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



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Over four days of celebrations to mark its centenary in 2014, Spain’s biggest beauty products company inaugurated a new headquarters in Barcelona attended by the Iberian nation’s then Prince Felipe and threw a splashy party for more than 1,000 people at the world’s largest art nouveau complex.

But in a quieter yet more important marker of that milestone, chief executive officer Marc Puig, a member of the founding family’s third generation, took 50 of his top employees that year to Harvard University — his alma mater — to chalk out a growth path for the company in a case study that was co-authored by Krishna Palepu, a distinguished business school professor, and Puig’s then board member Pedro Nueno.

Ten years on, the fruits of that blueprint are evident: With such well-known perfume and fashion brands as Rabanne, Jean Paul Gaultier and Carolina Herrera, revenue at Puig — which presents itself as a smaller yet more luxurious version of France’s L’Oréal — has more than doubled and the group is set to go public in the largest European offering of the year.

But Puig’s share sale comes as the company increasingly goes against well-heeled luxury companies from LVMH Moet Hennessy Louis Vuitton to Kering SA in an intensely competitive market, suggesting it will need to keep investing to sustain its growth and may need to spend big on acquisitions if it wants to increase its market share.

“Puig’s journey to becoming luxury will not be easy,” said Xavier Brun, a portfolio manager at Trea Asset Management, who plans to buy the company’s shares. “Although some of its more exclusive brands compete with luxury houses, overall the more classic perfume range, like Carolina Herrera or Rabanne, is one step behind.” That said, the “element of luxury is what attracted us to the name,” he said.

On April 18, the company and the Puig family detailed plans to raise about €2.6 billion ($2.8 billion) in an initial public offering that could give the group a market value of as much as €13.9 billion, according to terms seen by Bloomberg. Puig’s stock would be valued at between 11 and 15 times earnings, less than the 18 to 22 range for its more established peers L’Oréal and Estée Lauder, based on Bloomberg Intelligence analysis. The company plans to use the proceeds to refinance recent acquisitions, fund the growth of its brands and expand its portfolio.

The IPO would add the Puigs to the ranks of Europe’s wealthiest families, with its fortune amounting to as much as  $11.7 billion based on the top end of the IPO pricing range, according to the Bloomberg Billionaires Index.

It would also mark a pivotal moment for the 110-year-old family-owned business. Only two family members — both in their early 60s — currently work for the group, which has said the next generation won’t be involved in its day-to-day running. That leaves it with an issue confronting many family owned businesses: generational change. Being held accountable by the markets will protect the company as the number of heirs to the family fortune expands, it said. The third generation alone has 14 heirs.

The move mirrors efforts by other family owned entities that seek to both professionalise and put more rigid structures in place to avoid conflicts as holdings in their groups become more disperse.

“It’s pretty common that families will move towards maybe having a family share at the board but not having a family CEO at the business,”  said Jennifer Pendergast, a professor who studies such entities at Northwestern University’s Kellogg School of Management. “They typically do it because they acknowledge that the more family members there are the more complicated this is going to get, and it’s going to be something that could create tension or conflict within the family so it’s just easier to say going forward we won’t have family members because we don’t have to worry about choosing them.”

Even before announcing the IPO plan, Puig had begun making changes to the family-run enterprise. In recent years it worked on making the board more independent: CEO Marc and Vice Chairman Manuel, both 62, are the only family members on the 13-strong company board.

In its early days, Puig was run very much like a family concern. The founder’s four sons discussed company strategy over family lunches or during holidays at the clan’s vacation home in Vilassar de Dalt, outside of Barcelona. But now, the family says it wants its members  to just be “good owners.”

The company traces its history to 1914, when its founder Antonio Puig created it in Barcelona from the ashes of his import business. The story goes that a German submarine sank a vessel carrying an uninsured shipload of his goods, putting an end to that trading venture. Antonio’s new company distributed perfumes, and before long began to produce its own line of products, including the first lipstick manufactured in Spain and a best-selling lavender fragrance.  The bulk of its growth in the 20th century came from perfumes under license. In the 50s, the second generation led by Antonio and Mariano, focused on revitalising the group’s image and marketing, and expanding overseas, including in France, the US and the UK.

The road got bumpy at the turn of the century, as Marc and Manuel Puig were readying to take the helm. Sales were falling and several product launches failed. Poor financial results, paired with breaches to credit obligations, forced the company to undergo a complete restructuring in 2004.  Appointed co-CEOs that year, the cousins over the next few years cut a fifth of the company’s staff and abandoned some of its mass-market products like soaps and deodorants to prioritise fashion and perfumes, turning Puig around from a loss-making entity.

Over the last 13 years, the company built the bulk of its 17-label portfolio, spending €2.5 billion on a buying spree that included the acquisition of Swedish cult perfume firm Byredo and beauty brand Charlotte Tilbury. Last year the group saw a 33 percent jump in profit of €849 million on revenue of €4.3 billion.

Puig’s acquisition drive began with a transformative deal with designer Paco Rabanne in 1968 to make and distribute his perfumes. The accord eventually led to the purchase of Rabanne’s fashion business, too. Puig tapped a similar playbook, of using fashion to sell fragrance through deals with Carolina Herrera, Nina Ricci and Jean Paul Gaultier in the decades that followed. In 2018, it bought a majority stake in Dries Van Noten, one of the last independent names at the top of Europe’s fashion sector, and later launched a perfume and cosmetics line.

It also orchestrated a shift away from selling products under licenses to focus on the brands it owned. The company’s turnaround has catapulted Puig into the world’s fourth-biggest perfumes company in the prestige category, according to its IPO prospect. Two of its brands — Rabanne and Carolina Herrera —  are among the 10 best-selling fragrance brands globally, it said, citing Euromonitor.

But the firm faces growing competition as it increasingly runs up against French luxury behemoths LVMH and Kering, both of which are tapping the high-margin, high-end fragrance market that Puig first entered with the acquisitions of Penhaligon’s and L’artisan Parfumeur in 2015.

“They are playing a market where size matters,” said Bloomberg Intelligence analyst Andrea Ferdinando Leggieri. “But the more the bigger brands acquire, the more difficult it becomes to catch up so I think now is the moment for Puig to catch up, or stay behind.”

Last year, Kering reportedly paid €3.5 billion for one such brand called Creed fragrances as it builds its own beauty division under the direction of a former Estée Lauder executive. L’Oréal has also been in talks about potentially buying a minority stake in Omani luxury fragrance company Amouage, Bloomberg reported on Apr. 4.

“LVMH, Kering, Richemont, found during the last few years that the big category for profit growth is really jewellery, watches, handbags and beauty, ” said Linda Levy, president of US-based trade group the Fragrance Foundation. “Those particular categories were in silos within the companies and all operated individually, and what I see in the big picture is that they are looking to become more efficient. It’s going to be an interesting shift in the industry.”

At least for now, Puig has an edge in its key segment, says Ann Gottlieb, a New York-based perfumer,  or a “nose,” as they’re called in the business, who has worked extensively with Puig.

“Puig essentially has always been a fragrance driven company, pure and simple; the majority of competitors have fragrance as a part of a wider business,” she said.

And with more acquisitions critical to its future success, reaching out for funding from markets was the ideal solution for the group, said Northwestern’s Pendergast.

“You grow by acquiring other brands and putting a lot of dollars behind marketing, promoting you brands, so for a family to be able to fund that without some sort of public equity is pretty difficult,” she said. “So if they can still retain control of the ability of electing the board, choosing the CEO and bring in money to help grow, that’s a great benefit for them. You get the best of both worlds.”

By Clara Hernanz Lizarraga



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