www.bwconfidential.com The inside view on the international beauty industry November 17-30 , 2016 #139

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The buzz 2 Sowing the seeds of growth News roundup t’s no secret that beauty M&A is heating up. But there Netwatch 6 Iis another trend that is picking up steam: the seeding or incubating of small cosmetics players by major multinationals. Social media monitor Recently, this has taken the form of groups buying a minority stake in a small company—such as the investment Interview 8 by Spanish group Puig in US-based fragrance concern EB Revlon svp international, Florals—or setting up programs to nurture new companies responsible for Revlon/Arden through advice, funding and infrastructure. AmorePacific for integration David Carvalho & example, just announced that it has partnered with start-up Elizabeth Arden brand president accelerator FuturePlay to launch an incubator initiative aimed global JuE Wong at developing startups in the beauty sector. Earlier in the year, French group L’Oréal said it invested in UK-based Founders Factory, a digital incubator, becoming its exclusive Insight 10 partner for investments in beauty tech start-ups worldwide. Coty This approach has many benefits for multinationals. It allows them to explore and test a new market trend at a relatively low cost and with little risk to their core business. And Show review 14 at a time when the prices for acquiring young companies are at an all-time high, such a Cosmetic360 strategy also gives the majors an early partnership with what could become the winning brands of tomorrow. Store visit 17 This seeding trend combined with the frenzy of acquisitions shows that increasingly, Dove pop-up store, Paris the market’s major players are having to look outside their companies for new ideas and for growth.

Oonagh Phillips Editor in Chief [email protected] Meet the BW Confidential team at:

l MakeUp in São Paulo, December 7-8 l PCD, Paris, January 18-19 l CosmeTokyo, January 23-25 News headlines daily on www.bwconfidential.com @BWCbeautynews News roundup At a glance...

n Estée Lauder Companies to acquire Too Faced

n IFF to acquire Fragrance Resources The buzz n Kate Spade signs fragrance license with The Premiere Group

Stay informed with our daily news headlines on www.bwconfidential.com

Strategy

Estée Lauder Companies (ELC) is to acquire US-based make-up brand Too Faced for $1.45bn, making it the group’s biggest acquisition to date. The deal is part of ELC’s strategy to boost its presence in the fast-growing make-up category, build its business among millennials and increase the group’s reach in specialty-multi distribution channels. Launched in 1998, Too Faced is currently owned by private-equity company General Atlantic. It is among the top eight make-up brands in the specialty-multi channel in the US, according to ELC, and is expected to generate net sales of more than $270m in 2016, a growth rate of more than 70% over 2015. Too Faced has developed a strong following among millennials on social media and boasts more than 7.3 million followers on Instagram. Too Faced is led by co-founders Jerrod Blandino and Jeremy Johnson, and ceo Eric Hohl. ELC executive group president John Demsey will add Too Faced to the roster of brands he oversees. The acquisition is expected to close in December 2016. The announcement comes just a few weeks after ELC revealed that it would acquire US-based color brand Becca Cosmetics, and is part of the growing trend for major multi- nationals to buy color brands with a strong social-media presence—in July, French group L’Oréal said it would take over color cosmetics brand IT Cosmetics for $1.2bn. BW Confidential The move is also the latest in a string of acquisitions for ELC over the past three years, 4 avenue de la Marne which have included By Kilian, Le Labo, Editions de Parfums Frédéric Malle, Glamglow 92600 Asnières sur Seine, France [email protected] and Rodin olio lusso. Tel: +33 (0)1 74 63 49 61 Fax: +33 (0)1 53 01 09 79 www.bwconfidential.com ISSN: 2104-3302 US flavor and fragrance company IFF is to acquire Germany-based Fragrance Resources Publisher: Nicolas Grob for an undisclosed sum. The transaction will be funded by existing resources and is set to Editorial Director: Oonagh Phillips [email protected] close in January 2017. It is expected to add around $75m in revenue in 2017, excluding Journalist & Copy Editor: Katie Nichol [email protected] transaction costs. Family-owned Fragrance Resources was founded in 1987. It has Journalist: Hannah Ikin facilities in Germany, France, China and North America. [email protected] Contributors: Sophie Douez, Alex Wynne, Renata Ashcar, Mayu Saini, Raphaëlle Choël, Corinne Blanché, Naomi Marcoulet UK-based packaging company Collcap, and Spain-based packaging manufacturer Subscriptions 1 year: electronic publication (20 issues) + Quadpack Industries SA have merged. The new, combined group will keep the print magazine (4 issues) + daily news: €499 Quadpack name. Quadpack’s office in Barcelona, Spain will continue to be the new or US$699 [email protected] group’s global headquarters, while Collcap’s office in Leek, Staffordshire, will become the Advertising [email protected] center of the group’s UK operations. Collcap founder John McDermott will become a BW Confidential is published by Noon Media Quadpack Industries board member. Earlier in 2016, Quadpack Industries acquired 513 746 297 RCS Nanterre Copyright © 2016. All rights reserved. injection-moulding company Rinaplast, which was rebranded Quadpack Plastics. Reproduction in whole or in part without permission is strictly prohibited. Quadpack generated sales of €61m in 2015. n n n

