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Beauty Inc issue 11/08/2013

When Michele Scannavini talks about the need for speed, he knows whereof he speaks.

This story first appeared in the November 8, 2013 issue of WWD. Subscribe Today.

Within the past 12 months, Scannavini was named chief executive officer of Coty Inc. and oversaw the firm’s initial public offering on the New York Stock Exchange.

Even for a man who readily describes himself as impatient to get things done—a characterization his colleagues collectively agree is apt—the pace was fast.

But Scannavini, who succeeded his former boss, Bernd Beetz, as ceo in August, 2012, dare not take his foot off the gas pedal. Investors, many of whom are not as familiar with the dynamics of the global fragrance business as they are with other categories in the beauty sector, have thus far taken a wait-and-see attitude towards Coty. The company’s shares got off to a lukewarm start on the first day of trading, closing at $17.36 after being priced at $17.50. As of press time, the stock was at $15.80, a number that some analysts believe could and should rise to $20 in the near-to-middle term.

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To get there, Scannavini must convince a skeptical Wall Street that he is positioning the company on the road of sustainable growth by maximizing the potential of the myriad brands assembled under Beetz and transforming the $4.6 billion Coty into as significant a force in color cosmetics and skin care as it is in fragrance.

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“The mission he has given us is to accelerate, and we were thinking full-speed ahead already,” says Jurgen Scharfenstein, senior vice president of global marketing for Coty Beauty. “He sees more potential for us to accelerate our pace in terms of new initiatives, new geographies.”

Comparing the Italian-born Scannavini with the German Beetz, a man not known for his laid-back demeanor, Scharfenstein continues, “We were in a Porsche. Now, we are in a Ferrari.”

Scannavini, who, in fact, worked at the fabled Italian car manufacturer earlier in his career as commercial and marketing director, believes that alacrity is the key to his—and his company’s—success. “As soon as I see something that looks like a good idea, a nice business opportunity, that looks like it could be a success, I am eager to go for it,” he says, in his first in-depth interview since Coty’s IPO in June.

He has cascaded that attitude throughout the organization. This is a team that’s hungry. “Since I joined, Coty has transformed from being a small player to a serious challenger,” says Johanna Businelli, senior vice president of global marketing for color cosmetics, who came to the company via the Rimmel London acquisition. “But we haven’t lost the sense of flexibility, aggressiveness and ambition. We are very focused.”

Today, Scannavini is in his spacious—but temporary—corner office at 2 Park Avenue in New York. The company is in the process of moving to its new headquarters in the Empire State Building, just around the corner, but Scannavini’s office isn’t yet packed up. A picture of the ceo and his senior management team ringing the opening bell of the New York Stock Exchange rests behind him, occupying pride of place on a memento-filled shelf.

Although he describes the last year as “intense,” it’s clear that year two will be equally action packed. Scannavini lays out his strategic plan for Coty in rapid-fire succession. “I want Coty to be one of the top global beauty companies in the world,” he says. “This is the vision. We have four key priorities going forward. Two are related to top-line growth, two to profitability. First is how do we exploit the best potential we have with our power brands,” he continues, noting that 10 of Coty’s brands comprise 70 percent of its business. They are Adidas, Calvin Klein, Chloé, Davidoff, Marc Jacobs and Playboy in fragrance; Rimmel London, Sally Hansen and OPI in color cosmetics, and Philosophy skin care. “We believe these 10 brands have the potential to be strong global brands, but we are not there yet with many of them, so we have defined a very specific growth road map for each power brand to maximize its potential,” he says.

Scannavini’s second priority is to strengthen Coty’s position in emerging markets, particularly Asia. “This is fundamental for us. Today, our business in emerging markets is 24 percent. In five years, it will be more than one-third of the company. To achieve this, we are strengthening our structure to sell our brands in those markets,” he says, noting that in the last year alone, Coty bought StarAsia, a beauty-products distributor serving Southeast Asia; created Coty Korea in conjunction with LG Household & Health Care, and started a joint venture with the Brazilian cosmetics distributor Frajo Internacional to better penetrate the beauty-crazed country, which is the world’s largest fragrance market. “The big growth is coming from those markets,” Scannavini acknowledges, “and we need to be better suited to take our share of growth.”

In terms of profitability, Scannavini’s focus relates to Coty’s productivity. “We are investing significant money to expand our business in emerging markets, so we need to find more efficient ways of doing business in the markets where we don’t have growth,” he says. “In this moment, we are thinking of how to get more productivity in our more-consolidated parts of the world to allow us to expand and keep on investing in emerging markets.”

