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Beauty Inc issue 05/20/2011

Bernd Beetz is a fierce competitor, as Fabrizio Freda knows all too well.

This story first appeared in the May 20, 2011 issue of WWD. Subscribe Today.

The two business titans—Beetz is the chief executive officer of Coty Inc., Freda is the president and ceo of the Estée Lauder Cos. Inc.—met as young executives at Procter & Gamble Co. These days, the two have a standing tennis match when their schedules allow, which has given Freda a unique insight into his friend and business competitor. “Bernd is relentless on the tennis court,” says Freda. “He is a very competitive man. To score a point with him takes a long time because he never gives up. He brings that same competitive spirit to business.”


Over the past decade, Beetz has transformed the once-struggling Coty into a fragrance powerhouse with $3.6 billion in sales. His goal now is to nearly double sales by 2015 and create a global beauty behemoth competitive in all major categories. The aim is to catapult Coty from its rank as the 13th biggest beauty firm, according to the 2010 WWD Beauty Inc Top 100, to within the top five. Beetz’s friend Freda currently occupies the fourth spot. It’s an audacious goal, to be sure, and it is perfectly in keeping with Beetz’s modus operandi.

“It’s faster, further, freer,” he says, when asked about the strategy. “In 2001, when I joined Coty, the company was barely on the map, and now we are one of the world’s largest fragrance companies and a leader in global beauty….When you see opportunity, you move. We have the same strategy that we’ve had for 10 years. We are boringly consistent: We wanted to be the leading player in fragrance and that’s what we’ve accomplished. We want to become a strong number-two player in color cosmetics worldwide…and we want to be a stronger player in skin care.”

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To that end, in late 2010 alone, Coty bought OPI Products Inc., Philosophy Inc., Chinese skin care company TJoy and the German beauty brand Dr. Scheller Cosmetics AG, which includes the makeup line Manhattan. “We saw this opportunity to strengthen the footprint and we realized it….If [other] things present themselves to further strengthen our strategy, we are going to be there,” he says.

Beetz notes that Philosophy is the number-four prestige skin care brand in the U.S. market, and TJoy is among the top 10 skin care brands in China.

“That was a beautiful, on-strategy opportunity that we could not miss,” he says.

The acquisitions intentionally shifted Coty’s portfolio toward cosmetics and skin care. Prior to the latest round of purchases, fragrances accounted for 62 percent of Coty’s product portfolio for the fiscal year ended June 30. Color cosmetics made up 23 percent, with sun care accounting for the remaining 15 percent. The four acquisitions decreased Coty’s reliance on fragrance by 7 percent to 55 percent, swelled color cosmetics by 3 percent to 26 percent and increased skin care from 4 percent to 10 percent. The share of toiletries was reduced by 2 percent to 9 percent.

This isn’t the first time Beetz has bolstered the company with a series of shrewd signings and acquisitions. He arrived at Coty in 2001 when it was a small fragrance company with $1.4 billion in sales. The following year, he lit the celebrity fragrance category on fire by signing megastar Jennifer Lopez, and in 2005, he engineered the $800 million acquisition of Unilever’s prestige fragrance division, Unilever Cosmetics International, which added a crown jewel to the mix, the Calvin Klein fragrance license, and brands such as Vera Wang and Chloé. Two years later, Coty acquired DLI Holding Corp., which was best known for its Sally Hansen brand, also for an estimated $800 million.

Nearly every current and former Coty executive interviewed says the appetite for big deals is one defining aspect of Beetz. John Galantic, who today is the president and chief operating officer of Chanel Inc., worked for Beetz in Rome while at P&G in the early Nineties. He later joined Coty in 2001, serving as president of Coty Beauty U.S. until departing for Chanel in 2006.

“While I was at Coty, Bernd led a major turnaround—more a revolution than an evolution—as sales went from around $1 billion to almost $4 billion, and growth in profit and cash flow followed,” says Galantic. “Through new brand creation in fragrance as well as acquisitions, Coty went from a niche, mainly mass fragrance player to a more diversified, multichannel company. The culture of the company changed as well, from fairly traditional to much more oriented on creativity, building new business models and calculated risk taking. Bernd’s accent on speed to market and rapid execution drove development of a lean and agile organization.”

Galantic continues, “Bernd is a master of staying focused. He picks the two to three must-win areas that build the most value and keeps the entire organization concentrated obsessively on these priorities. He has built a strong team and trusts them to deliver on execution, and to move quickly and aggressively to exploit opportunities.”

