Revenues at the 103-year-old Spanish fragrance and fashion company rose 9 percent in 2016 to 1.79 billion euros, or $1.98 billion at average exchange, in the context of a relatively flat perfume business worldwide and despite tough times in emerging markets, especially Latin America, where Puig generated 44 percent of its sales.
Net income for the company advanced 23 percent to 155 million euros, or $171.6 million.
“We decided in 2015 to make a big investment behind our brands and sacrifice profits, because we wanted to get the payback over time and have a more sustainable business,” the 55-year-old chairman and chief executive officer explained. “What we said was that by the end of the three-year period, we would reach a level of profitability that was what we had prior to this plan. So I think now we are getting the fruits of the initiatives.”
Puig, which uses a unique hybrid model comprised of owned fashion and fragrance brands such as Carolina Herrera, Nina Ricci, Paco Rabanne and Jean Paul Gaultier, and licensed perfume labels, including Prada, Valentino and Comme des Garçons, has earned a reputation for rich storytelling.
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That’s what infuses each launch and has played no small part of the success of such 2016 launches as Good Girl by Carolina Herrera and the Portraits line by Penhaligon’s, and the blockbuster 1 Million and Invictus franchises from Paco Rabanne before them.
At the beginning of the executive’s tenure at Puig, the company faced a difficult moment and exited areas where it didn’t feel it could compete, selling some toiletries brands and focusing on growing its hybrid model’s business through compelling narratives to excite the consumer.
Now 13 years in the job, Puig spoke frankly about the challenges of the “tectonic” shift in today’s marketplace, driven by the digital transformation and Millennials, and how the recent consolidation among fragrance manufacturers made the company’s former goal of becoming the third-ranked prestige fragrance maker unattainable by 2020, as hoped.
WWD: Besides positive effects of the company’s three-year plan, what else is driving Puig’s business that will allow the company to hit the ambitious 2 billion euro mark this year?
Marc Puig: This first quarter is good [when sales grew 13 percent], in part because some of the launches and some of the propositions we have are attractive. Brands like Paco Rabanne or Carolina Herrera as a whole are performing very well. Prada is doing consistent growth from a lower base. Penhaligon’s is growing at a very high rate.
We’ll have a new proposition for Paco Rabanne that will be in line with what we have seen over the past few years for the brand. We have expectations for that. [Jean Paul Gaultier] will do something that is not for everybody, will be surprising and not leave anyone indifferent. We are planning to come back with something that is exciting.
So, some new initiatives plus the continuous growth of our existing business [will spur gains].
WWD: What were some of the high and low points for Puig last year?
M.P.: It’s true that 2016 was a difficult year in the sense that the [fragrance] category as a whole worldwide didn’t grow that much. And in particular, for those companies that had exposure to emerging markets — markets outside Europe and the U.S., like we do — there were several casualties, meaning several markets and several currencies that had a negative effect when you look at the consolidated sales.
In spite of that, there were two elements that helped us grow. Number one, we had the integration of Jean Paul [Gaultier’s fragrance business]. And second, we had a few very good launches, plus the existing brands had a good year. So overall 2016 was a good year for us.
WWD: How did the integration of the Jean Paul Gaultier brand go?
M.P.: It’s totally integrated. It has been an amazingly smooth transition. We had several years to prepare for that, and the collaboration with BPI and Shiseido has been extremely smooth.
WWD: Has there been any impact on the Carolina Herrera fashion brand after the turmoil that rocked the company in December?
M.P.: No comment.
WWD: Which are your largest emerging markets, where Puig generated 44 percent of its revenues last year?
M.P.: We don’t give specific numbers, but Latin America is a big part of our sales. Russia, the Middle East, South Africa. If you look at the penetration of emerging markets in our overall sales, when you compare that with many of our competitors, we have one of the highest ratios. In spite of some years having more ups and downs, longer term that’s where we see the growth coming from.
WWD: Puig recently appointed José Manuel Albesa to steer all of its fashion houses — Carolina Herrera, Nina Ricci, Paco Rabanne and Jean Paul Gaultier — while he maintains his role as chief brand officer. Please discuss the nomination; in the past Puig has maintained the need to keep its fashion and fragrance activities separate.
M.P.: It’s true that for a long time we have had these two businesses run very separately because the nature of those industries are different. It’s not that we expect, from a business point of view, that there are going to be a lot of synergies, because there are not. But we want to make sure that the direction that the brands take in different dimensions are more aligned. We had already done this move for Paco Rabanne and Carolina Herrera a few years back, and basically what we are doing now is just aligning all the brands in a similar structure, whereby fashion and fragrances are run separately but the brand direction is common.
