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Critical Mass: Three Beauty Execs Buy Brazilian Chain

Brasil Beauté has taken over ownership of the Agua de Cheiro personal care chain and is planning to expand the store count to 1,200 doors by 2018.

NEW YORK — The lid is about to be blown off the simmering Brazilian beauty market. And a group of beauty veterans plan to be at the center of the boom.

Last week, Brasil Beauté — led by Paul Block, a former chairman and president of Revlon International; Renaud Dutreil, former chairman of LVMH America, and Joe Lago, former partner of the fashion brand Ellus — took over ownership of the Agua de Cheiro personal care chain from Henrique Pinto, owner of the Globalbras Group. Pinto rolled a minority interest of his holdings into the new company. Further terms of the deal were not disclosed. Currently, the 800-unit chain stocks its proprietary brands in stores averaging 350 square feet.

The new owners plan to overhaul the stores, injecting new brands while adding more exclusive products and expanding the store count to 1,200 doors by 2018. An avenue to attract more global brands (and reduce high import taxes), Agua de Cheiro links brands with local production capabilities.

“This is a very exciting opportunity. There’s a lot of growth in Brazil and changes that make the U.S. market pale in comparison,” said Block, who is the executive chairman and chief executive officer of Brasil Beauté. “Recognizing the growing awareness of the Brazilian consumer for sophisticated personal care products at accessible prices, we are optimistic about the potential for providing international brands and new exclusive Agua cosmetics and fragrances to both existing and new Agua customers.”

Familiar global brands should be added to the mix early in 2014, sources said. The company is reportedly eyeing a merchandise mix that is about one-third global brands and two-thirds exclusive Agua de Cheiro nameplates.

All eyes are focused on Brazil with the 2014 FIFA World Cup and the 2016 Rio de Janeiro Olympics. But what makes the country appealing to the beauty industry is the confluence of more beauty-savvy shoppers with increasing dollars to spend and a desire for doing so in retail stores rather than only direct-marketing avenues (currently direct marketers Avon and Natura control 50 percent of beauty sales, a share many expect will decline). Growing at a rate of 7 to 8 percent per year, Brazil is on target to surpass Japan as the world’s number-two beauty market, according to research from A.T. Kearney.

It’s also a fast-growing market. Euromonitor tallied that Brazilians spent $43 billion on beauty products in 2011, up 142 percent in five years. Several categories, such as hair care and fragrance, index extremely high, with Brazilians spending more money on perfume than any other nation, reported Euromonitor. Those statistics are prompting the new owners of Agua de Cheiro to update the network of mostly-franchised stores. “Using the strong network of Agua franchise stores as a retail platform, we will be implementing a domestic manufacturing and retail distribution system, exciting contemporary store design and improved training and merchandising,” said Block.

The executives plan to implement cutting-edge formulas and packaging to put Agua stores on par with the new, more demanding Brazilian consumer. Big plans are under way to burnish the shopping environment, infusing higher levels of service to match the elevated product assortment.

An expert on Brazil retailing said that the current store layout can be confusing and that Brasil Beauté’s goal is to combine the best of Sephora and Ulta.

In the meantime, Sephora is gearing up in Brazil, too. Sephora entered Brazil in 2010 via a deal with e-commerce retailer Sack’s and opened its first store last year. There are now four stores in Brazil, with plans calling for as many as 30 by 2016.

Brazil is attracting the likes of other brand names, such as Shiseido, Smashbox and Bare Minerals. It’s also a huge market for Procter & Gamble, L’Oréal and Unilever.

The reinvigorated Agua de Cheiro also competes with O Boticário, the largest player in Brazil, with more than 3,500 units. There’s also Ikesaki, Brazil’s biggest cosmetics group, which sells to both end users and the wholesale market.

Agua de Cheiro already enjoys a robust fragrance business, which Block hopes to extend into other beauty areas such as cosmetics and skin care. Brazilians, he said, are focused on grooming and shower on average three times per day.

A.T. Kearney’s research revealed the population of consumers per capita is close to that of the U.S. and the U.K. Block hopes to open doors to companies facing the heavy import tax raising the price of luxury goods in Brazil two to three times that of other countries by connecting them to local resources. He also thinks the spiffed-up stores and an enriched emphasis on training will attract more well-known global brands.

Agua de Cheiro will showcase its fresh look in about 20 company-owned flagships, the first to open in December in São Paulo. With Brazilians beginning to migrate to retail stores for beauty, Block thinks most growth will come from mall doors, which are sprouting in the country.