www.bwconfidential.com - November 17-30 , 2016 #139 - Page 2 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL News roundup

n n n US-based lifestyle company Kate Spade & Company has signed a global license with The Premiere Group for the development and distribution of kate spade new york fragrances. The Premiere Group will take on the development and distribution of the existing fragrance business built under the kate spade new york brand. These fragrances include Walk on Air and Live Colorfully, and are available on katespade.com, in the The buzz brand’s stores and in more than 2,300 selective stores in the US. The Premiere Group has already begun distributing kate spade new york fragrances in the US, and will expand the products internationally in fall 2017 and in travel retail in spring 2018. The Premiere Group is the prestige division of Perfume Center of America, Inc, a distributor of fragrance products in North America.

Consumer products company Edgewell Personal Care has acquired UK-based men’s grooming and skincare products company Bulldog Skincare for an undisclosed sum. The transaction was funded from operating cash. Bulldog Skincare was founded in 2006 and operates in 14 markets and is distributed in some 17,000 doors. Its largest markets are the UK, the US, Sweden and South Korea.

Korea-based AmorePacific has partnered with startup accelerator FuturePlay to launch an incubation program, with the goal of nurturing startups in the beauty and healthcare sectors. Called AP TechUP+, the program aims to help startups to secure stable business partners. AmorePacific says that it will provide financial resources for startups along with employee mentoring, in-house infrastructure and follow-up investments. FuturePlay will manage the planning and administration parts of the program, and will also be responsible for identifying and nurturing startups and developing patents.

Brazil-based Natura is to put an end to its direct-selling operations in France. The STAY INFORMED WITH OUR company’s direct selling business in France, DAILY NEWS SERVICE which counts 1,100 representatives, will close by December 31, 2016. The focus in France will instead be on three main News headlines daily on www.bwconfidential.com channels: Natura stores, e-commerce and @BWCbeautynews beauty specialists. Natura stated that direct sales in France account for just 2% of the cosmetics, fragrance and toiletries market, compared with 30% in Latin America.

Results

L’Oréal reported a 3.6% increase in third- quarter sales to €6.15bn. On a like-for-like basis, sales rose 5.6%. For the first nine • All major news on the industry published every day on our website months sales were up 1.6% to €19.05bn • News headlines complement analysis and interviews in our electronic (+4.7% like-for-like). The Luxe division publication and print magazine reported a 9% increase in sales for the • BW Confidential is the destination for keeping up-to-date with what’s quarter (+9.3% like-for-like) to €1.86bn. going on in the industry and staying ahead of the competition The Active Cosmetics division also saw n n n BW Confidential, the inside view on the international beauty industry

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L The buzz Reservation Assistant enablesconsumerstobook anappointmentforamakeover at Facebook MessengerintheUS: SephoraReservationAssistantandColorMatch. Beauty retailerSephorahasintroducedtwonewbot-powered beautytoolsavailableon where itissoldatretailersincluding SelfridgesinLondonandGaleriesLafayetteParis. China andJapan.Nextyear,TooCoolForSchoolplanstodevelop furtherinEurope, in Canada.Thebrandhas39standalonestoresSouthKorea andlocationsinMalaysia, Rules ofSkincare,McGirlyandArtify.TooCoolForSchoolis sold inSephoratheUSand and cosmeticslines.Theseincludecollectionsnotpreviously available intheUS,suchas Keith Haring’sformerartstudio.Thestorewillcarry11ofToo CoolForSchool’sskincare n October. The750ft of Korean beautybrandTooCoolForSchoolopeneditsfirstUSflagshipattheend Retail ¥305.5bn ($2.95bn). Japan segment,whichaccountsfor49.1%ofbusiness,reportedasalesincrease4%to impacted bytheterminationoflicenseagreementwithJeanPaulGaultier.Shiseido’s EMEA, wheresalesfell22.7%(-13.3%onalocalcurrencybasis)to¥58.2bn($562.9m), and foreigncurrencyexchangerates.Shiseidosawgrowthacrossallregionsexcluding a localcurrencybasis)to¥622.7bn($6.02bn),impactedbytheappreciationofyen Shiseido’s consolidatednetsalesforthefirstninemonthsof2016fell1.3%(+5.4%on Kamakura factory.Operatingincomefortheperiodgrew17.1%to¥38.7bn($374.3m). the JeanPaulGaultierfragrancebusinessandsaleoflandatcompany’sformer nine monthsof2016,largelyduetothegainonsaleintellectualpropertyrights Japanese groupShiseido’snetprofitgrew135%to¥37.2bn($359.8m)forthefirst increase (lessthan1%),at$1.17bn,whilefragrancenetsalesrose7%to$442m. Estée LauderandCliniquebrands.Netsalesforthemake-upcategorysawaslight down 1%,impactedbyforeigncurrencytranslationandlowerskincaresalesfromthe Leading BeautyForwardinitiative.Skincarenetsalesstoodat$1.10bninthequarter, restructuring andotherchargesof$31m($20maftertax),linkedtoitsrecentlyannounced the USdollarinrelationtomostcurrencies.Duringquarter,companyrecorded group saidthatmostproductcategorieswereunfavorablyaffectedbythestrengthof currency basis,netsalesgrew2%.Netearningscameinat$294m,down5%.The 2017, a1%increasecomparedtothesamequarterpreviousyear.Onconstant Estée LauderCompanies(ELC)postednetsalesof$2.87bnforitsfiscalfirstquarter the market,exceptforFrance,whereenvironmentremainssluggish. sales rose8.2%to€1.76bn),whileitsbusinessinWesternEuropeisgrowingfasterthan region, thegrouphighlightedthatitisseeinggoodgrowthinNorthAmerica(third-quarter like-for-like basis(+2.1%onareportedbasis)to€2.86bnforthequarter.Intermsof business inNorthAmerica.Theconsumerdivisionreporteda4.7%increasesaleson driven bygrowthinmake-up,theglobalrolloutofUltraDouxGarnierandastrong quarter. L’OréalsaidthattheConsumerProductsdivisionisoutperformingmarket, News roundup

