The New Fragrance Frontier with IPAR

Speaker 1:
Welcome to TD Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.
Oliver Chen:
Welcome to the latest edition of TD Cowen's Retail Visionary podcast series, a podcast about visionary ideas and people. In this episode, we're excited to feature Interparfums, which is a global producer and distributor of prestige fragrance products under license agreements with brands' owners, in operation since 1982. Their prestige-focused portfolio includes big names like Donna Karan, Ferragamo, Montblanc, Moncler, among many others. Jean Madar, it's really a pleasure to have you. Jean Madar is the CEO of Interparfums Inc., a co-founder alongside Mr. Philippe Benacin, and chairman of the board since the company's inception. Jean graduated from the French University for Economic and Commercial Sciences, ESSEC, in 1983. Jean, it's a pleasure to have you. Thank you for your time.
Jean Madar:
Thank you, Oliver. I'm very happy to be with you for this podcast.
Oliver Chen:
So the fragrance market has been vibrant and really exciting. What have been main drivers of the growth that you're seeing in terms of obtaining new customers as well as the innovation?
Jean Madar:
This is true. The market has grown more than before, and to be honest, we have been in the business for 35 years, but the last five years, I've seen a growth that was unusual for our industry. For the people that are listening, the beauty business is really three segments, the perfume, the makeup, two, and third, the skin care. Interparfums is a player only in the perfume business, and luckily this is where we've seen the most growth in the last, I will say, three to four years. So where did this growth come from? Number one, people who were buying fragrance before are buying more fragrance than before, meaning that we used to have a woman who have been wearing only one fragrance for a long time more ready to discover new fragrance.
So today you go in the bathroom of average consumer female and you will see two, three, four, five, six different bottles where I would say 10 years ago, it was much less. So a desire, a curiosity to look for something new. This is, I think, very, very important. There is an appetite for newness, an appetite for novelty, an appetite for new scent. And there is also a curiosity, an interest from a different group of people, which is the men's group. The men's group was always under-penetrated, especially in the US. Men, for many years, have been using deodorant more than fragrances, but very recently, when I say recently just accelerated in the last 10 years, but very recently we've seen the men's business growing at an even faster pace. So women buying more fragrance, men starting to be real consumers, and the further impact comes from the young people.
So today we have 15-year-old, 16-year-old, 17-year-old, people who didn't participate. These teenagers didn't participate in our market before. Today, they can find the money to buy a $100 bottle of fragrance. So when you put these three together, you have boiling market. And strangely enough, it did not happen only in the US, it happened in Europe. And until, I will say, 12 months ago, it happened also in Asia, especially in China. But China is slowing down. I'm sure you will have questions on China that I will be very happy to answer. So this is the state of the market today. Can this continue at the rate that it has seen before? I don't think so. The growth of high double digits are not sustainable, but we're going to land at a very nice rate. And I will say that if we can maintain seven, eight percent, high single digit, will be very nice.
Oliver Chen:
Jean ,Interparfums has created value over the years. What sets Interparfums apart? What would you say are your core competencies?
Jean Madar:
Okay, Interparfums is a manufacturer of fragrance. We do this business under license, meaning that most of the time we do not own the brands, we license them. License means we rent them. We don't own them, we rent them, and we pay royalty rent to the owner of the brand. So today, Albert [inaudible 00:05:40] or Montblanc or Donna Karan will come to Interparfums to manage all their fragrance business. So we will manufacture, we will sell, we'll advertise, and we will pay royalty. So this is a business model that we know very well because it has been our only business model and we have been doing this for 35 years. And one of the key competencies of Interparfums, I think, is the quality of the portfolio that we have. Today, we have close to 20 brands in our portfolio, very, very different positions at different levels. We have very high-end, very high luxury.
