NEW YORK -- As reports mount that Procter & Gamble is negotiating to buy Giorgio Beverly Hills from Avon Products Inc., everyone involved continues to remain silent.
"Probably at the right price it could be one of the best things to happen to P&G, because it would establish them as a long-term prestige brand," said industry consultant John Horvitz. "It would give them some badly needed critical mass, their own dedicated sales organization and would catapult them into the top 10 of prestige fragrance houses in the world."
P&G, which owns Cover Girl and Max Factor in the U.S. mass market and the broadly distributed Ellen Betrix in Germany, has only one company in the prestige fragrance business -- the German-based Eurocos Cosmetic GmbH. Its American counterpart is Eurocos USA.
Worldwide, Eurocos is projected by industry sources to do $200 million this year with its Laura Biagiotti, Hugo Boss and Otto Kern fragrance brands. But Eurocos did not begin pushing in the U.S. until last year with the launch of Venezia, a women's fragrance from Biagiotti. Industry sources estimate the company's U.S. volume at $25 million for last year.
That figure is expected to exceed $30 million this year with this month's launch of Elements by Hugo Boss in 638 department store doors.
To jump start the U.S. business, P&G contracted a sales force through Khepra Beauty Group Ltd., which remains under contract.
In comparison, Giorgio had global sales of $163.5 million last year, a gain of 9 percent, attributable to the rollout of Wings women's fragrance in the U.S. and U.K., according to Avon's annual report.
Industry executives have been expecting P&G to make an acquisition ever since Edwin L. Artzt, its chairman and chief executive officer, indicated his interest in the prestige market over a year ago.
During a Eurocos party in New York in January 1993 to hype Venezia, Artzt said, "We believe that Procter & Gamble has the capacity, the marketing skill and the experience in the fragrance business to become a leader in the upper end of the market."
Since then, there have been rumors about P&G looking at Giorgio and then EstÄe Lauder -- two reports that were firmly denied.The recent revival of the Giorgio scenario has been met with a string of "no comments" from the three companies involved.
But industry executives note that Avon, which acquired Giorgio in 1987 for $165 million, had subsequently tried to sell it, but pulled it off the block in 1990 after receiving what it considered unacceptable bids.
Consultant Allan J. Mottus agreed that an acquisition of Giorgio would provide enough volume to provide P&G with sales and marketing teams for the prestige fragrance business. It also would give P&G a valuable showcase in department stores.
"They have the option of maintaining the department stores' business or moving goods down the distribution chain, which is the current way to market products [in the industry]," Mottus noted,
Andrew Shore, first vice president and household products and cosmetics analyst at PaineWebber, said P&G has had "limited success in department stores."
A price of about $150 million for Giorgio might not be too much to pay to learn the prestige business, "if they are set to get something bigger," Shore said, citing the speculation about Lauder.
Diana Temple, cosmetics analyst at Salomon Bros., pointed out, however, that P&G could discover that the prestige fragrance business is a dramatically different animal than the consumer products the company is used to marketing.
"There's a difference in marketing an image-driven business where you are selling intangibles than when you are selling functional products," she said.
The speculation has become so intense that Bud Hamilton, president of Eurocos USA, was prompted to declare that P&G remains committed to the Boss Elements launch, to Eurocos and to the prestige fragrance business in general.
While refusing to comment on the Giorgio report, Hamilton noted that a pre-Father's Day test of Elements in six department store doors exceeded expectations. He then stated, "We are totally committed to the business and to growing the business rapidly over the next several years."
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