solid like-for-like growth of 6.5% (+4% on a reported basis) to €425.7m for the third solid like-for-likegrowthof6.5%(+4%onareportedbasis)to€425.7mforthethird 2 (69.7m 2 ) boutique is located in SoHo, New York, in American artist ) boutiqueislocatedinSoHo,NewYork,Americanartist www.bwconfidential.com -November 17-30,2016 #139-Page 4 n News roundup

n n n Sephora stores across the US. Customers tell the bot which store and service they want, then receive the closest dates and times. Sephora teamed up with automated messaging platform Assi.st for the tool. Meanwhile, Sephora teamed up with augmented reality technology provider ModiFace for Color Match, a shade matching addition to the Sephora Virtual Artist bot. Color The buzz Match scans photos and then suggests a matching lipstick shade available at the retailer. Matches can be virtually tried on and purchased from Sephora’s e-boutique.

LVMH-owned Make Up For Ever opened its French e-boutique in November. The brand’s entire offer of more than 1,500 products is available on the online store, which also features tutorials, step-by-step guides and complementary product suggestions. France is the only country in Europe where Make Up For Ever has its own e-boutique. The brand has online stores in the US, China and Japan.

Data

Sales of US prestige beauty products rose 8% to $3.5bn in the third quarter of 2016, according to The NPD Group. In the make-up category, face make-up sales increased 14% during the quarter, ahead of all other color categories. Eyebrow make-up continued to see double-digit growth, with sales up 37%, while lip color sales saw a 21% increase. Sales for the nail category continued to decline, down 17%. In skincare, sun products saw a 16% increase from the third quarter of 2015, boosted by the summer season, while sales for in-sun products grew 28%. Growth in facial masks continued to outpace the overall market, with dollar sales growing 28%. In fragrances, sales of fragrance juices grew 2% compared to the third quarter of 2015, with increases in both women’s sales (+1%) and men’s sales (3%). The home scents market saw growth of 17% in the quarter, with growth across all segments, the Mascara sales in Europe September largest two of which were candles and diffusers. Sales for fragrance gift sets were up 2016 vs September 2015 11% and home ancillary gift sets rose by 40% in the quarter. Country % change France -8 Mascara sales in Europe are in decline. Sales across the four European markets of France, Spain, Italy and the UK were down 4% year-to-date end September, according Italy -5 to data from market-research company The NPD Group, notably due to lower sales of Spain -2 new launches. Mascara sales in France fell 8% in September, while sales in both Italy UK -5 and the UK were down 5%. Mascara sales in Spain witnessed a 2% decline. Source: NPD BeautyTrends

Launches

Korea-based AmorePacific has expanded its customizable cosmetics offer by launching a tailor-made moisturizer for its Laneige brand, called My Water Bank Cream. The product went on sale on November 11, in the new Laneige Myeongdong flagship store in Seoul. Consumers can have their skin analyzed by diagnostic equipment Beauty Finder in the location’s Sparkling Beauty Bar, before having a moisturizing solution made up in-store. The cream is available in forms such as Light, Moisture and Ultra Moisture. The service is available on a reservation-only basis on the Laneige website. The total service takes 40 minutes and costs KRW42,000 ($36.46). n

www.bwconfidential.com - November 17-30 , 2016 #139 - Page 5 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL The views expressed in this section are those of bloggers and do not represent the opinions of BW Confidential Netwatch temporary storeandaccessibilitytothebrand’sfullrange. good waytorecruitnewconsumers.Bloggerslovethechicdesignof Giorgio ArmaniBeauty’sfirstpop-upstoreinParishasbeenseenasa male consumer. They alsounderlinethepotentialofnewcategoriesinbeautytotarget with bloggersexpectingmore,albeitstillmarginal,growthinthissegment. The surgeinmalebeautyvloggershasbecomeatopicofconversation, of morereaders. question whetherapurelyonlinepresencewillonlyhindertherecruitment has saddenedbloggers.Amajorconcernisthelossofjobs,whilesome News oftheclosurefashionmagazineInStyleUK’sprintedition which theysaysetthestoreapart. technologies andexclusiveservicesliketheeye-catchingColorcastWall, October, createdamajorbuzzamongbloggers,whopraisetheinnovative L’Oréal’s Social mediamonitor BW Confidential BW New York flagship, which opened at the end of NYX CosmeticsNewYorkflagship,whichopenedattheendof reportsonwhat’sbeingsaidaboutbeautysocialnetworks

