After years of persuading well-heeled shoppers to carry monogrammed luggage and wear luxury clothing, Louis Vuitton is targeting how they smell. In September, the label, owned by French conglomerate LVMH, will begin stocking its 473 stores with perfumes, including at least one infused with a note of leather. Vuitton has sold fragrances before: An attempt in the 1940s was discontinued and soon forgotten. But this time the trunk maker has developed the range itself, hiring a master perfumer and setting up a fragrance laboratory in France’s lavender-rich Provence region.
It’s a timely move, coming as sales of $3,000 handbags and $20,000 watches stall. China’s cooling economy and a spate of terror attacks around the world have some analysts bracing for the sector’s second-weakest year since 2009. Beauty rivals also are adding exclusive fragrances: L’Oreal last month agreed to buy France’s Atelier Cologne, a maker of $185 concoctions sold in high-end retailers like Harrods. Estee Lauder and Puig have also acquired niche perfumers in the past year as they outperform run-of-the-mill variants.
“At a time when luxury brand competition is so intense, you want to have something else to draw that aspirational shopper into the store,” said MainFirst Bank AG analyst John Guy. He estimates the perfumes could add more than 450 million euros ($496 million) of annual revenue in the next few years.
Success may hinge on how Vuitton prices the fragrances: Charging around $100 per 3.3 oz. bottle could cannibalize fragrance sales of sister brands such as Dior and Givenchy. Asking for more than twice as much could prove a difficult sell, including to wealthy shoppers who are tightening their purse strings.
Sales of color cosmetics, skincare products and super-premium perfumes -- from $82 Calvin Klein scents to $340 Giorgio Armani fragrances -- reached $29 billion last year and are set to grow between 3 percent 4 percent annually through 2020, according to researcher Euromonitor International. That compares with sales growth of at best 2 percent for designer handbags, watches and other luxury goods in the same period, consultant Bain & Co. estimates.
Vuitton trunks, bags, clothes, shoes, jewelry and other items generated sales of 8.5 billion euros last year, Guy estimates. LVMH perfume and cosmetic sales grew more than 600 million euros to 4.5 billion euros. The division accounts for about 13 percent of LVMH’s business.
Flower to Bottle
A company representative declined to comment ahead of a press launch for the perfume line next month. The decision to control the process from flower to bottle suggests Vuitton’s going to pitch the fragrances at a higher price point, according to Euromonitor analyst Nicholas Micallef. “Louis Vuitton is copying the model Chanel has,” said Micallef. “They want to highlight the fact that they are exclusive from start to finish.”
Chanel, which grows its own fragrance ingredients, got more than half its $7.5 billion revenue in 2014 from beauty products. By focusing on the very top end, there’s little chance of cannibalizing sales of perfumes like J’adore by Dior or Hot Couture by Givenchy, according to Micallef. Distributing fewer, more exclusive collections will help Vuitton “cut through the clutter,” building connections with younger shoppers who might then upgrade to other products as they become more wealthy, he says.
Vuitton in 2012 hired fragrance superstar Jacques Cavallier-Belletrud, the man behind bestsellers Acqua di Gio from Giorgio Armani and Issey Miyake’s L’Eau d’Issey. And earlier this year, LVMH completed its lab in Grasse, the home of French perfume-making.
The approach mirrors that of Guerlain, also controlled by LVMH Chairman Bernard Arnault, as well as rivals such as Hermes and Chanel, all of which have their own perfumers. It contrasts with the more common industry practice of partnering with a beauty company such as L’Oreal or a scent maker such as Givaudan. Prada, for example, has a licensing agreement with Spain’s Puig.
“When you launch a product you can either call upon a designer, his ideas, do something innovative and say, ‘Well it’s a good thing we’re going to launch it without any further analysis,’ and that’s what we do with a degree of success,” Arnault told shareholders in April. “Or you can say, ‘Before we launch the product, we’ll have a market survey, we’ll poll the views of people, see whether the aspects of the flask or the box appeal’.” In the latter case, “we generally arrive at something that’s rather watered down,” he said.
The strategy plays to consumer demand for products that are authentic and may boost sales to Chinese shoppers. More than half of them say price is the best indication of quality when buying perfume, according to Vivienne Rudd, director of global innovation and insight, beauty and personal care at researcher Mintel. She says Vuitton could expand into color cosmetics next, starting with lipsticks, and sell special vanity cases to go with the perfumes -- picking up on the travel theme. “Vuitton is targeting where luxury is going,” said Rudd.