a Chanel couture outfit, for instance, but you can still experience one of the world’s most sought-after luxury brands by buying a bottle of Chanel No. 5 — one of which is sold every 30 seconds somewhere around the world.

But this time it’s different, with the big houses buying up long-standing beauty and fragrance brands, and ploughing record sums into developing their own new products in this highly profitable category. Earlier this year Kering announced the launch of Kering Beauté, a new division that will develop the beauty and fragrance portfolio of Bottega Veneta, Balenciaga, Alexander McQueen, Pomellato and Qeelin.

“We are building this new area of expertise within our group to ensure that our brands can fulfil their potential in this category,” said Jean-François Palus, Kering group managing director. The new business will be led by Raffaella Cornaggia, a former senior executive at Estée Lauder Companies. The move comes in the wake of the launch by Hermès of a skincare and cosmetics division in 2020.

Last year, in an earlier attempt to break into this space in a big way, Kering is thought to have been in talks to acquire Tom Ford, with a particular focus on its beauty and fragrance business. In the end it was Estée Lauder Companies that snapped up Tom Ford, in a deal worth £2.29 billion.

This summer, however, Kering Beauté acquired high-end heritage fragrance brand Creed. Established in 1760, Creed is the largest global independent player in the premium fragrance market, enjoying double-digit growth over the past few years. It currently employs around 700 people and distributes its fragrances through 1,400 points of sale and 36 of its own stores.

“We see a very compelling rationale and mutual strategic benefits in terms of expertise, network and geographical footprint,” said Cornaggia, at the time of the purchase.

Two years ago, LVMH acquired the historic luxury beauty brand Officine Universelle Buly. Founded by the celebrated Parisian perfumer Jean-Vincent Bully in 1803, it was revived in 2014 by the designers and entrepreneurs Ramdane Touhami and Victoire de Taillac, who added new products and boutiques.

In September this year, Richemont announced that Boet Brinkgreve, a 30-year veteran of the fragrances and flavours industry, had been appointed CEO of a newly created beauty division, reporting to Richemont chairman Johann Rupert. “Boet will establish and lead our new Laboratoire de Haute Parfumerie et Beauté to enable our six maisons already involved in fragrance Cartier, Van Cleef & Arpels, Chloé, Alaïa, Montblanc and Dunhill to reach critical mass in this highly competitive field, where scale is crucial,” said Rupert.

In July, on the first anniversary of the launch of its fragrance and beauty range, Dries Van Noten opened its first standalone store dedicated to fragrance and beauty in the heart of Paris’s Rive Gauche. A 17th-century Flemish tapestry depicting a baroque scene of a pergola in a garden, a nod to Dries Van Noten’s passion for floriculture, contrasts with a chandelier composed of different varieties of 1970s Venini glass.

There’s a flurry of activity among high-end beauty and fragrance groups keen to fight off the luxury houses. New Incubation Ventures, the strategic early-stage investment and incubation arm of Estée Lauder Companies, has invested an undisclosed sum in Vyrao, a premium fragrance brand with an emphasis on wellness. It was founded in 2021 by Yasmin Sewell, who co-founded the brand Être Cécile and was vice-president in charge of editorial and the creative teams for Farfetch.

L’Oréal Luxe has recently acquired Aesop, loved for its cool, wholesome and elegantly understated collection of skincare and fragrances. L’Oréal Luxe’s plan is to move Aesop and further acquisitions into the ultra-premium category.

What is the appeal of luxury beauty? To some extent this is a defensive play — as well as enjoying strong customer loyalty, these are non-discretionary products, which can keep consumers spending even in a recession. You’ll keep buying your favourite cleanser, moisturiser and hair products even if those new shoes or that stunning evening gown have to be put on hold. And there are other reasons.

The global market for luxury and prestige beauty generated revenues of around £51 billion in 2022, a figure expected to grow at a very healthy pace to approximately £71.3 billion by 2028.

“Luxury companies are very profitable, with many sitting on large piles of cash, and so they’re buying into adjacent businesses,” says Erwan Rambourg, global head of consumer and retail research at HSBC Securities (USA) Inc. He points out that over the past few decades, many luxury houses have launched their own fragrance lines. “With Louis Vuitton it was a move that surprised many people, but they have done it very well, hiring their own nose to create fragrances and keeping everything closely under their own control.”

 “Although there are limited synergies here in terms of manufacturing and distribution, with advertising and social media there are opportunities for cross-pollination,” he adds. “You can position your high-end bags or haute couture alongside a fragrance in advertising or social media content, for instance.”

Other than pocketing a tidy sum for the current shareholders and owners, what are the incentives for luxury beauty companies to sell out? “The biggest benefit of acquisition for smaller perfume or beauty brands is the opportunity to realise value at a time when such businesses are attracting high valuations,” says Mariana Köpf, trade mark attorney at European intellectual property firm Withers & Rogers. “However, brand strength is everything and to achieve a high valuation, they must have a robust, well-managed IP portfolio in place comprising any trade mark, design and patent registrations. These exclusivity rights have a significant commercial value and can be enforced if needed to protect a brand’s market position.”

Rambourg sees this trend taking off. “There are a lot of start-up companies in the high-end beauty space,” he explains. “With beauty you can find a good concept and then, given that this is largely a wholesale business, scale it up pretty quickly. However, it’s difficult to be a new entrant in the watch or handbag sector — you need years of heritage.”

That said, promoting a new name in luxury beauty and fragrances requires more capital than is the case with many other sectors. Distribution might be relatively easy but it’s a fight for “share of mind”, points out Rambourg. Advertising to sales ratios are very high in this business, with beauty companies having to spend a lot on adverts and marketing before consumers will take the plunge and invest in a new high-end beauty product.

Such is the excitement — and the ambition — around luxury houses when it comes to premium beauty and fragrances that LVMH signalled a few years ago that it might launch a bid for Estée Lauder Companies. Now billionaire activist investor Nelson Peltz is said to be agitating again for such a deal. Beauty might be in the eye of the beholder but it’s increasingly in the sights of the big luxury houses, with more major deals and acquisitions to come.