Revlon svp international, responsible for Revlon/Arden integration David Carvalho & Elizabeth Arden brand president global JuE Wong

Come together Interview Revlon announced that it would acquire US-based company Elizabeth Arden in June in a deal valued at $870m. Revlon svp international David Carvalho and Elizabeth Arden brand president, global JuE Wong reveal their priorities at the new group

How is the integration process progressing? DC: We completed the transaction over a month ago and almost immediately after closing, we began fine tuning our integration planning, to reconfirm the synergy estimates and the opportunities to create value. We will begin implementing our integration plans early next year, after the crucial fourth quarter is behind us. We have also been working to design a new organizational structure to enable us to drive and accelerate future growth, which we expect to be able to share early in the New Year. As one company, we have more capabilities and resources to grow our combined portfolio of brands, as well as the opportunity to reach consumers, wherever and however they shop for beauty.

Will there be sizeable cuts? DC: We are making good progress and have confirmed our ability to deliver $140m in multi-year synergies and cost reductions related to the transaction.

Could the fact that the two companies operate in very different areas pose problems to the integration and running of the group? DC: We see it in a very different way. It creates the platforms for us to leverage the business Revlon (including of both sides, so this complementary aspect creates a broader platform for growth. Arden) Together, we are able to compete in more categories, channels and geographies. With Sales: $3bn retailers, and especially in travel retail, our position will be much stronger. Sales by category: color cosmetics: 37%; fragrance: Some 59% of sales of the combined company are from North America. How 27%; haircare/haircolor: do you see the progress of the international business for both companies? 19%; beautycare: 10%; DC: Because of its size, North America it is still a priority, but our biggest opportunity is to skincare: 7% grow internationally. The deal is very complementary geographically and that is something Sales by region: North that we will leverage. Asia is a priority for us. America: 58%; EMEA: 24%; Asia Pacific: 12%; The Arden brand has been undergoing a revamp. How is this developing? Latin America: 6% JW: The Elizabeth Arden brand has just achieved its seventh consecutive quarter of net sales growth, driven by new product innovation and efforts to modernize the brand’s relevance and attract new consumers. The brand has been on a trajectory of cleaning up its distribution and we will continue on that path. It is important to focus on prestige distribution and especially the travel-retail experience because it can transform the consumer’s perception of a brand, and obviously we are also looking at the digital platform to make the brand more relevant. n n n

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n n n In 2014, Arden said that over the next five years, the brand could be number 10 in markets where it competes, are you on track? JW: This goal is still the focus and in some markets we are already in the top 10, for Interview example in Australia, New Zealand and in Scandinavia. We are a top-five brand in the UK, and in the US we moved up two positions from number 17 to number 15 so we are on the right path. We are number-11 in travel retail, so we are slowly pushing into the top 10 and we have seen growth of 8% this past year. We have a strong fragrance and skincare As one company, business in travel retail and Revlon does color well, so there will be some key learnings that can help us grow the color category. [In travel retail] we expect to become among the top “we have more 10 as we build our color cosmetics offerings. capabilities and What else needs to be done? resources to grow our JW: The digital platform has helped drive relevancy and sales for the brand. We recently combined portfolio of launched the ‘From the Desk of Elizabeth Arden’ digital campaign, which resulted in 90 million global impressions and seven million unique visitors that used the video platform, brands, as well as the and we were able to target these users for conversion. We also had more than 58 opportunity to reach million downloads of our Youcam make-up ad, of which 23.9% downloaded a selfie of themselves to re-post, so all of this shows that despite there being bigger brands that spend consumers, wherever a lot more on digital, we were able to compete with the best of the best because we had a and however they very engaging campaign as well as our partnership with Perfect Corp on the make-up app. shop for beauty How will you boost your presence in Europe and Asia? JW: Our star product in Asia is our Ceramide Capsules and we are re-launching an upgraded formula next year, which will amplify our awareness among Asia Pacific Revlon svp international, consumers. In Europe, and in the in UK, which is one of our key markets, our Eight Hour responsible for Revlon/Arden Cream has done very well and is our heritage brand, so that has given us a lot of visibility. integration David Carvalho We will continue to amplify the messaging through PR, social, digital and e-commerce. ” In Asia, we have a very big digital footprint. In China, for example, 70% of our business is with [Alibaba-owned online platform] Tmall, so it is through this platform that we are able to communicate with tier-one, tier-two and tier-three markets. Because Arden is focused on digital platforms, we are penetrating into tier-two markets, which is key and where consumers are looking for aspiration. Our department stores in China have been a focus as our showroom for consumers to find about our Red Door experience.