We do the fragrance for Van Cleef and Arpels and Boucheron and Graff and all this high-end jewelry, but we do also lifestyle, we do guests, we do Abercrombie, Kate Spade. So we know how to play high and low with the same philosophy. And the reason these people come to us as opposed to competitors, and I will talk about the competition in a second, is, I think, our size. We are small enough and big enough. We are small enough that we can give them a super level of attention. And when I say attention, it is very important. When you are the beauty arm of a designer, you are part of the company in the sense that you represent the name vis-a-vis the consumer, so it's very, very important to work closely with a fashion house, if it's a fashion house. So we have a team of people dedicated for each of the brand, and we make sure that we let this fashion house or trademark owners interact with our people.
But we are also big enough to handle major, major launches worldwide. We can launch a product the same day or the same week in 100 countries. We can handle worldwide advertising campaigns, we buy advertising on TV, on digital [inaudible 00:08:09]. We had some success, we also had some failures, but we had more success than failure, so we are recognized as a company that understand very well this business. So if and when there is a new designer who wants to launch a fragrance, they're going to go to, I call them the usual suspects, L'Oreal, Coty, Interparfums, and two or three more. But these are the peers. Most of our competition, actually all of our competition, is bigger than us. And I think it's an advantage because the brands will feel more comfortable with a company like Interparfums than with a much larger company where maybe they can be lost.
Oliver Chen:
Jean, in terms of distribution, your products are distributed in over 120 countries. What do you see happening over time with distribution? How has this evolved and how is this also a core competency of Interparfums?
Jean Madar:
The distribution is a key element of our model. We use sometimes our own subsidiaries. For instance, we are our own distributors in major markets like France, Italy, the US of course, where we have our own sales force. But in other markets, we will work with independent distributors. These distributors are locally based and their jobs, they have direct contact with retailers, and today we can say that most brand that is widely distributed could be in 20,000 outlets worldwide. A brand that is very, very closed distribution will be in maybe a couple of thousand outlets worldwide, which is very, very tight. So the distribution is a very important part of our business because, except in certain markets like where we have our own sales force, we tend to work with local distributors. These local distributors have the knowledge of the market and they have also other brands that they distribute. So in the Middle East or in Central and South America, in Asia, we work with the best distributors in the market.
Oliver Chen:
Your business is also exciting because it's quite global, as we spoke earlier. What areas do you see the fragrance category as most under-penetrated, and how would you speak to the different global markets and comparing and contrasting Europe, Asia, and the US?
Jean Madar:
Before we go to the geographic segmentation, I would like to say that we have two types of distribution. We have many consumer goods, you have of course the brick and mortar stores, and you have the digital e-commerce platform. Today, you have certain markets like Asia or even Canada, for instance, where the business is predominantly in e-commerce. We have countries where e-commerce represents already more than 50% of the sales. China, for instance. In China, fragrance are sold for a vast majority, I would say maybe more than 60%, by e-commerce and not by regular stores. So where do we see the biggest potential is definitely where we are underpenetrated. Believe it or not, we consider the US still as a market where there is huge potential. And by the way, the US is where maybe we've seen the most regular growth coming, and we are optimistic for the next years for the domestic US market.
The big interrogation mark for us is going to be when China wakes up. And not if, but when, because we know because we've seen it before. We've seen Chinese consumer buys, we've seen Chinese consumer buying in China. Or in travel retail, we've seen millions of travelers from China buying in Korea or in Japan. So we know that it has happened, it has slowed down tremendously. It will come back. It will come back, that's why we do not give up on our investment in China. We continue to spend ably, at least as a percentage of our sales, which of course, like everybody, went down a lot, came down a lot. But we still think that Northeast Asia has a potential, maybe not for this year, maybe not for the first two quarters of next year, but we hope that the second part of 2025 we will see an improvement in China.
Where we see also some growth potential is many countries of Southeast Asia where it was way, way underpenetrated, and we see the men, women buying fragrances. And I will say where the market is really mature, such as Europe, and I'm talking about more like Western Europe, this is definitely where we see less potential. But in Europe, for instance, we have started to do business very recently with Amazon, and business is booming. Amazon in Europe is new for us. So I've been working with Amazon in the US, and it's a great business, but Amazon in Europe, we are just starting.
