The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
BARCELONA, Spain — For years, designer Dries Van Noten insisted that he was happy running an independent fashion business. Then, in 2018, he up and sold a majority stake to Puig, the Spanish group best known for its designer fragrance business. The specifics of the deal were not disclosed, but Van Noten, who leads both the creative and business sides of his namesake brand, may have chosen to partner with Puig not only because of what it was, but also because of what it wasn't.
With estimated annual sales at around $100 million at the time of the acquisition, most of which came from apparel, the Dries Van Noten brand could stand to grow in a range of categories: handbags and shoes, for sure, but also fragrance. However, if Van Noten had chosen a private equity partner, they would likely have pushed the brand to scale unnaturally fast, growing distribution and ramping up its accessories business at a pace that might have been unhealthy. Then, if and when sales crept closer to $500 million, the firm would probably have been eager to sell to a group like LVMH or Kering, which could, in theory, use its real estate portfolio to open more stores and drive sales into the billions of dollars a year.
Tellingly, that’s not what Van Noten decided to do. Instead, he picked Puig, which would more or less allow him to keep running his fashion business as he was, while developing a Dries Van Noten fragrance that could relieve some of the pressure to grow leather goods sales at a rapid rate. For an avid gardener whose collections almost always include original floral prints, a Dries Van Noten empire built on sales of scent seems more achievable. Plus, a successful fragrance could also help to boost brand awareness and help grow the core business, too.
Jose Manuel Albesa | Source: Courtesy
“A fragrance and beauty business can have a big impact on the overall brand image,” said luxury advisor Mario Ortelli. “It can help build up an equity that can be used [to sell] ready-to-wear.”
In this way, it seems Puig is trying to position itself as an appealing partner for independent designers, offering them an opportunity to make money without reengineering their businesses. It’s certainly a notion that the family owned-and-operated Puig is leaning into as it signals its ambitions in the fashion space.
Puig has been in the fashion business since 1987, when it acquired Paco Rabanne's label — 19 years after it launched the Spanish designer's first fragrance. In 1995, it snapped up Carolina Herrera, too, more than a decade after signing a deal to make and market the designer's perfumes. But unlike LVMH or Kering, selling clothes and handbags is not Puig's main business. In its 2018 fiscal year — which did not account for the Dries Van Noten acquisition — fashion (defined as apparel, shoes and accessories) was estimated to account for only 10 percent of overall sales.
Puig is by no means backing away from the beauty business that makes up the core of the group’s operations. Quite the opposite. Along with Dries Van Noten, it also took a majority stake in Los Angeles fragrance line EB Florals (created by celebrity florist Eric Buterbaugh) last year. But it is diversifying as the fragrance category evolves, especially in the US, where the consumer is increasingly turning away from traditional premium fragrances — including designer scents — and buying into niche scents instead.
In 2018, "artisanal" fragrances grew faster than any other segment of the $4.3 billion US fragrance market, according to NPD. That same year, Puig also suffered a major set-back when the Qatari-owned Valentino took its licensing deal to competitor L'Oréal. Even more damaging, if true, is the prospect that Prada, too, has decided not to renew its deal with the Puig, which expires at the end of 2019, as reported by multiple trade media outlets, though neither company has confirmed or denied this. A representative for Puig said the company does not comment on rumours.
We thought it was time to bring fashion to the epicentre of our brand-building process.
This means Puig, which generated €1.9 billion ($2.1 billion at current exchange) in 2018, will likely have to make some major changes to reach its goal of €3 billion ($3.3 billion) in sales by 2025. Right now, sales are more or less flat, but profits have grown, which means that the firm has more money to invest in its current brands — and acquire new ones. (In 2018, profits before tax were €326 million, or 17 percent of overall revenue. A year earlier, they were 310, or 16 percent of overall revenue.)
Enter José Manuel Albesa, the 20-year Puig veteran who was appointed president of brands, markets and operations in 2018. Albesa's role is different from the post held by Puig's former President of Fashion Ralph Toledano, as Albesa oversees both the fashion and fragrance sides of the business. He has been tasked with further developing Puig's portfolio of brands by harmonising the way they are marketed across categories, regions and channels.
“To really succeed in this process of brand-building, fashion has to be at the centre,” he told BoF during an interview in Paris, the firm's creative hub.
It's a challenge that even the most successful luxury brands face: creating a consistent marketing and creative message can be tough. Beauty business at most fashion brands, including major players like Prada and Saint Laurent, are licensed out to specialist beauty conglomerates like Puig, L'Oréal, Coty and Interparfums, which develop, market and distribute fragrance and cosmetics products for a mass audience. As a result, beauty advertising is typically far less conceptual than fashion, often starring big-name celebrities, not cool models. It's also frequently tailored to reflect the beauty ideals of specific geographic regions. But the rise of digital media and globalisation means that consumers see mixed messages more often.
Paco Rabanne Autumn/Winter 2018 | Source: Indigital
At Puig, this is a challenge at many of its top brands, including Carolina Herrera, where designer Wes Gordon's light, airy image of fashion clashes with the marketing of its top-selling fragrance Good Girl, which carries the tagline "It's So Good to Be Bad." At least the star of the campaign is Karlie Kloss, whose wholesome image is a good match for Gordon.
For its "1 Million" men's fragrance, Paco Rabanne has run advertising featuring model Dree Hemingway sprayed down in gold, her arms wrapped around a man in a tuxedo snapping his fingers. The image has little to do with creative director Julien Dossena's vision for the brand's fashion collection but has made 1 Million a top-selling scent.