What can the Revlon brand do to capitalize on growth in make-up? DC: The Revlon brand went through a re-launch two years ago with Revlon Love is On and has been growing strongly in North America and internationally. We have two of the top-four new product launches in mass color in the US. Revlon Ultra HD Matte Lipcolor, which year-to-date September is the most successful new product innovation in the US mass color cosmetics category, according to Nielsen, and the Revlon Mascara collection, which is contributing to significant consumption share gains in the eye segment at mass retail. Travel retail has been a priority for Revlon as it gives us global exposure, and in the past two years we did more in the channel than what has s Revlon says the Arden acquisition been done in the past 10 years. The two big areas we are focusing on for travel retail will enable it to leverage strengths of are sets and merchandising, both of which have been significantly upgraded.n its brands in R&D and at a retail level

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Coty Bigger, but better?

Just days after the completion of its acquisition of Procter & Gamble’s Specialty Beauty business, Coty sent out a strong signal that its ambition to widen its scope shows no sign of slowing with the addition of haircare tool manufacturer ghd. BW Confidential analyzes what Coty’s new scale could mean for the future of the company and the market overall

aving doubled its projected annual sales to around $9bn with the acquisition Hof P&G’s beauty brands on October 1, the market largely expected Coty to take its time to digest the purchase and focus on organic growth before heading into further acquisitions. “Clearly one of the key things we will focus on is to improve the growth exposure of the business both from a category, category Clearly with the segment, channel and geography point of view. And we will put together a list of merger we have too targets in due time. But the first focus really is on returning the business to organic “ growth and to integrate the P&G business properly and deliver the benefits many brands in the associated with that,” said Coty’s chairman and then interim ceo Bart Becht during the company’s fourth-quarter conference call in August. portfolio. As a result, But in the end, Coty did not waste any time, announcing the $510m purchase of it would be better that ghd on October 17. Beauty’s new number-three pure player certainly has a lot on its plate. Integrating P&G’s brands, ghd and Brazilian firm Hypermarcas’ beauty we rationalize some activities over such a short space of time would already be challenging, but Coty of those out. And I am has also had its fair share of organizational struggles in recent years. In addition, it has seen difficulties achieving sales growth, raising questions over the company’s sure they will be better capacity to move forward as one of the industry’s biggest players. managed by other

Leadership issues players in the industry The company has struggled with its leadership. Since ceo Michele Scannavini left Coty in 2014, along with several other senior executives, chairman Bart Becht has been acting as interim ceo. Following the closure of the P&G merger on October 1, Camillo Pane has taken over the role. The former Reckitt Benckiser executive Coty chairman Bart Becht joined Coty as executive vice president of category management in April last year, and it is hoped that the appointment will ensure management stability. n n n ”

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n n n The company says that its new structure, with three divisions each focusing on a single distribution channel and two or three product segments, will also allow it to have better focus. Its new structure relies on tighter decision-making Insight processes closer to the ground, which represents a clear change in strategy. Aside from leadership issues, Coty has had a tough time producing sales growth, and has suffered from its over-dependence on certain categories, notably celebrity fragrances and nail polish, as well as its lack of penetration in emerging markets compared with competitors. Its recent acquisitions certainly diversify the company’s portfolio in terms of product categories, notably through the addition of professional haircare with Wella and Clairol, making it less vulnerable to category trend cycles and fluctuations than those it has been exposed to in the past. They do less, however, to re-balance its geographical dependence on Europe and North America (see factfile). “While basically we are not changing the relative importance of emerging It’s going to be a big markets, the business in the emerging markets is substantially larger than was job integrating these before,” argued Becht in September during an investor roadshow. “This is key, “ because that means that we have critical mass and a clear growth platform in businesses, and I many of these countries, which we did not have before.” Nevertheless, Coty remains underpenetrated in skincare, which analysts note is think it’s going to be key to expanding in emerging markets, notably in Asia, as P&G chose to hold on an even bigger job to prestige skincare brand SK-II. “If you are perfume and make-up-centric, you are missing out on the biggest beauty market in the world, which is Asia,” notes trying to get P&G’s Deutsche Bank analyst Eva Quiroga-Thiele. brands back into the Some also question the company’s logic in focusing on haircare, particularly in the salon channel, where it has little experience. In addition, under P&G right mind-frame, these brands have seen a lack of support for years. “I think L’Oréal was hoping modernizing and for a competitor that would re-animate the whole salon business alongside it, and I’m still not convinced that Coty will be the right company to do that,” adds repositioning them Quiroga-Thiele. But by bolstering the professional portfolio with ghd, Coty adds the higher- growth segment of devices to its portfolio. “Ultimately, as portfolios fill up and Deutsche Bank analyst [beauty players] run out of white space, [they ask themselves] are tools, equipment Eva Quiroga-Thiele and accessories an interesting category,” says Steve Davis, managing director and head of beauty and personal-care practice at Intrepid Investment Bankers. ” “The consumer experience has changed over the past five years, and devices have become an important part of the puzzle. I don’t think the large consumer-oriented [companies] are ultimately going to be able to ignore that.”