Another factor for growth is the travel retail. Travel retail is a very important part of our business. It is underrepresented still at Interparfums. It is below the 10% that it should represent, it may be sitting at four, five, six percent, but we think that we could grow this business to 10%. Travel retail is all the business that happens in the airport, cruise, airlines, et cetera, which is a very important market because it also gives a great visibility to our product. So you have traffic in airports, you have people who have time they can buy, and we have also a space to show our brand. So it's very important.
Oliver Chen:
On the topic of direct to consumer, what do you see happening digitally with innovation? And a related question is the younger customers, what's happening with younger customers? Because that's an exciting dynamic that's also driving growth.
Jean Madar:
Very exciting. Younger customers shop on this platform. Now, we're going to start, in couple of weeks we sell on TikTok. So this is definitely, again, a new business for us. Six months ago, we didn't think that it will be a business. The business of Amazon for us started less than two years ago, and we are growing this business at a rate of 30, 40 or 50% a year because we are at the beginning. We see a lot of potential, especially with these young customers, but not only young customers, also mature customers. We have a product that is a deodorant stick from Donna Karan from Cashmere Mist. So this product has been a super, super category leader for, I'm going to say, 20 years. We sell more than a million pieces per year, so millions of people are buying this deodorant, it's a stick deodorant. And when we're in stock, every time we put it on Amazon, it's the number one selling [inaudible 00:16:57] of the day. So not only young people shop on e-commerce platform.
Oliver Chen:
Another major trend is premiumization. What are your key initiatives here? We're also excited about your own brand fragrance line next year. Why are you doing this?
Jean Madar:
Well, we have decided to participate in this premiumization. What does it mean, premiumization? Basically a higher quality product at a higher price in a tighter distribution. So we'll be launching end of this year, beginning of next, our own line of fragrance, not under license. It is called Solferino Paris. Solferino because this is the address of our headquarters in Paris, which is a landmark building, very well known in Paris, the Rue de Solferino. So we are creating an assortment of 10 fragrances, each named after a certain street in Paris, different olfactive directions in order to reach different category of people. We'll launch it in Europe and in Asia, the US will come later.
We have good experience with premiumization because, for a couple of years, we have been selling fragrances of Van Cleef and Arpels and Graff [inaudible 00:18:26] fragrances for more than 200 or $300. So we know it's a good business, it's a business that is very detail oriented, that is very retail oriented. So we have to make sure that the experience, the selling ceremony has to be perfect. It's very different than selling a designer fragrance at Macy's or at Ulta. But we think that customer who is looking for something different, something that not everybody knows, not that everybody wears, people are looking for a certain exclusivity, this is premiumization.
Oliver Chen:
On the topic of product and innovation, what are you most excited about going forward in terms of innovation and the fragrance category? What are you working on?
Jean Madar:
When you look at the 20 brands that we have, every year, actually, when you look at the calendar, every six months, each other brand has a major either activation of an existing product or a new product. So sometimes it's what we call a flanker, a different smell of an existing [inaudible 00:19:48], or it's a blockbuster, it's a major launch. A major launch for a brand is every other year. So when you look at the 20 brands that we have, we have a new launch every other week or more than once a month, so the company is always on the launching mode. This newness is very important.
We have one, so we are just launching now a new DKNY, it's our first blockbuster for DKNY after we took over the license from Estée Lauder. We are launching also a guest blockbuster, which is already very successful. Next year, we'll be launching finally a new Ferragamo blockbuster. We took over Ferragamo two and a half years ago. We were not able to launch a new blockbuster before, but it's going to happen next year. A lot of people are expecting that. There is also a blockbuster for Abercrombie, for Kate Spade, for MCM. So most of our brands are going to see a lot of novelty.
