What Makes The Business of Beautiful Scents Profitable?

    Do you love scent? Do you love perfume? Have you ever considered the economics of perfume? Have you ever asked yourself, "Who pays for all this?" How is it that we can have a world full of beautiful scents?

    I think fragranced products have become more importance to use today as many of us live in a world without a lot of exposure to natural scents.

    Flower gardens are wonderful but if you live in the north, you'd better have your own greenhouse if you want your own natural flower scents year round.

    And anyone living in a city? Trips to the flower shop can get expensive and most urban-surviving house plants aren't fragrant.

    So many of us today get our favorite scents from the commercial world -- perfumes and colognes at the mall or elsewhere, aromatherapy oils from gift boutiques and health food stores, scented candles and room sprays, diffusers, whatever, all provided by companies that exist to make money and can only continue to exist if they continue to make money. "Synthetic," "green," "holistic," "earth-friendly" are all dependent on SALES. Profitable sales.

What makes a fragrance profitable?

    A fragrance -- from any vendor -- can be profitable only when enough people want it, are willing and able to pay its price, and are motivated enough to go out and buy it, now. (If they love it but wait too long the vendor may go out of business. Small vendors are particularly vulnerable.)

    But what are the qualities that make people want a particular scent or scented product? Candle shops with their multitude of scented candles have become a massive presence at the malls. This has probably been a help for artisinal candle and soap makers who cater to customers who want a little more sophistication or green and definitely hand made.

    The problem for these artisinal producers is a very thin profit margin. The larger companies can buy on scale, keeping their manufacturing costs down. Then, in selling they can achieve volume, taking a small profit on each sale but making many small sales and thus an acceptable profit.

    The artisinal crafter has a requirement of using higher quality raw materials than the mass marketer but can only buy them in small quantities. Thus their production costs are high.

    With high production costs you would think that artisinal soap and candles would command relatively high prices. But, for the most part, they do not. On the one hand, they must compete with the big stores and not let their prices become too extravagant. On the other hand, they must compete with their fellow artisinal producers.

    Due to the low entry cost for this business, many have jumped in. Who survives? Those, for the most part, with the best marketing sense and business management.

Perfume -- why not?

    Perfume as a fragrance presents a different picture than soap and candles. Everybody knows that perfume carries a high markup. You can put together a bottle of perfume for a few dollars, expecting it to sell for $35, $55, or even more. So isn't this a profitable business? What can go wrong?

    Anyone who has worked on the sales side of perfume -- including all those independent perfumers marketing their own perfume and some that just jump in to it in the hopes of outsized profit -- know exactly what can go wrong. No sales.

    To be in the perfume business you need sales. The large fragrance marketers totally understand this and thus strive for good relationships (and good contracts) with designers and celebrities whose names can sell perfume. When they sign a celebrity to release the celebrity's so-called "signature fragrance," they are banking on the presumption that many fans will buy. It is the same strategy used by French couturiers from about 1910 and on -- you can't afford the dress? No matter. You can afford our perfume. And today perfumes from the celebrities are more affordable than their concert tickets, and more widely available.

    But here's the catch. The investment to produce a perfume on a small scale -- while highly affordable -- can still be considerably greater than the investment to produce a soap or candle. And with soap and candles it's almost axiomatic that you produce half a dozen scents, but very few incremental dollars are required to expand into a "line" as opposed to offering candles or soap in a single scent. Not so with perfume.

    Each new perfume scent you produce requires a certain minimum production run and while these runs may be small, their cost is not insignificant.

    So while just about anyone can produce at least a single perfume, the game begins when you go to sell it.

    So you have a market? Do you have followers? Will they buy a perfume from you? Will they buy the particular scent you have hit on?

    The most common killer of independent perfume projects is lack of market.

    The most common error of independent perfumers and perfume entrepreneurs is to invest ALL of their capital in producing a fragrance BEFORE they have explored and developed a market for it.

    It doesn't mater how good the fragrance might be. If nobody knows about it, if nobody has ever smelled it, if nobody is impressed by you and your fragrance, you make no sales.

    That's why the successful vendors, be they the big, commercial perfume marketers or the folks that sell their aromatherapy oils through health food stores have, at the beginning, carved out markets for themselves. Markets in which they can make sales.

Read the Annual Reports

Every fragrance launch by a big company is a "major event." If a celebrity is involved -- and most new fragrances involves a celebrity -- the press release will note now involved the celebrity was in creating "their" fragrance. Sales in the first weeks of the launch are, commonly, impressive. But once the buzz fades, do we really know what's happening with the new brand?