Coty’s aggressive efforts to round out its product portfolio and decrease its reliance on fragrance have sparked persistent speculation that the firm’s owner, the Ludwigshafen, Germany-based Joh. A. Benckiser GmbH, a private holding company, has ambitions to take the company public. In January, a cash infusion by two private equity firms, Berkshire Partners, based in Boston, and Rhône, which has offices in New York, London and Paris, kicked up chatter of an initial public offering once more. A future IPO could provide a logical exit strategy for Rhône and Berkshire, which counts Bare Escentuals among its former investments. The recession may have derailed any such plans in the past several years, but one financial source, who asked not to be named, says an IPO could come as early as 2012. “It’s very present in their minds,” says one Wall Street source.

“Coty has diversified its business across every measure: by geography, with Dr. Scheller Cosmetics in Germany and TJoy in Asia; by brands, both owned and licensed, and by category, notably skin care and cosmetics,” says Kelly McPhilliamy, managing director in Consumer & Retail Investment Banking at Wells Fargo Securities. “In addition, through Philosophy, Coty is tapping some of the fastestgrowing channels out there, including Sephora, Ulta and TV shopping.”

McPhilliamy adds, “The next step is to capitalize on what Coty has built.”

Despite the whirl of industry speculation, Beetz says, “At this time, Coty has no plans to go public.”

Beetz’s competitive spirit lends itself equally well to mastering a host of off-hour pursuits. He is an avid sportsman, who in addition to playing tennis, rows, runs, golfs, rides horses and skis—all with equal vigor, say friends. An investment banker who knows Beetz well also nods to his tenacity. “He comes from P&G, he’s German and he excels at every sport that he’s ever played. He’s not type A. He’s A-plus,” says the banker. “He expects from everyone what he expects from himself.”

Beetz’s approach stems from his past stints at luxury powerhouse LVMH Moët Hennessy Louis Vuitton and mass stalwart P&G. At LVMH, he oversaw the perfume and cosmetics division and served as president and ceo of Christian Dior. Prior to that, he spent 20 years as a marketer with P&G, working as a managing director of businesses in Switzerland, Italy, Turkey and Germany. Beetz, who was born in Heidelberg, Germany, fl uently speaks four languages, namely German, English, French and Italian.

That worldly view informs Coty’s global perspective. Its products are sold in more than 90 markets worldwide and 68 percent of its sales are done outside North America. In the year ahead, Coty plans to expand its reach in high-growth markets, including China, Brazil, Russia and India, says Beetz, “which collectively make up almost one-fifth of the world beauty market—equivalent in size to the American beauty market.”

“Coty has the ability to attract and select the best licenses, and it has the innovation, marketing and distribution infrastructure to maximize the success of its launches around the world,” says McPhilliamy. “Its global approach allows Coty to capitalize on the growth in fragrances outside the U.S. and demonstrate to U.S. retailers the international appeal of their brands.”

Beetz, with his experience and marketing acumen, has been instrumental in creating that appeal. “I’m a marketer. I like to shape products toward the marketplace,” he says. “In that sense, my willingness and intuition is helping the organization. J.Lo is one example.”

Signing the star not only resurrected the moribund celebrity fragrance category, it also significantly expanded Coty’s reach into the prestige sector at the time, and was a gamble that set Coty on the path to becoming a leader in fragrance. It also underscored Beetz’s deep ambition.

A more recent example is the Playboy fragrance franchise, which is sold globally in mass distribution.

Recalling the initial concept for the scents, launched in 2008, Beetz says, “I had a problem. Axe was becoming very successful and hindering our growth in [the men’s] area. I needed something that would be successful in that positioning. I went for a solution there.”

He says the idea for the Playboy fragrances, which he developed with Steve Mormoris, senior vice president of global marketing for Coty Beauty, the firm’s mass market arm, was initially shot down.

“Everybody thought it was the dumbest idea, but they trusted my instincts before and we tried it and it’s a fantastic success,” says Beetz. Today the Playboy franchise is estimated to reach $400 million in retail sales within the next two years, according to industry sources.

“Our internal expression was ‘Go from boy to Playboy.’ It was the idea that we would trade up the Axe user,” recalls Mormoris. “And probably in some cases, trade down a prestige fragrance user, because we created a very high-quality olfactory structure for the Playboy fragrances” at a value price point, between $8 to $12, that a young man just getting started into the fragrance category could afford. “It was an example of where we created a new business model and another new segment in fragrances and we were not just completely seduced by the prestige segment of the market,” says Mormoris, who joined the company 10 years ago on the same day as Beetz.

Mormoris says one week after they started at Coty, the pair signed model Kate Moss, who happened to be at a low point in her career, as the face of Rimmel. At the time, Rimmel was a leading cosmetics line in the U.K., but hardly known in the U.S. market. Moss’ iconic face helped galvanize the makeup brand, which made its U.S. debut in Wal-Mart Stores Inc. in 2000, and expanded distribution across mass beginning in 2004.