The fragrance play Fragrance, meanwhile, remains just as central to Coty’s expanded portfolio, accounting for between a third and half of its total sales, according to estimates that combine mass and prestige. The segment is struggling in many markets, and through the acquisition, Coty has taken on an even bigger portfolio of big-name fashion fragrance brands, rather than higher-growth niche and prestige labels. “The fourth quarter was encouraging, but we still have work to do from a fragrance point of view,” said Becht during the company’s conference call. n n n

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n n n He added that the company would be focusing on core brands including Gucci, Hugo Boss, Calvin Klein and Marc Jacobs. Coty also missed out on the Dolce & Gabbana license, which has gone to Insight Shiseido, and could have potentially been a key earner for the company. “Some of the fragrances they have bought are obviously very strong,” says Quiroga-Thiele, citing Gucci especially. “I think Coty has that kind of thing much more in their genes than P&G ever had,” she adds, suggesting she is more confident in Coty’s ability to develop the franchise further. It is in fragrance that Coty’s new weight is putting the most pressure on the rest of the market. Now the undisputed world leader in the category, it has an estimated share of up to 50% in some markets. When the European Commission validated the merger, it stated that the combined firm’s fragrance market share Europe-wide would be between 20 and 30%, compared with 10-20% for competitors L’Oréal, LVMH and Puig, and 5-10% for Chanel. But in certain markets, including Germany and Ireland, its share is much higher, nearer 40%, and in men’s fragrance, it also holds an even bigger share in many markets because of the weight of brands like Calvin Klein and Hugo Boss. Generally, in markets dominated more by mainstream fragrance brands, Coty’s weight is more pronounced. In this context, rivals are concerned about how they will compete, while retailers worry that faced with such a giant, they will see their bargaining power reduced. In certain markets, word on the ground is that Coty is even thinking of setting up its own retail activities to bypass traditional distribution and improve margins. As is often the case during such a merger, industry sources report that the parallel market has been flooded with stock from the former P&G fragrance brands, meaning products are available at a discount and brand equity for the acquired brands could be eroded. While this is likely to be a temporary blip, given the scale of the acquisition, it will take Coty some time to integrate such brands and develop new value-added products. But Coty’s fragrance portfolio is also dominated by mainstream brands, and its products too are subject to discounting and broad distribution in many markets. The company has, however, stated its intention to focus more on innovation, citing examples like the Marc Jacobs Decadence scent having performed strongly because of its creative packaging. If the company follows a strategy of focusing on fewer, more innovative and impactful launches in the fragrance category, as many in the industry are now recommending, this could be one lead for turning around its business in the category.

Brands for sale One sure tailwind of the merger is that certain brands are set to be up for grabs again, and relatively fast. Coty has announced plans to divest brands representing between 6 and 8% of combined revenues before June next year, and most of these are likely to be in fragrance, the company has suggested. “Clearly with the merger we have too many brands in the portfolio,” Becht explained during the company’s fourth-quarter conference call. “As a result, it would be better that we rationalize some of those out. And I am sure they will be better managed by other players in the industry.” n n n

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n n n While the company has not yet Coty factfile announced which brands it will sell it Key brands has said that those under consideration Insight Coty Consumer Beauty: Adidas, Bourjois, Clairol, CoverGirl, David are currently seeing double-digit sales Beckham, Katy Perry, Max Factor, Rimmel, Sally Hansen, Wella declines. “In the course of fiscal 2017, Coty Luxury: Marc Jacobs, Calvin Klein, Chloé, Gucci, Hugo Boss, we would hope to part ways with these Balenciaga, Bottega Veneta, Alexander McQueen, Davidoff, Miu Miu, brands and to have a tighter, more Lancaster, Philosophy focused portfolio which we can drive Coty Professional Beauty: Clairol Professional, Nioxin, OPI, Sebastian harder from a growth point of view,” Professional, System Professional, Wella Professionals (ghd to be added) stated Becht. Despite Coty’s confidence—Becht New Coty cites the integration of Hypermarcas, New Coty will have annual revenues of $9bn, making it the world’s acquired in late 2015, as testament to third-largest beauty company its ability to smoothly fold new activities Sales from P&G Specialty Beauty brands: $4.4bn (source: Coty) into its portfolio—many in the industry say Coty will have its work cut out to Sales by sector* return its enlarged portfolio to growth. Consumer Beauty: 49% ($4.4bn) “Right now, the business is declining Luxury: 33% ($3.0bn) 1-2% on a combined entity basis,” Professional Beauty: 18% ($1.6bn) Becht told investors in September. The company expects sales to begin to Sales by region* improve in the second half of its fiscal North America: 32% ($2.9bn) year, which ends in June 2017. “It’s Europe: 42% ($3.8bn) going to be a big job integrating these Rest of World: 26% ($2.3bn) businesses, and I think it’s going to be an even bigger job trying to get P&G’s Coty alone brands back into the right mind-frame, Fiscal year ended June 30, 2016 sales: $4.35bn, -1% vs 2015 modernizing and repositioning them,” Sales by category 2016 comments Quiroga-Thiele. Fragrance: $2.01bn, -8% vs 2015 There is no doubt that Coty has a Color cosmetics: $1.55bn, +7% vs 2015 major job ahead in order to integrate Skincare: $693.4m, -10% vs 2015 its spate of acquisitions, and there Brazil acquisition: $95.5m, growth N/A are still big gaps in its portfolio, both in terms of expanding in emerging Sales by sector 2016 markets and further into categories Consumer Beauty: 54% ($2.4bn) like skincare, where it remains weak, Luxury: 41% ($1.9bn) as well as higher growth make-up Professional Beauty: 5% ($0.3bn) segments, where it has added historic Source: Coty brands like CoverGirl and Max Factor Sales by region 2016 to its portfolio. Through cost cutting, Americas: $1.66bn, -2% (+1% constant currency, -5% like-for-like) the company claims to be on track EMEA: $2.17bn, flat (+8% constant currency, +1% like-for-like) to increase its operating margin to Asia-Pacific: $516.8m, -3% (+4% constant currency, 19.6%—Coty’s was 14.3% in fiscal +5% like-for-like) 2016. Whether in the long-term its

