By and  on February 9, 2009

MILAN — Just 18 months after relaunching the Fendi fragrance business, LVMH Möet Hennessy Louis Vuitton announced Friday it will pull the brand’s sole scent off the market.

The company will stop selling its Fendi Palazzo women’s fragrance, which it introduced in 2007, due to sales that “while encouraging, didn’t meet expectations” in 2008, stated Gabriella Scarpa, country general manager for LVMH Perfumes and Cosmetics in Italy. At the time of its introduction, industry sources estimated Palazzo would ring up $50 million in global retail revenues during its first year on counter.

An LVMH spokesman in Italy declined further comment, but market sources believe that despite the setback, Fendi will forge ahead with a fragrance business at a later date.

Palazzo was Fendi’s first major fragrance launch in collaboration with the company’s distribution partner, Christian Dior Perfumes and Cosmetics. Unveiled at a major press event in Rome in summer 2007, Palazzo was Fendi’s first scent to be introduced since the mid-Eighties. Its rectangular bottle with a graphic black sketch of a building was meant to resemble Fendi’s headquarters. Karl Lagerfeld shot images for Palazzo’s ad and also for a storybook, called “Palazzo,” to accompany the scent’s launch.

The Palazzo fragrance was distributed in 1,500 doors in the U.S., Canada and Europe beginning in September 2007 and then went to Asia in 2008.

At the time of the launch, Michael Burke, chief executive officer of Fendi, said the scent’s distribution network would progressively grow along with Fendi’s fragrance portfolio, which was to include a men’s scent in 2008 and another women’s fragrance in 2009. All previous Fendi fragrances had been removed from the market after the end of the brand’s beauty license with Gucci Group’s YSL Beauté division in 2005.

Also at the time of launch, Burke estimated Fendi’s beauty business would account for 10 percent of the company’s total sales in five years, and that a beauty line could diversify into other categories, such as a spa line.

None of this took place. Instead, there’s been a gradual line extension added. In the second half of last year, an eau de toilette was introduced, for instance.

“Perhaps their expectations were too big,” said Antonella Mandelli, general manager of Mazzolari, one of Milan’s leading perfumeries. “It’s a very strong signal they are sending out, as they realized it wasn’t performing how they wanted it to. Other companies should have the courage to do the same thing.”

The Fendi fragrance business was not discussed during LVMH’s financial analyst meeting Thursday, when the Perfume and Cosmetics division was lauded. It posted sales of 2.87 billion euros, or $4.22 billion at average exchange for the period, in 2008, up 5 percent on-year. Its organic growth was 8 percent and current operating margin came in at 10 percent for the first time. The division logged gains in all markets in local currencies: 20 percent in Asia, 10 percent in the U.S. and 3 percent in both Europe and Japan.

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