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Beauty Inc issue 06/18/2010

An elegant town house situated in the fashion quadrangle of Milan stands as a testament to how art and science can intertwine.

This story first appeared in the June 18, 2010 issue of WWD. Subscribe Today.

 

Inside the four-story hospitable house hang works by artists ranging from Andy Warhol to Lucio Fontana, and the edifice also is the home of Madina and Dario Ferrari, who, with daughter Arabella Ferrari and other family members, form the core management of Intercos, perennially the top-ranked supplier of color cosmetics to the global makeup industry, despite challenges by competitors such as Chromavis.

 

“They are the leaders,” says Chantal Roos, who started working with Intercos 25 years ago and continued during her tenure as the head of YSL Beauté. “They are constantly looking for new ideas and creativity—not only in product and color, but also in technology.”

 

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She notes that the family success started with the Swiss skin care company of Dario’s highly accomplished mother, Nadia Avalle, reached a crescendo with Dario and Madina and continues to build with Arabella. Their 27-year-old-son, Gianandrea, entered the business two years ago. “When some people reach a certain turnover, they ease up,” Roos notes. “This [company] crosses the generations.”

 

“I have worked with many labs, but they are in a different league,” says Sonia Kashuk, a leading makeup artist and founder of her own brand.

 

Emily Cohen, who consulted on the development of Topshop’s recently launched makeup line, adds, “Intercos is the Rolls-Royce of cosmetics manufacturers.”

 

Claudia Poccia, global president of the Mark division at Avon Products Inc., says her company manufactures its own makeup, but still works with Intercos as a source of new ideas. “We look to Intercos to create and innovate first-tomarket products,” she says.

 

The yin and yang of art and science can be seen every year when Intercos unveils its annual trend forecast at the company headquarters in Agrate Brianza, outside of Milan. The exhibit reflects the findings of a six-month search through the worlds of art, fashion and culture—high and low—by a squad of art experts led by Madina. These cultural trends are married to the most cutting-edge molecular innovation that the research and development department can muster. The offspring of these two forces are new product technologies and new production techniques that the company presents as its hallmark. “The theater of makeup,” is how Kashuk describes it. “There is so much—so much to experience, so much product to take in,” she says. “It’s overwhelming.”

 

“It’s mind blowing,” agrees Cohen. “Each room is more creative and advanced than the next. It’s like being in Charlie and the Chocolate Factory.”

 

Kashuk draws a line between the Ferraris’ passion for product development and their decadeslong love of art collecting. Referring to the family’s house—which also contains works by Jean-Michel Basquiat, Yayoi Kusama, Piero Manzoni and Alexander Calder—she says: “They are incredibly stylish. That sense of style plays into the product.” Kashuk marvels over the “amazing balance” of the house—“so fantastical and so comfortable.”

 

Dario, Intercos’ president and chairman, has been gradually turning operational duties over to his daughter, Arabella, for the last 15 years. But there is one operational aspect he has kept firmly in hand—calling the signals on innovation, which he describes as the engine of Intercos.

 

At age 67, Dario remains an imposing presence—at least one client describes him as “a rock star.” But with all the success of Intercos, he retains the attitude of one who’s still pushing to make it.

 

“I like change,” he says. “I change probably too much, but only by changing, you can create new things. If you look in the Italian dictionary, the definition of innovation [is] to modify a system by adding something new. That’s what we try to do also in our organization.

 

“If you keep this philosophy by adding something new, it drives you,” he continues. “You change probably without really noticing. It’s very important to improve.” He points out that it all started with Madina 30 years ago, when they went to the Cosmoprof trade fair in Bologna with a tray full of makeup. “We used to sell one formula and she was making 24 different colors. This was our innovation 30 years ago,” he recalls.

 

By the time Arabella joined the firm 17 years ago, the product offering had evolved somewhat. “I had a box and world,” says Arabella, who is now marketing director of the color business unit of Intercos.

 

Dario chimes in: “I keep saying, ‘Arabella, don’t do the same thing you did last time.’ I don’t say ‘better.’ You have to try to do better, but at least different. This is really what’s important in innovation…quick speed and doing something new.”

 

His penchant for the novel has led the executive to declare that Benefit Cosmetics is his favorite brand. “They try to be so different in terms of marketing position,” he says.