ambitious strategy will bear fruit, or Source: Coty whether it has bitten off more than it *including Coty’s business, annualized sales for Hypermarcas and acquired brands can chew, remains to be seen. n from P&G, not including ghd

www.bwconfidential.com - www.bwconfidential.comwww.bwconfidential.com - November 17-30- November , 2016 17-30 #139 , 2016 - Page #139 13 - Page 13 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Cosmetic 360 Innovation on show BW Confidential reports on what was seen and heard at the second edition of the industry trade show Cosmetic 360, organized by French industry cluster Cosmetic Valley, which took place in Paris’ Carrousel du Louvre from October 13-14 credit: Arnaud Lombard Show review he aisles were buzzing at the second edition of the Cosmetic 360 trade show, Cosmetic 360 Twhich focuses on innovation in the cosmetics industry, from ingredients to retail Took place: October 13-14 in technology. From early morning on the first day of the show, there was a strong Paris turnout and exhibitors were for the most part positive. “We have seen lots of people Exhibitors: 200 (26% of who came from different countries. This is truly a show for people who want to work which were international), and exchange on a human level, which is made possible by the small size and the +33% vs 2015 uniformity of the stands,” commented Alban Muller, president and ceo of ingredients Visitors: 4,023 (14% of company Alban Muller. Others commented on the clarity of the booths, where key which were from abroad) innovations from each exhibitor were presented on large panels so visitors could see at a glance what companies were presenting. New features included the World Innovation & Cosmetic Cluster Summit, as well as a new online platform and a B2B platform. The show also featured a zone dedicated to startups. The organizers emphasized the show’s aim of providing new ideas to the industry and showcasing innovation. “We want to be the international reference, and to be a show of the future and of the avant-garde […] it is also show for digital and start-ups; we are strongly looking to the future,” commented Cosmetic Valley president Marc-Antoine Jamet. This year’s edition was much bigger, with the show doubling its space to 5,000m2 (53,819ft2). The show welcomed 200 exhibitors, some 26% of whom were from abroad, as well as 4,023 visitors, according to organizers. Exhibitors came from sectors including formulation, ingredients, testing, packaging and finished products.

Heard in show French startup Picxel, which launched in 2011, presented a prototype of its Pheel booth, which uses facial recognition to analyze the consumer’s emotional reactions to different perfumes. The machine distributes a spray of perfume for the user to smell, and a camera records the reaction. The machine can recognize thirteen different facial expressions, the group claims. After the first spray, the machine narrows down its choice and proposes a new scent based on the user’s first reaction. According to Picxel founder Axel Boidin, four or five scent propositions are sufficient to establish the user’s preferences, and point them towards notes that will suit them. The machine, which aims to help retailers provide better consumer advice, won the Consumer Experience prize at the show. Created for the Musée International de la Parfumerie in Grasse, the Pheel booth does not yet have retail distribution, but the company aims to install some 20 booths in 2017, 200 in 2018, and 2,000 in 2019. The machine can be rented for between €100 and €800 per month, depending on the size of the screen and the number of perfumes tested. Picxel is hoping for the machine to generate turnover of €10m for the company. n n n

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n n n French connected beauty brand Romy Paris, which was founded in 2011, presented its beauty assistant, which the brand says is the result of four years of research. Called Figure, the device is designed to provide users with personalized skincare solutions, taking into account details such as sleep, exercise, local weather and pollution levels for the user. Consumers fill out a questionnaire via the Romy Paris app (available on iOS), on their lifestyle, habits and skin type. They can also allow the app to access their location, and collect information from Apple’s health app. The Romy Paris app then generates specific Show review skincare from 1,000 possible combinations, based on this information. The user drops in the suggested active ingredient capsule through the top of the machine, before it is blended with a cream or serum base (these are stored in the back of the machine), and a single dose care is dispensed in seven to nine seconds. The Figure machine is currently being sold on the Romy Paris site for €590 and is expected to hit the market in the first quarter of 2017.

