While industry watchers were expecting the privately held firm to announce the addition of professional nail care company OPI to its portfolio, Coty instead revealed Tuesday that it has snapped up skin care brand Philosophy from investment fund The Carlyle Group.
The move follows news last week that Coty would purchase Dr. Scheller Cosmetics from Russian company Kalina.
“These two acquisitions are a logical conclusion to some of our strategic objectives,” Coty Prestige president Michele Scannavini told WWD. He declined to comment on whether an OPI purchase is also in the cards.
“We are looking to strengthen our skin care business,” Scannavini said. “We have Lancaster, which is strong in Europe, whereas Philosophy is a strong U.S. brand. It is not easy to find an available skin care brand that is so strong, with a leading position in a key market, the U.S.”
Coty’s portfolio is weighted toward fragrance, with perfume representing 59 percent of the business in the year ended June 2009, the last period for which Coty has published results, figures that also noted annual sales were $4 billion.
This stake in fragrance meant that during the financial crisis, the company saw sales year-on-year drop an estimated 12.5 percent to total $3.5 billion, according to sources.
“Coty Prestige needs to grow the business away from prestige fragrance,” market consultant Colin Hession commented. “My only concern is the quality of the franchise for international expansion. It’s an interesting acquisition, but is it really different enough? That said, Coty Prestige needed something in the U.S.”
Another industry observer said the Philosophy buy raises three big tasks for the perfume giant. Coty, he said, needs to first better define what Philosophy is to the consumer, and sharpen its positioning in the marketplace. The next is to decide whether the brand is exportable.
“It may be that it is too Anglo, which I think it is,” the source added, saying the last task for Coty is that it needs to establish a sustainable margin structure since equity firms, such as The Carlyle Group, are known to “milk a brand” just before it’s sold.
Philosophy, which is expected to generate sales upward of $200 million this year, will join the Coty Prestige portfolio under Scannavini.
The brand’s current management, led by chief executive officer Ken Stevens, will stay on, Scannavini said.
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