 

He also is fascinated by the speed of merchandising by fashion chains such as Zara, H&M and Topshop, which Intercos supplied for its recently launched color line. He’s a believer in the new color introductions from those retailers, “if it’s done well and you give the right space, the right creativity and the right ambiance.” He adds, “The concept is to bring to the consumer a quality product at the cheaper price. And that’s what people like,” he continues, hinting that Topshop may be thinking about taking its new color line into wholesale distribution.

 

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One trend that Intercos is less excited about is the industry’s new tendency to incorporate treatment properties into makeup. “It’s a different culture,” says Dario. “In color, you can be a little bit crazy. In skin care, it has to be much more scientific.” As a compromise, his preference is to add color to skin care. To that end, Intercos has offered some hybrid products this year. Skin Rescue is billed as advanced corrective makeup with high coverage. There is also Advanced Treatment, which turns color products for the face, eyes and lips into an add-on treatment product offering antiaging properties.

 

A hallmark of Intercos is its innovative R&D department, and one of Dario’s main contentions is that suppliers such as Intercos shorten the product development cycle by providing brands with ready-to-go formulas. He asserts that customers can buy one of his formulas and be on the market within six to 12 months, compared with two to two-and-a-half years starting from scratch.

 

Dario repeatedly asserts that no one invests in innovation like Intercos, with 500 of 3,000 employees dedicated to that pursuit. “My husband likes to call [Dario] Bond,” says Jennifer Balbier, senior vice president of product development for MAC Cosmetics. “He has the technology behind him. He’s not just a salesman— he’s the real deal.” She also describes Arabella as “a super businesswoman.”

 

In addition to an innovation center in Italy, Intercos has four factories in Asia and an expanded plant in the U.S., with plans to open a 70,000- to 90,000-square-foot facility in São Paulo, Brazil, early next year.

 

Dario says the Brazilian venture will bring to fruition a new business model that was pioneered in the U.S., and later, China. The company has a dual role, supplying innovation to underdeveloped local brands while servicing the big international brands that have entered the market.

 

For last year, Intercos did 55 percent of its total business in basic color cosmetics, 12.8 percent in special effects, 16 percent in the pencil business, 8.3 percent in private label and 6.7 percent in skin care.

 

By retail channel, the business breaks down to 39.6 percent in the mass market, 32.2 percent in prestige, 22.8 percent in direct sales and 5.4 percent in specialty stores. Geographically, 49.7 percent of the business is done in the U.S., 44 percent in Europe and 6 percent in Asia.

 

Dario maintains that Intercos does business with 25 of the top 30 cosmetics companies in the world.

 

While cosmetics marketers tend to give Intercos high marks for creativity and quality, a number of executives claim there have been problems in the past with production and making deliveries on time. “We’ll always be the one being blamed,” protests Arabella, who says problems can crop up in other parts of the highly complex supply chain, such as the late arrival of packaging from overseas. “[The brands] manage one fall season and we manage 20,” she says.

 

Like everywhere, the recession has bitten deep. The Intercos business leaped ahead by 15 percent in 2008, then collapsed by an equally large 15 percent in 2009, leaving the company at 2007 levels by the beginning of this year, according to Dario, who says there was a pickup in orders beginning last September and October. For the first quarter of this year, orders were up by 26 percent over the same period last year. But that order flow was down by 5 percent compared with 2008. With the company running 1.7 percent ahead of budget, Dario predicts this year will be “an acceptable year. The [retailer] destocking is finished, but the consumer will not be very active.” He adds that this year may lay the groundwork for an upsurge in product launches.

 

He expects a growth of 9 to 10 percent for 2010, reaching $350 million, with the skin care business growing by 20 percent and pencils by 25 to 30 percent.

 

Arabella says in the U.S., “2010 is still soft as far as new projects are concerned and because we’re still suffering from the wave of 2009. But definitely we’re seeing a lot of interest.” She says pipelines are now empty and the brands are “desperate for innovation” for 2011 and 2012.

 

The structure of Intercos consists of an Italian corporate company serving major units in Europe, Asia and the U.S. The corporate company contains the innovation and creative services. “This allows the three other international operating units to be fast and to take care of the local market, to service the customer the best way possible in terms of sales and marketing,” says Dario.

 

“The corporate [unit] has the task to understand the market, make the strategy and develop the product, to know about the U.S., Asia, Europe—three different markets, three different needs, different attitudes in terms of the consumer, in terms of the distribution, in terms of the customer.”