Oliver Chen:
There are some topics we're excited about as we cover the sector, such as biotechnology, artificial intelligence, wellness, functional fragrances as well. What do you see happening in terms of major trends that you're focused on as you think five to 10 years out?
Jean Madar:
I don't see too much artificial intelligence in our business, but you mentioned the premiumization, I think this is something that's going to stay. This is not just a little trend, I think it's a big trend. People want to be different, they want to smell differently, so we think that we're going to have to be even more creative, to have more capsule collection in and out. So I think that our marketers will have to be more innovative to do limited edition, limited quantities. We have to think like that. It's very difficult. It will be more and more difficult, I think, to sell the same product everywhere to a lot of people. I think we will get the volume by multiplying the different experience, different products for different markets. So yes, it's more work for us, but this will be the key for success.
Oliver Chen:
Another important topic, Jean, is supply chain and supply chain enabling a lot of what we discussed. What are your focus areas for your supply chain? Where do you see opportunities for improvement here?
Jean Madar:
Interparfums is a company that doesn't have factories. We were very innovative when we started because at that time, everybody had factories. These factories are not necessary. They are basically bottling, they are filling facilities. We decided to outsource all the filling facilities, so we buy all of our components and we send it to different factories that are not owned by us, and they fill the different bottles. And we see products in Europe or in the US, all the design is done by us, we custom-make all the components. We have a team of engineers designing and developing bottles and caps and pumps and packaging. And when it comes to the juice, we call it the juice, which is the fragrance, we also work with outside fragrance houses. Most of them are multinational company. You may know IFF, International Flavors and Fragrances, or German [inaudible 00:24:06] and Givaudan.
So we work with half a dozen perfume houses. They have labs, they have capabilities to work with our product development people to come up with the right smell for the right fragrance. So this is our process. We warehouse through a third party, so next year a hundred percent of our logistics will be done by 3PL. Today, not a hundred percent is done outside, we still have some warehouses that we manage. So this is about our supply chain. So we got to go through a simplification of supply chain. We source components from all over the world, and we have, I would say, the capability to fill in Europe or in the US. In Europe, it's Italy and France, and in the US, it's on the East Coast.
Oliver Chen:
Thank you for that. Last question. You work with many brands with many different preferences. How would you compare or contrast what brands or companies are looking for differently when they come to Interparfums? And any closing remarks you may have as well. Thank you.
Jean Madar:
Honestly, each brand is different. You come to Interparfums for different reasons. Recently, when I see that we took over from Coty Lacoste, Cavalli, Guess, a lot of the fashion house felt that they were a little, how should I say, lost in a very large portfolio or in larger companies. This has been a huge opportunity for Interparfums. So there are not too many new fashion houses, most of them have their fragrance, so the game is really to be able to convince them to come to us. So we took over Donna Karan, DKNY from Estee Lauder, was a former licensee also, because it was too small for Estee Lauder. So things that are too small for bigger companies is very good for us. I think we put the attention, we still work with a lot of entrepreneurial spirit, and this is immediately noticed by the people who work with us.
I like to say that Interparfums is a 40-year-old startup, but this is the spirit of the company. We want to stay agile, we want to make decisions fast. Sometimes they are not the best, but we make it. We are not going to wait too long. This is what will set the differences between us and the competition, and it will, I think, continue going forward. We are looking at new potential partners to join the portfolio. This is every day, or not every day, but every month we look at opportunities. This is also a way for Interparfums to grow.
Oliver Chen:
Well, you've built many fabulous brands together, and thank you for briefing us on all the innovation that's happening in the fragrance market. It's really exciting with new customers coming, the global growth opportunities, direct-to-consumer, TikTok applications. So there'll be a lot to talk about. Thanks, Jean Madar, for your time today.
Jean Madar:
Thank you. Thank you, Oliver. Thank you for having me today.
Speaker 1:
Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.

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