Brands are addressing this challenge in two ways. One, by developing more consistent — it not entirely uniform — marketing across categories, regions and channels. Two, by creating special upmarket fragrances that are more appealing to consumers of luxury fashion consumers. Dior, for instance, released Maison Christian Dior, a line of artisanal scents, in 2018.
At Puig, Albesa is bullish on brand harmonisation. He got to work by matching up creative directors with the right managers, including Carolina Herrera Creative Director Wes Gordon, who succeeded the recently retired namesake, and President Emilie Rubinfeld. However, the shift in strategy is most visible at Paco Rabanne, which has recently introduced its first fragrance under the creative direction of Dossena. He and General Manager Bastien Daguzan used the “One Rabanne” mantra — a term used to underscore the merging of the label’s fashion and fragrance brands — while developing the Pacollection scent, which hit shelves in June 2019.
Under the watch of Dossena and Daguzan, the ready-to-wear line tripled its sales in 2019 after doubling them in 2018, with 50 percent of sales generated online. (Its increased retail presence was amplified by critical adulation and the introduction of more commercial-leaning product.)
At his Spring/Summer 2020 fashion show in Paris, Dossena introduced menswear for the first time. He's expanding the beauty, too: a makeup line should launch within the next two years.
Still, the “One Rabanne” project remains a major work in progress as Dossena and Daguzan reckon with 1 Million and other top-selling, if not on-brand men’s fragrances, such as Ultraviolet and Invictus.
Carolina Herrera Spring/Summer 2019 runway show | Source: Courtesy
At Dries Van Noten — whose collaboration with Christian Lacroix has been a highlight of the Spring/Summer 2020 shows — there is a nowhere-to-go-but-up feeling.
“What we want from this brand is more [of] the same,” Albesa said. “We don’t want to change things; we want to accelerate.” That means building out more direct retail — in China, online — and developing accessories, but not at a breakneck speed. Fragrance is the clear opportunity. While Van Noten has played with scent before — collaborating with his friend Frederic Malle — Puig hopes their partnership will redefine the template for a designer fragrance.
“We want to launch a fragrance business in a different way — in a more educated and cultivated way,” Albesa said, noting it will likely be another two years before the first scent is released. “It’s going to be something more in a niche, with limited distribution and high quality. Very respectful, because respect is something that’s very important for Dries.”
Other brands in the portfolio are re-examining their business models. Jean Paul Gaultier has done away with ready-to-wear, focusing on couture, collaborations and beauty instead. At Carolina Herrera, there is a robust global fragrance business as well as a ready-to-wear and bridal line, but also CH Carolina Herrera, a bridge collection that is primarily sold outside of the US and generated $359 million in retail sales in 2015. (It is not made and manufactured through Puig, but instead through two licensing deals: an eyewear agreement with De Rigo SpA and an apparel and accessories agreement with STL (Sociedad Textil Lonia), a company in which Puig owns a 25 percent stake.)
While the New York-based ready-to-wear and bridal collections are performing well — with sales increasing since the February 2018 arrival of Gordon — the goal is to create a consistent marketing story across several different price points, categories and consumer segments.
“The general manager of fragrance is working with the general manager of fashion, together with Wes, to ensure each piece of the brand sits under the same umbrella of values and codes,” Albesa said, mentioning that the House of Herrera would launch a makeup line reflecting the shift. “It shows our commitment to the brand; that we’re not being opportunistic creating different divisions.”
We don't have a fashion division, we have a brand division... I don't want to penalise the creativity of each house.
In the case of Nina Ricci, which has cycled through a long list of interesting-but-ill-fated designers — Olivier Theyskens, Peter Copping, Guillaume Henry — the challenge is establishing an identity for a ready-to-wear brand that wields little meaning for the modern consumer. Albesa said he and General Manager Charlotte Tasset are giving creative directors Rushemy Botter and Lisi Herrebrugh, who were appointed in August 2018, time to develop their ideas. (Critical feedback has thus far been tepid.) "It was a bold move because they have never done [womenswear] before," Albesa said of the appointment. "What they are bringing is a very poetic and very contemporary vision of femininity."
Given that each of his charges is at a very different stage in their development, Albesa doesn't plan on standardising the way these brands run their fashion businesses. In recent years, newly formed groups looking to rival the incumbents — namely, LVMH, Kering and Richemont — have sold investors on the idea of shared resources: from material sourcing to factories. But Albesa doesn't see it working like that for Puig any time soon. While things like legal, finance and human resources sit under the Puig corporate umbrella, the varying models will remain that way, allowing each business to serve a different customer.
"We don't have a fashion division, we have a brand division," he said. "Paco's all metal, Carolina Herrera is about more craftsmanship and colour, Nina Ricci is more tailoring. I don't want to penalise the creativity of each house."
“The priority now is not the margin itself,” he said. “The priority now is the DNA of the house.”
In the near term, this strategy makes sense, according to analysts. Puig is much, much smaller than the dominant players, which means it needs to work harder on honing the vision for each brand; a challenging prospect in an era when megabrands rule.
“If you look closely in the history of the groups, the standardisation and shared services are pretty recent,” Ortelli said. “They developed their services when they had the critical mass to explore it.”
For Albesa, the plan seems to be to continue investing in the owned brands, which have each hit “record” sales this year.
And what about acquiring other labels along the way? Albesa said he is more compelled by new business models than old brands ready for a revival.
“That’s where acquisitions will become more interesting,” he said. “Let’s face it, fashion has a very traditional way of doing business. This idea of being alternative, disruptive, is really what is relevant today.”