Priority number four revolves around Coty’s continued ability to generate cash, a position of strength for the company. For fiscal year 2013, Coty reported net cash provided by operating activities, excluding cash used for private company stock option exercises, was $618.4 million, compared to $593.3 million in the prior year.

Analysts would like to see Coty use some of that cash to bolster its weakness in key growth areas—particularly skin care. “Broadly speaking, they need to figure out ways to segment away from core categories, and try to become more of a premium-positioned business, including new brands as well as more exposure to faster-growing markets and categories,” says Mark Astrachan, an analyst at Stifel. “You have some well-documented forays into acquisitions that worked less well than originally envisioned,” he continues, referring to the Chinese skin-care brand TJoy and the American brand Philosophy, which Coty took $515 million in impairment charges on in 2012. “But that doesn’t mean they should stop trying,” Astrachan says. “They should continue…Use the cash to go out and make acquisitions to drive growth rates and category trends.”

“They need scale in skin care, because the margins stink now,” agrees Deutsche Bank analyst Bill Schmitz. “They are looking at every single deal. Look for them to be super acquisitive. It’s even more urgent now because they never thought the nail category was going to fall off the cliff as it did,” he concludes, referring to the deceleration in mass market nail-care sales in the third quarter. After posting growth of almost 20 percent year to date from May 2012, sales declined 2.5 percent in July, prompting retailers to cut inventory.

Scannavini is optimistic nail will rebound, and believes going forward the category can continue to grow as fast as the overall color-cosmetics category, if not faster. He also believes that growth is still attainable in fragrance, although he recognizes that he has a ways to go when it comes to educating Wall Street about the viability of the category. “Fragrance is not an easy category to describe because it’s not based on [product] performance. When you have a product based on performance, it’s very rational,” Scannavini says. “Fragrance is about emotion, so how you can transfer this emotion is a multifaceted skill that needs to be explained and it’s going to take some time.”

In terms of building Coty’s portfolio of brands, Coty’s cash position does “give us the tool to be ready to grow with external activity,” he says. As for the ideal acquisition? “The dream acquisition for me is one that strengthens our position where we are not yet as competitive as other players in the market,” Scannavini says. “Emerging markets, for sure. Skin and body care, for sure. We still have an important opportunity to consolidate our leadership in fragrance and to keep on accelerating our growth in color. While obviously we are looking with priority to strengthen our position where we are not as competitive as we would like, this is not limiting the scope of possibility.”

When asked if that could mean forays into new categories for the company, such as hair, Scannavini says he’s not excluding any possibilities—“Hair is a huge business in a country like India,” he points out—and when told of industry analysts who speculate the French skin-care powerhouse Groupe Clarins would be a perfect fit, he says, “Me, too!” followed by a loud laugh. “I believe for many players,” he says, chuckling again.

That ready guffaw is characteristic of Scannavini, an executive who combines intense drive with a low-key, engaging management style. His modus operandi is driven home in a video Coty produced to introduce the ceo to potential investors during the pre-IPO road show, in which Scannavini is seen tooling around Paris on his power-blue Vespa, eschewing the usual ceo trappings of a luxury sedan with tinted windows in favor of the zippy motor scotter. “When you think of the style of Coty, our motto—Faster, Further, Freer—and you think of a Vespa, there is overlap,” says Scannavini, who parents gave him his first Vespa as a gift when he was 14. “A Vespa allows you to be fast, even in traffic, and because of its afility, it allows you to be very, evry free.”

Notably, not one senior executive left the company when Scannavini was promoted last year, and his senior management team—including Renato Semerari, president of Coty Beauty, Jean Mortier, who succeeded Scannavini as president of Coty Prestige, Catherine Walsh, senior vice president of corporate communications, and their teams—are Coty veterans, many of whom were either brought into the company by Beetz and Scannavini over the past decade or came in via an acquisition and stayed. “I don’t believe in the power of the hierarchy, so we do whatever we can to reduce distance, not create distance,” Scannavini says. “I want to involve people not from the weight of their position, but from the weight of their ideas. We do not like standardized behavior. There are no dress codes, communication codes. Our interest is that people feel at their best to express their talent and their uniqueness.

“People in larger companies can suffer a bit,” he continues. “The layering. The longer decision-making process. We believe that creating an environment in which they can apply their skills and knowledge and are focused on doing things rather than building political relationships is very exciting.”