 

There are five business units within corporate that are linked to Dario’s thinking on innovation and market needs. He gives directions on a weekly or monthly basis. Then, either Arabella gets involved on the marketing side or Madina on the trend side. “We interpret what [Dario] says and make it an operation and develop it,” Arabella says, adding that she also is the link to the R&D department.

 

The biggest unit is basic color cosmetics. The other four are: special makeup effects, which includes products with a particular visual impact; Interfila, the pencil division, of which Gianandrea is sales and marketing manager; skin care, also run by Dario, and private label, driven by another family member, Matteo Milani, who is Intercos Europe sales and marketing director.

 

The artistic cutting edge is supplied by Madina, Intercos creative director, who previously worked in production at Milan’s famed La Scala theater and spends months scouring cultural capitals. As soon as she is finished putting the finishing touches on one year’s trend forecast, she is off to Paris, New York, London and Berlin to begin the next. “In July, I present to the marketing people in Intercos the new concept and they say, ‘Yes, no, this is OK, we prefer that….’ ”

 

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“Madina, for us, is the mirror of what’s going on in the world in terms of fashion, trend, colors and bringing it all in,” says Arabella, who is charged with translating the vision to the R&D department. “They do their research part, and they come with a product to us. However, they don’t speak the same language as we do. We interpret this scientific language and then [Madina] comes with her creative.”

 

The third vector of the equation is what brands want, information that has been gleaned through constant dialogue with clients about their customers. In addition, Intercos gets direct consumer readings through its three Madina Milano makeup stores. The company tries out all of its new products on consumers, concentrating on the “two souls” of Intercos—color and innovation. “We’re selling product at a very competitive price to get the customer in,” says Dario, “and then we try to sell the innovation. It works incredibly well.”

 

This year’s trend presentation, dubbed Revolution, had a solid focus on product innovation. “We need to move away from market needs to revolution,” says Arabella, during a recent walk-through.

 

The skin care section focused on luminosity, using new films and pure pigments to capture light and create smooth textures and flawless finishes. The twist was treatment-infused color novelties, offering advanced and targeted corrective solutions for all age ranges. Powders had ceramiclike qualities, yet once applied, offered comprehensive coverage, a porcelain finish and enhanced emollient qualities.

 

Intercos has also harnessed a sugar-based technology to create new high-shine films for products such as lipstick, which, when crystallized, create reflective surfaces offering long-lasting adhesion and glossy finishes.

 

A patented fourth-generation polymer is the company’s biggest breakthrough this season. A liquid film sets to form an acrylic texture and is said to offer highly refractive coverage for up to 24 hours. Prisma Shine eye shadows offer 16-hour coverage, dubbed Tech Shine, that creates a spongy form and is meant to offer a new glossy take on powder-finish eye shadows. Interfila showcased new corrective pencils with line-filler properties.

 

Elsewhere, four themed rooms were designed to enable visitors to understand the creative process behind the science with artful displays, underlining four main concepts—Tonic Turbulence, showcasing high-voltage color; Naïve Nature, offering a feminine whimsical mood; Avant Garde, showcasing androgynous and unconventional texture and packaging, and Modern Modesty, blending utilitarian, pared-down product with an emphasis on quality.

 

Although the presentation was as creatively arresting as ever, for his part, Dario says he has mellowed since the early days of Intercos, when it was a fledgling spin-off from his mother’s Swiss skin care company, which is now part of the corporate group. In those days, he seemed to play the role of chairman to the utmost, from the charm of Frank Sinatra to the finality of Mao.

 

“For many years, especially when the company was smaller, all the decisions were made by me,” he says. “I knew the company, I knew the business, I knew the people.”

 

Now, though, the operation has become more open. “It’s the difference between China and India,” Dario says. “In China, they go fast because one guy makes a decision. India is a democracy and they have to fight inside. We have been China for quite a long time—now we would like to become a little more like India. The company is growing, I’m getting old and I need to put in place people who can help me run the company. Making decisions is the key of a fast-growing company. Better you make a wrong decision than not to make a decision.”

 

Perhaps he spends time thinking about something other than the next makeup launch. “I have three passions,” says the man who also owns homes in Saint Moritz and Portofino: “sailing, collecting paintings and playing chess.”

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