Coty Evolves From Fragrance House to Beauty Power

NEW YORK — For most of the company’s 100-year history, Coty Inc. operated principally as a fragrance house. It is only within the last decade that Coty set its sites on evolving into a total beauty company, explained John Galantic,...

NEW YORK — For most of the company’s 100-year history, Coty Inc. operated principally as a fragrance house. It is only within the last decade that Coty set its sites on evolving into a total beauty company, explained John Galantic, president of Coty Beauty U.S.

In recent years, in the wake of stagnant mass fragrances sales, Coty has increasingly looked to higher growth categories, such as specialty bath and cosmetics, to build its business.

“We’ve expanded the business beyond fragrance, and that has really helped us grow,” said Galantic.

The company created its first specialty bath line, The Healing Garden, in 1997. The line, positioned as a collection that utilizes the power of plants, helped carve out the specialty bath category in drugstores and mass retailers.

One year earlier, Coty entered into color cosmetics with the acquisition from Unilever of Rimmel, a hip makeup line born in London. The company introduced Rimmel to the U.S. market in 2000 by rolling it out exclusively in Wal-Mart stores.

Coty’s Adidas franchise has allowed the company to expand even further outside its core business. Coty has built Adidas, a license with a strong sports heritage, into one of its largest brands. Executives have said it could become a $350 million business.

After launching the Adidas Moves men’s fragrance in 1999, which was promptly followed by the Adidas Moves for Her in 2000, Coty steadily began to expand the brand into a full-fledged personal care line, complete with a men’s grooming collection called Active Skin Care for Men, in addition to deodorants and antiperspirants for men and women.

Adidas Adrenaline Woman marks the latest addition to the Adidas portfolio. The new fragrance, a “vibrant floral green scent,” hit mass fragrance counters in July. Adidas Adrenaline Woman is accompanied by several benefit-laden bath and body items — body lotion, shower gel, “body soufflé” and body scrub — with prices ranging from $8 to $14.50. Sources predict the new Adidas Adrenaline collection could reap first-year retail sales of $20 million.

The Adidas Adrenaline for men scent hit stores last year and won three FiFi awards at this year’s annual Fragrance Foundation gala in June.

This story first appeared in the September 3, 2004 issue of WWD.  Subscribe Today.

Coty’s method of operation for Adidas reflects its larger, overarching strategy of building its product offerings into lifestyle brands, ones that are more relevant to consumers’ daily experiences.

“What we are doing is launching more lifestyle brands, brands that incorporate entertainment into the retail experience,” Galantic noted.

Coty got the ball rolling on this strategy with its Celine Dion partnership. The singer’s namesake fragrance allowed Coty to merge entertainment and celebrity to create a strong launch event in midtier department stores, drugstores and mass stores, said Galantic.

Celine Dion Parfums, a collection of eau de toilette, body lotion and shower gel, rolled out to midtier department stores, such as J.C. Penney, Sears and Kohl’s, in spring 2003, and hit drugstores and mass six months later. Coty will follow that same launch cycle for its second Dion fragrance, Celine Dion Parfum Notes, which debuted in midtier this past spring.

“That is one of the launch models that we think will work long-term. It helps to create brand equity in a department store setting and then go to broad distribution, where consumers have accessibility to it. It also allows us to spend more in media to support it,” said Galantic.

During Celine Dion’s first month at mass, the total fragrance market swelled by 5.7 percent to $18.5 million for the four weeks ended Sept. 7 last year. It was the first sales spike at mass in 18 months. The scent now occupies the number six spot on the list of top 10 women’s fragrances in the food, drugstore and mass channel (which excludes Wal-Mart) for the 52 weeks ended July 11, according to Information Resources Inc.

In addition to flexing Celine’s celebrity muscle, Coty managed to bolster sales in the category by bringing all the glamour of a launch event — far from commonplace in drugstores and mass retailers — to the mass channel.

Walgreens introduced the fragrance to its customers by way of a TV video feed at the beauty counter. Other retailers hung splashy banners and pumped Dion’s music into the fragrance department.

“Probably the biggest secret to Celine’s success is that the retailers got behind the brand and made a strong statement to the consumer that they are a destination for this brand. That’s a tremendous combination,” said Galantic.

The celebrity fragrance also offered retailers a premium price point. Coty introduced a 0.5-oz. version for $18, well above mass’ typical price point of $12.

“Celine showed that if you launch a prestige quality brand, you can charge a true prestige price,” said Galantic, adding that premium prices grow the category.