“Since 2002, the brand has more than doubled in size, and it is now a global brand and the number-two brand in unit share in the world,” says Mormoris.

Over the last decade, Mormoris has been instrumental in driving the celebrity fragrance category, with a stable that includes Beyoncé, Halle Berry, Faith Hill and Tim McGraw and the upcoming Lady Gaga fragrance. Beetz is committed to the category, and Coty has continued launching celebrity concepts even though the category has lost some of its luster with retailers and sales have slowed. In the prestige markets, women’s celebrity scents ticked up 1 percent in 2010, with total celebrity scent sales sliding 14 percent, according to The NPD Group.

Still, Beetz maintains, “There is lots of mileage for celebrity brands: In new, emerging markets like China, India and South America, and in the male territory, where there are less celebrities than [in the] female [segment]. There are ways in which we can reinvent the celebrity branding model, which will be more subtle and not always feature the celebrity themselves in advertising, but be more symbolic. It is as fertile a segment as fashion, idea fragrances, car fragrances or any other branding that suggests beauty.”

The ceo also is particularly pleased with the performance of fragrance in the luxury designer tier, which he dubs “ultraprestige.”

“Even my rosiest expectations got overshot by the success of ultraprestige. Marc Jacobs, Vera Wang and Balenciaga are doing extremely well,” says Beetz. “We are going to continue to develop that segment. It’s going to be the trend for the next few years.”

Beetz shies away from the status quo and encourages his management team to do the same. Early on, he recognized the need to align Coty with a philanthropic mission. In 2003, the chairman of Coty, Peter Harf, asked Beetz to allot some office space to his daughter, Katharina, as she established the U.S. arm of DKMS, said to be the world’s largest nonprofit bone marrow donation registry. Harf, who lost his first wife to leukemia, founded DKMS in Germany in 1991. “Bernd gave us the opportunity to start DKMS and get it off the ground quickly,” says Katharina Harf, who now runs the organization in an office across the street from Coty’s headquarters. In 2006, Coty formalized its partnership with DKMS, and every year since has hosted a star-studded fund-raising gala for the cause.

“We don’t think conventionally,” says Beetz. “We have a truly cosmopolitan organization. We all have different backgrounds. We are probably the most diverse organization there is in the beauty industry, and our thinking is very positively influenced by that.”

He describes his management style by saying, “I am very hands-on, but I leave people a lot of room in the framework that I’ve set to really bring their fullest impact.” He adds, “At Coty, people try out things. I see it as a metaphor for let’s be open to new ideas, and they make a fantastic success out of it.”

The breathing room Beetz gives shows confidence in his team, says one banker who has worked with the executive. “It takes a lot for a ceo not to get dirt under his nails,” says the banker. “It speaks volumes about the structure [Beetz] created. You can’t get in the weeds. You have a business to run.”

That approach should serve Beetz well as he works to elbow his way into the Beauty Establishment’s top five and oust one of the players who resides there today— namely, L’Oréal, P&G, Unilever, Lauder and Avon. “It’s not like you can say, ‘I want to be in the top five,’ and expect the big guys to roll over,” says one source on Wall Street, who adds that Coty has to decide what category it wants to dominate and pick off the leaders. “He’s got to fight Lauder, which is doing really well, and L’Oréal and P&G, which are huge companies. But single-minded companies can go after big companies.”

The source says Coty may choose skin care as the market share battleground, but the company’s key brands thus far have a largely regional focus—Philosophy is U.S.-centric, TJoy is a Chinese brand and Lancaster is most successful in Europe. “Ultimately, Coty is going to have to rely on acquisition, but the question is what else is out there to buy?” says the banker. “The whole industry has been picked over.”

Be that as it may, those who know him say Beetz is just the man to hone in on opportunities unseen by others. “He’s a risk taker,” says Cristina Carlino, founder of Philosophy. “You see that in an entrepreneur, but not often in a ceo who has so much responsibility under him.” Carlino adds, “He has instinct, intuition and vision…. He acquired four companies last year. That should be a signal to everyone.”


Bernd Beetz’s Game Plan for Coty: 4 Key Points

Rise Through the Rankings:
Beetz’s goal is to make Coty a top-five beauty company, and double its sales by 2015.
Deemphasize Fragrance: Coty’s four most recent acquisitions decreased the company’s reliance on fragrance by 7 percent to 55 percent of total turnover.
Trust Your Gut: Beetz is a shrewd marketer who relies on instinct as well as analysis. Case in point: the Playboy fragrance franchise, a brand questioned by some, but which is expected to reach $400 million in sales in two years.
Trust Your Team’s Gut: Beetz doesn’t believe in micromanaging. Instead, he gives his team leeway to execute their vision within the framework he’s created.

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