WWD: In a past interview, it was mentioned that at some point fashion might make up half of Puig’s business, whereas today it’s an estimated 9 percent. Do you want to bulk up the share, possibly through acquisitions?
M.P.: The way we see it, there’s a portfolio with a significant number of brands already, and within those brands there is the potential to keep growing in different [categories], whether it’s fragrance or fashion. Our main effort will be to focalize and prioritize the materialization of the potential for all the brands in the portfolio.
Having said this, we are proactive, as we have been over the past few years. And when there are opportunities where we think we can create value if they are under our responsibility, we will pursue them. But we also believe that there’s no rush. We still have a lot of potential with the brands that we have in our portfolio.
WWD: Puig made some investments in beauty concerns last year, such as taking minority stakes in EB Florals and Granado. What does this bring to the company?
M.P.: We felt very comfortable with the person behind EB Florals [celebrity florist Eric Buterbaugh] and thought that it had potential and that we can help grow this business.
Granado is…a father/daughter business. They are present in a market that is one of the biggest in the world for beauty. It’s very complicated to do business in Brazil. There were opportunities for us to help them outside Brazil, and there are opportunities for them to help us in Brazil. We are looking at how to materialize those opportunities, and it’s a win-win exercise.
WWD: What are some learnings from the acquisitions — outright or partial — that you’ve made in the past few years, such as with Penhaligon’s and L’Artisan Parfumeur in 2015?
M.P.: It’s clear that when you look at Granado, they have 50 stores in Brazil. Look at Penhaligon’s, L’Artisan – there are like around 40 stores in the world now. For us, this is a new territory, and one that we are learning from as an organization. Clearly it’s an interesting path for those brands as well as [potentially] other brands going forward.
WWD: Early this year you inked a joint-venture agreement with Luxasia, an omnichannel beauty seller. What does that bring to Puig?
M.P.: In most of the Asian countries, the affinity to the fragrance category is lower than you have in other parts of the world. But even taking into consideration that fact, our market share in Asia is lower than what we have on a worldwide basis. I think that Luxasia can help us strengthen our position. Their emphasis is on digital. It’s an interesting opportunity for us to exploit…and leverage.
WWD: How is digital shaping your business?
M.P.: [Online] we have seen a much bigger transformation in color cosmetics than in fragrance, because color cosmetics is visual. Fragrance is not a visual category, but we know that the revolution and transformation is already happening in that [segment], and we want to be present. One way for us is clearly trying to translate our storytelling from TV, print and points of sale to the digital world. So that’s what we are working on at this point.
WWD: During the first three months of this year, Puig opened subsidiaries in Colombia and in Australia. Will the company continue on this route elsewhere?
M.P.: In Colombia, there was clearly an opportunity because there were some changes in the market; there was a big problem with the main distributor in there. And [for Australia and New Zealand] it’s a similar solution as what we have in the U.S., which is a collaboration with Clarins. But there are no more plans [to open subsidiaries].
WWD: When Puig announced its strategy for 2020, a goal was to be the third-ranking prestige fragrance maker in the world. Does this ambition still hold?
M.P.: There have been changes in the industry. Some big transformational [consolidation] we have seen recently has affected this goal. The podium is no longer there for us at this point.
WWD: Could an IPO be in the works?
M.P.: No, there is no IPO process [happening]. The company is financially solid. We can pursue the projects that we see as opportunities for us going forward. So there’s, at this point, no reason to change that. What will happen 10, 15 years from now, I cannot say.
WWD: Might Puig be sold anytime soon?
M.P.: No. The only commitment we have, and in my case as part of the third generation of this company, is that we took the baton from the prior generation and we will grow the business and one day pass it on to the next. What the next generation will do, I have no idea.
WWD: What is the biggest challenge looking ahead?
M.P.: I’m very comfortable with how things are going short term. And at the same time, there are certain changes in the industry that are, to me, transformational. They are tectonic shifts that will affect the way we do business going forward — whether it’s a digital revolution, whether it is a Millennial consumer, whether it is the consolidation of a channel of distribution. The many tectonic shifts, as I call them, will have [a deeper effect than I have seen] in my whole career.
We will have to make bets. Going forward, the answer is no longer the status quo, to just keep doing business as we were doing it. Because [the market] changes so fast now, the choices you make and the bets you make will be more critical going forward. If you miss a significant trend — or you miss the boat — you will be out sooner than you thought.