The Hazards on Puig’s Path to Becoming a True Luxury Conglomerate

Over 4 days of celebrations to mark its centenary in 2014, Spain’s greatest magnificence merchandise firm inaugurated a brand new headquarters in Barcelona attended by the Iberian nation’s then Prince Felipe and threw a splashy social gathering for greater than 1,000 individuals on the world’s largest artwork nouveau advanced.

However in a quieter but extra essential marker of that milestone, chief govt officer Marc Puig, a member of the founding household’s third era, took 50 of his prime workers that yr to Harvard College — his alma mater — to chalk out a development path for the corporate in a case research that was co-authored by Krishna Palepu, a distinguished enterprise college professor, and Puig’s then board member Pedro Nueno.

Ten years on, the fruits of that blueprint are evident: With such well-known fragrance and style manufacturers as Rabanne, Jean Paul Gaultier and Carolina Herrera, income at Puig — which presents itself as a smaller but extra luxurious model of France’s L’Oréal — has greater than doubled and the group is ready to go public within the largest European providing of the yr.

However Puig’s share sale comes as the corporate more and more goes in opposition to well-heeled luxurious firms from LVMH Moet Hennessy Louis Vuitton to Kering SA in an intensely aggressive market, suggesting it might want to hold investing to maintain its development and will have to spend massive on acquisitions if it desires to extend its market share.

“Puig’s journey to changing into luxurious is not going to be simple,” stated Xavier Brun, a portfolio supervisor at Trea Asset Administration, who plans to purchase the corporate’s shares. “Though a few of its extra unique manufacturers compete with luxurious homes, total the extra traditional fragrance vary, like Carolina Herrera or Rabanne, is one step behind.” That stated, the “component of luxurious is what attracted us to the title,” he stated.

On April 18, the corporate and the Puig household detailed plans to lift about €2.6 billion ($2.8 billion) in an preliminary public providing that might give the group a market worth of as a lot as €13.9 billion, in response to phrases seen by Bloomberg. Puig’s inventory can be valued at between 11 and 15 instances earnings, lower than the 18 to 22 vary for its extra established friends L’Oréal and Estée Lauder, primarily based on Bloomberg Intelligence evaluation. The corporate plans to make use of the proceeds to refinance current acquisitions, fund the expansion of its manufacturers and increase its portfolio.

The IPO would add the Puigs to the ranks of Europe’s wealthiest households, with its fortune amounting to as a lot as  $11.7 billion primarily based on the prime finish of the IPO pricing vary, in response to the Bloomberg Billionaires Index.

It might additionally mark a pivotal second for the 110-year-old family-owned enterprise. Solely two relations — each of their early 60s — at present work for the group, which has stated the subsequent era gained’t be concerned in its day-to-day operating. That leaves it with a problem confronting many household owned companies: generational change. Being held accountable by the markets will shield the corporate because the variety of heirs to the household fortune expands, it stated. The third era alone has 14 heirs.

The transfer mirrors efforts by different household owned entities that search to each professionalise and put extra inflexible constructions in place to keep away from conflicts as holdings of their teams turn out to be extra disperse.

“It’s fairly frequent that households will transfer in the direction of possibly having a household share on the board however not having a household CEO on the enterprise,”  stated Jennifer Pendergast, a professor who research such entities at Northwestern College’s Kellogg Faculty of Administration. “They sometimes do it as a result of they acknowledge that the extra relations there are the extra sophisticated that is going to get, and it’s going to be one thing that might create stress or battle throughout the household so it’s simply simpler to say going ahead we gained’t have relations as a result of we don’t have to fret about selecting them.”

Even earlier than saying the IPO plan, Puig had begun making adjustments to the family-run enterprise. Lately it labored on making the board extra impartial: CEO Marc and Vice Chairman Manuel, each 62, are the one relations on the 13-strong firm board.

In its early days, Puig was run very very similar to a household concern. The founder’s 4 sons mentioned firm technique over household lunches or throughout holidays on the clan’s trip dwelling in Vilassar de Dalt, outdoors of Barcelona. However now, the household says it desires its members  to only be “good house owners.”