“There are no politics,” seconds Mortier, who came to Coty from Unilever via the company’s acquisition of Calvin Klein Cosmetics. “We’re all coming from big corporations where there was a lot of politics. Here, we are much more direct and responsible for our areas. We have a clear strategy and clear objectives and everybody knows what he or she has to deliver.”

Maintaining that entrepreneurial spirit will be a critical factor in determining Coty’s continued success. “One of Coty’s strengths has been that it is such a fearless company in terms of pursuing innovation, in product, in branding, in new distribution models,” says Steve Mormoris, senior vice president of marketing, Coty Prestige. “The key now that we are much bigger and more global in scale is continuing the innovation stream that has accounted for our success for the past 10 years. Keeping this type of antenna of what these trends are in spite of how big we get is important, and that is usually the hallmark of a small company.”

Coty’s senior management team is incredibly tight-knit, socializing both inside and outside of the company. Semerari and Scannavini worked together at Procter & Gamble in Italy, where Beetz was general manager. Fabrizio Freda, now the ceo of the Esteé Lauder Cos., was Scannavini’s direct boss at one point, and Scannavini was Semerari’s boss. Fun is a word that comes up often, with more than one person proudly claiming to be the first to hit the dance floor at a company function. (A side-note—Coty’s holiday party often involves costumes. Walsh readily whips out a picture of herself dressed as Marie Antoinette during a conversation on the subject.)

As jolly as it all sounds, the fun and games serve a business purpose, too. “The fact that there is friendship at the top and that we work very well together gives a very clear message to the rest of the organization on how we expect the team to work,” says Semerari. “It gives consistency and coherence, and gives everyone the reassurance that we are all running in the same direction, that there is one objective and one direction. That’s important, because in companies, particularly as the size becomes bigger, you tend to get a silo approach and departments or functions take a certain role and direction and it’s difficult to make everybody work hand in hand.”

Inevitably, comparisons between Scannavini and Beetz bubble up in conversations about the company. Scannavini was Beetz’s loyal lieutenant for a decade, the operational brains behind Beetz’s assembling of a beauty powerhouse. By all accounts, Scannavini is more hands-on than Beetz, with a deep understanding of both the qualitative and quantitative sides of the beauty industry. “Bernd was more concentrated on building and building and building. Michele is more inclusive and consistently with people,” says Walsh, who was also an early Beetz hire. “Michele doesn’t want to be seen as the ceo superhero. His whole style is to be approachable and available.

“Michele is also different [from Beetz] in how he approaches the business,” Walsh continues. “Bernd was more about gut feeling. Michele loves research and benchmarking. He is incredibly analytical—he likes to see where the opportunities in the market are going to come from, and he builds his strategy around that.”

Whereas Beetz was focused on building Coty via acquisition, Scannavini must now concentrate on maximizing those brands. “He analyzes the portfolio differently,” notes Walsh. “He’s saying, ‘This is the hand I’ve been dealt. How do I grow in color? How do I establish skin care?’”

Veteran skin-care executive Jill Scalamandre is one weapon Scannavini has added to the team in his efforts to answer that last question. Scalamandre, whose title is senior vice president, marketing, Philosophy brand and Coty Prestige skin care, has been charged with rebuilding the innovation pipeline and reestablishing the emotional connection that the brand’s founder, Cristina Carlino, so adeptly forged with consumers. “He wants to make inroads, he wants to make strides,” says Scalamandre of Scannavini. “He is very involved. He wants to know what is going on with our retail partners, what’s going on with product innovation and where we’re at. He reads customer letters, he reads blogs, he reads customer reviews,” she continues. “He is not sitting at the top of a pyramid waiting for us to come. He leads with everyone.”

Francoise Mariez, senior vice president of marketing at Coty Prestige, worked side by side with Scannavini in his role as president of that division, and says that Scannavini is at his best when confronted with a challenge like building or fixing a brand. “When times are tough, he is very good, because he is very calm and supportive,” she says. “Working on brands, he didn’t hesitate to jump into the operational things and support us and to defend the brand and help sell the strategy and vision to our licensor. Certain presidents are more finance driven than marketing driven, but he is both. You have someone who is living the products like you are.”

Calm he may be, but Scannavini—a self-professed sports fanatic who played soccer and basketball in his youth and plays pick-up ball at Chelsea Piers with Coty’s in-house hoops team when his schedule allows—is far from complacent. “The people here, we like to have a healthy dissatisfaction with the status quo,” he says. “We are always looking for something different, something that goes above what has been done today.”


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