The latest flood of prestige fragrance brands to the mass channel in the last three years has shaken up the category, threatening the viability of true mass fragrances. Since their forceful entrance, these department store brands have begun to drop their price points to win over a more price-sensitive consumer, said Galantic, adding that such price cutting has stunted category growth. Consumers, meanwhile, have been trained to find prestige fragrances — once the sole domain of department stores — in the same retail environment as prescription medications and soda.

When asked if Coty plans to expand the Celine portfolio with a color cosmetics line, Galantic responded, “I think Celine has potential to go beyond fragrance, and we will be evaluating those opportunities in the year ahead.”

The company sought to take advantage of the largely untapped youth fragrance market by leveraging the star power of the dynamic teen duo Mary-Kate and Ashley Olsen. Coty debuted the girls’ two fragrances — Mary-kateandashley One and Mary-kateandashley Two — in spring 2003 exclusively in Wal-Mart, the home of more than 50 categories of Mary-Kate and Ashley-branded merchandise.

This past March, Coty launched the fragrances nationwide, expanding their distribution into thousands of new retail doors. The scents are proving a runaway hit: In the month of June, the tween brand was the number one-selling fragrance across all categories at Kohl’s, according to Galantic.

Given that the girls celebrated their 18th birthdays in June, Coty sees potential to introduce a Mary-Kate and Ashley fragrance for an older audience. The original scents — housed in light blue and pale yellow packaging — were designed to appeal to the average 10-year-old. The new introduction will court tweens and teens.

“As [Mary-Kate and Ashley] evolve, grow up and have new experiences, their consumer base can growth with them,” said Galantic.

He admits the success of celebrity scents, such as Celine Dion Parfums and Glow by JLo, from Coty’s Lancaster division, has already attracted copycats. “Several of them will fail, because they will be seen [by consumers] as followers, and not innovative. Also, others will fail because they are tied to a personality or celebrity who does not have staying power,” he said.

While Coty has managed to make a splash in mass fragrance by turning celebrities’ names into brand names, in the longer term the company will pursue a slightly modified strategy of star power by proximity. In other words, Coty aims to create a hybrid model that marries an existing brand with a celebrity spokesperson to, in Galantic’s words, “create something bigger than the two elements alone.”

Coty plans to announce news on this front shortly.

Even when armed with prestige and celebrity brands, mass retailers — drugstores in particular — have struggled to build compelling fragrance departments. Many retailers have boosted sales simply by taking their offerings out from behind locked glass display cases into an open-sell environment.

Coty is lobbying that they go a few steps further to make the department more shopper-friendly. Galantic said other best-of-class merchandising elements include segregating the fragrance by gender and creating promotional “hot spots” — or a mass equivalent of a department store fragrance counter — complete with striking signage. Lighting and visuals integrated within the display help evoke an emotional environment.

Galantic said retailers that have worked to create a more attractive, browsable category are seeing improved results.

The challenge for many retailers is to create an appropriate environment for an emotional category in a finite space. And while specialty retailers hang their hats on such displays, the logistics of maintaining an open-sell fragrance counter can be costly for value-priced retailers.

Just as it is attempting to do for mass fragrance, Coty also has taken up the cause of reversing sales declines in the specialty bath category. The category slid more than 6 percent to $95.4 million in the food, drug and mass channel (excluding Wal-Mart) for the 52 weeks ended July 11, according to IRI.

Reviving growth involves changing retailers’ perception of the department. That said, Coty encourages its retail partners to refer to the category as “specialty bath and body.”

Galantic said The Healing Garden’s new benefit-driven product lineup warrants the change in semantics.

He added that bringing technology-driven innovation into specialty bath and ditching a new-flavor-of-the-month strategy will help elevate the department in consumers’ minds.

For its part, The Healing Garden is introducing several treatment products that teeter on the periphery of serious skin care.

Its recently launched anticellulite treatment has quickly become the number one stockkeeping unit in the brand’s seven-year history, according to the company. The Healing Garden, utilizing Coty’s research and development facility in Monaco, will follow the cellulite product with similar launches next spring.

And as Galantic points out, the more technology-advanced the product, the higher the price point for retailers. “There have been brands outside of mass, such as Origins, that have shown [that] a combination of bath and body treatments with a natural [ingredients] positioning can be very effective,” said Galantic.

As these products continue to call out a slew of multiple benefits, creating a gray area between specialty bath and skin care, Galantic allowed that the brand may experiment by merchandising several of the products in the skin care section.

Coty believes that, by shepherding its products into lifestyle brands, the company will fuel its growth and success for another 100 years. And while fragrance continues to the flagship, Coty will continue to pursue ancillary categories, such as specialty bath and color cosmetics.

“We will become a more balanced company, and become a more important supplier to retailers who want to drive growth in the category,” said Galantic.