Spanish cosmetics manufacturer Procoluide presented its new Swirl technology, which launched two months ago and consists of a DNA-shaped spiral inside an airless bottle (pictured). Each helix can be used to hold a separate active ingredient. The group also presented its newly launched Fab Lab, an interactive platform that aims to reduce product development time. The platform allows Procoluide clients to work on their product concept and benefit from expert support during the development of the finished product with the company.

France-based scent company Les Parfumables presented Le Porté, a perfume funnel that can be used by consumers to test a fragrance in-store. According to the company, the funnel incites consumers to pick it up and smell it, and encourages a more immediate interaction with a scent than spraying a fragrance on a blotter. The company also claims that by smelling the fragrance funnel, consumers get a true rendition of the fragrance immediately, which is not the case with a blotter, where they will first get a smell of alcohol.

Danish company Endoca, which makes products from certified organic cannabis (hemp) plants, presented its new cosmetics range. It includes the Endoca Hemp Salve, a multi- use product which claims to work as a barrier cream, hand cream and anti-frizz product for hair, as well as providing relief for dry skin. Also showcased was a lip and skin balm containing hemp oil, vitamin E and beeswax, which claims to double as a replacement for eye cream or serum. Endoca is sold on its own website and is looking for distribution.

French company Omoye, which uses African plant ingredients and has recently signed French actress Juliette Binoche as brand ambassador, presented a new addition to its Sacrée collection: Crème Sacrée du Chamane. The anti-aging cream is inspired by a shaman’s recipe, and contains active ingredients such as silk tree and cassava root. It claims to lift and smooth the skin, as well as restore radiance. The product, which retails at €53 for 50ml, is launching in December. In France, Omoye is available in Monop’Beauty and Monoprix parapharmacies, as well as in Parisian department store Le Bon Marché. The brand plans to expand to Brazil and Korea.n n n

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n n n France-based Alkos presented two solid perfume sticks, which launched in September and are designed to be portable, and practical for on-the-go use. The Perfume Touch Up stick is a transparent solid fragrance with a light texture. It contains ceramidone, which claims to help to restructure the skin barrier. The Solid Perfume Jumbo Twist stick claims to create a soft finish thanks to its jojoba ester. It is slightly tinted with a blendable golden shimmer finish, intended to create a brightening effect. Show review China-based, Shanghai Jahwa-owned beauty brand Herborist, which draws upon traditional Chinese herbal medicine, presented its new Supreme Anti-aging collection. The range launched in China in September and will be released overseas next year. Prices range from €39.90 for the Facial Cleanser, to €99.90 for the Extra Control Concentrate Essence, which claims to leave skin radiant, hydrated and toned. The range also includes the Extra Control Concentrate Nourishing Night Cream (€82.90), which aims to reduce the appearance of wrinkles. n

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CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Store visit credit: Auditoire/Stephane Balmy

Dove pops up in Paris The Unilever-owned brand is putting the focus on personalization for its first-ever pop-up store

nilever-owned personal-care brand Dove has opened its first pop-up store Uglobally, located in Paris. Opened in November, the 180m2 (1,938ft2) boutique has a strong focus on customization, which Frederic Erimo, Unilever marketing director personal care France, said ties in with Dove’s social mission aimed at boosting women’s self esteem, and the idea that beauty is unique. Visitors to the pop-up store can choose to personalize one of four Dove products: body cream, shower gel, body lotion or body scrub. Following a skin diagnosis with Dove beauty advisors to measure skin hydration levels, customers select the desired texture, fragrance and ingredients. Shoppers can then Dove pop-up store customize the packaging by choosing a name or a beauty mantra to feature on l Location: 108 rue Saint- the pot or bottle. The customization process takes around 15 minutes, according Lazare, Paris, France to Dove, with prices ranging from €12 to €20 depending on the product l Open: November 9 - selected. Shoppers can also have a name or a thought engraved on Dove’s December 18 beauty bar soap for €6, with four different scents to choose from. l Size: 180m2 (1,938ft2) Also at the Paris pop-up, Dove is showcasing its Japanese facial cleansing l Special features: products: three facial cleansing mousses and the brand’s first micellar water. A selection of products that can Products are priced at €6.50. The company says the offer responds to increased be personalized; store exclusives demand for Asian beauty products from French consumers. Gift sets and candles including the brand’s best-selling developed for the holiday season are also among the store exclusives in Paris. products in Japan, gift sets The pop-up store is open from November 9 to December 18. n and candles

www.bwconfidential.com - November 17-30 , 2016 #139 - Page 17 CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL Store visit credit: Auditoire/Stephane Balmy s The pop-up store allows consumers to customize a selection of products following a skin diagnosis with Dove beauty advisors credit: Auditoire/Stephane Balmy s The store stocks a range of exclusive items, including Dove’s facial cleansing products sold in Japan, as well as gift sets and candles created for the holiday season

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