The corporate traces its historical past to 1914, when its founder Antonio Puig created it in Barcelona from the ashes of his import enterprise. The story goes {that a} German submarine sank a vessel carrying an uninsured shipload of his items, placing an finish to that buying and selling enterprise. Antonio’s new firm distributed perfumes, and earlier than lengthy started to provide its personal line of merchandise, together with the primary lipstick manufactured in Spain and a best-selling lavender perfume.  The majority of its development within the twentieth century got here from perfumes beneath license. Within the 50s, the second era led by Antonio and Mariano, targeted on revitalising the group’s picture and advertising, and increasing abroad, together with in France, the US and the UK.

The street received bumpy on the flip of the century, as Marc and Manuel Puig had been readying to take the helm. Gross sales had been falling and a number of other product launches failed. Poor monetary outcomes, paired with breaches to credit score obligations, compelled the corporate to endure a whole restructuring in 2004.  Appointed co-CEOs that yr, the cousins over the subsequent few years reduce a fifth of the corporate’s employees and deserted a few of its mass-market merchandise like soaps and deodorants to prioritise style and perfumes, turning Puig round from a loss-making entity.

Over the past 13 years, the corporate constructed the majority of its 17-label portfolio, spending €2.5 billion on a shopping for spree that included the acquisition of Swedish cult fragrance agency Byredo and sweetness model Charlotte Tilbury. Final yr the group noticed a 33 % bounce in revenue of €849 million on income of €4.3 billion.

Puig’s acquisition drive started with a transformative cope with designer Paco Rabanne in 1968 to make and distribute his perfumes. The accord finally led to the acquisition of Rabanne’s style enterprise, too. Puig tapped an identical playbook, of utilizing style to promote perfume by way of offers with Carolina Herrera, Nina Ricci and Jean Paul Gaultier within the many years that adopted. In 2018, it purchased a majority stake in Dries Van Noten, one of many final impartial names on the prime of Europe’s style sector, and later launched a fragrance and cosmetics line.

It additionally orchestrated a shift away from promoting merchandise beneath licenses to deal with the manufacturers it owned. The corporate’s turnaround has catapulted Puig into the world’s fourth-biggest perfumes firm within the status class, in response to its IPO prospect. Two of its manufacturers — Rabanne and Carolina Herrera —  are among the many 10 best-selling perfume manufacturers globally, it stated, citing Euromonitor.

However the agency faces rising competitors because it more and more runs up in opposition to French luxurious behemoths LVMH and Kering, each of that are tapping the high-margin, high-end perfume market that Puig first entered with the acquisitions of Penhaligon’s and L’artisan Parfumeur in 2015.

“They’re taking part in a market the place measurement issues,” stated Bloomberg Intelligence analyst Andrea Ferdinando Leggieri. “However the extra the larger manufacturers purchase, the tougher it turns into to catch up so I believe now’s the second for Puig to catch up, or keep behind.”

Final yr, Kering reportedly paid €3.5 billion for one such model referred to as Creed fragrances because it builds its personal magnificence division beneath the course of a former Estée Lauder govt. L’Oréal has additionally been in talks about probably shopping for a minority stake in Omani luxurious perfume firm Amouage, Bloomberg reported on Apr. 4.

“LVMH, Kering, Richemont, discovered throughout the previous few years that the large class for revenue development is actually jewelry, watches, purses and sweetness, ” stated Linda Levy, president of US-based commerce group the Perfume Basis. “These explicit classes had been in silos throughout the firms and all operated individually, and what I see within the massive image is that they need to turn out to be extra environment friendly. It’s going to be an fascinating shift within the trade.”

A minimum of for now, Puig has an edge in its key phase, says Ann Gottlieb, a New York-based perfumer,  or a “nostril,” as they’re referred to as within the enterprise, who has labored extensively with Puig.

“Puig primarily has all the time been a perfume pushed firm, pure and easy; nearly all of rivals have perfume as part of a wider enterprise,” she stated.

And with extra acquisitions important to its future success, reaching out for funding from markets was the best answer for the group, stated Northwestern’s Pendergast.

“You develop by buying different manufacturers and placing numerous {dollars} behind advertising, selling you manufacturers, so for a household to have the ability to fund that with out some kind of public fairness is fairly troublesome,” she stated. “So if they’ll nonetheless retain management of the flexibility of electing the board, selecting the CEO and usher in cash to assist develop, that’s a fantastic profit for them. You get one of the best of each worlds.”

By Clara Hernanz Lizarraga