In an unusual but perhaps necessary (due to government reporting requirements) announcement, Parlux recently reported a slippage in the sales of Rihanna's "Reb'l Fleur" perfume. This announcement came along with the news that Parlux was actually putting more money into their advertising and promotion than they had the previous year. This Rihanna announcement, reported in the August 8, 2011 issue of CosmeticDesign.com, came little more than six months after the U.S. launch of "Reb'l Fleur."

No doubt "Reb'l Fleur" will continue to sell, and Parlux will make sure that it gets out to the stores. They, like Rihanna, are professionals and know what they are doing.

But what about you? Do you really know what's going on with all these new perfumes? Did you ever wish you could get behind the celebrity press releases and get some solid information -- NUMBERS -- on the successes and failures?

There is a way to do it. It's called ANNUAL REPORTS (and K-10 SEC filings). While information on a celebrity's earnings is a private matter, most of the fragrances out there are marketed by publicly owned companies. Thus they are required to file financial and other information with the Securities and Exchange Commission (SEC). These reports are available to you -- Free -- almost always directly from the companies themselves, from their own websites, usually under a heading such as "Investor Relations."

Now while a celebrity without a perfume is no celebrity at all, and it is true that the market seems to be saturated with dozens upon dozens of these fragrances, the truth is that almost all of these celebrity fragrances are marketed by just five companies: Coty, Elizabeth Arden, Estee Lauder, Interparfums, and Parlux. While Coty is perhaps the largest player in this game, it is privately owned and thus, no annual report. Each of the others has a website on which their financials are available, to you, in Adobe pdf format so you can save them to your hard drive and even print them out if you don't mind using up a lot of paper and ink.

If you really want to know what's going on in the perfume business, try downloading and READING just one annual report from any one of these companies. You will learn a lot about the businesses. My recommendations for your first readings would be either Parlux (fascinating!) or Elizabeth Arden (also fascinating). Enjoy!

Hats and Perfume

1907. Gabrielle Chanel is making hats. Ernest Beaux is making perfume. Alice B. Toklas arrives in Paris and is introduced to Fernande Picasso by Gertrude Stein. What are the topics of interest to Mrs. Picasso? Hats and perfume.

Today we don't think so much about hats. But up into the early 1950's at least, hats were a topic of interest to women ... and men.

Today we don't talk so much about perfume. There are too many; they are too common. But this wasn't always so.

In Gertrude Stein's "autobiographical" dialogue for Toklas, "[Fernande Picasso] had a true French feeling about a hat, if a hat did not provoke some witticism from a man on the street the hat was not a success."

When Chanel and Beaux began their famous collaboration on perfumes, it is said they would sit in a cafe and spray a bit of an experimental fragrance into the air as others passed. If the fragrance failed to provoke a reaction, they considered it a failure.

How times have changed.

Perfume - A Man's Armor

Once in conversation a friend expressed the opinion that, in the business world, a man's suit was his armor. With his suit on a man takes on the world, just as the knights of old wore armor to do battle. I had never seen men's suits in this light (my father bought and sold men's suits for a living) but I was fascinated by my friend's thought. The idea that we do things in the morning before we leave the house to brace ourselves for the tricky tides and currents we may confront during the day.

This thought about girding ourselves in armor before heading to the office came back to me the other day but it wasn't men's suits I was thinking of, it was a men's fragrance called Toxic.

I created Toxic for sensory stimulation alone, not for seduction or office appropriate. Once the initial exposure has been absorbed, women tolerate it; men say grows on them. But perhaps because I've never warmed to the big brands of men's colognes, I find Toxic quite pleasant and, as I said, it provides sensory stimulation.

But I was noticing that on days when I really want a boost I find myself reaching for Toxic in the morning, long before my first cup of coffee. Toxic seems to set me up for the day and I think I'm using it in the same way my friend saw men using suits -- as armor, protection, a psychological tool in physical form, a preparation to do battle.

The funny thing about the composition of Toxic is that, with the exception of one essential oil (which gives it it's unique quality), the rest of the ingredients would more likely be found in a woman's perfume than in a man's cologne. Perhaps that's why it agrees with me. I do love perfume on women. Once your nose sorts out the smell a bit, Topic is richer and more complex than what so many men slap on in the morning to please their women (and bomb out their co-workers!) But I can picture Toxic on Wall Street, just as I can picture it on a ragged poet. Of course there are a lot of in between situations where a whiff of Toxic would stir many feathers.

What do we mean by "good" perfume?

My wife and I were at a wine tasting in California and our hostess gave this definition of "good" wine. "Good wine is wine you like."

Yes, it's as simple as that. Good perfume is perfume you like.

But why then would Edmond Roudnitska spend all those years creating but a handful of perfumes? Why would he write about perfume so passionately?

The answer, obvious to thoughtful people, is that there are levels of taste and what defines "good" for the person at one level can be quite different that what defines "good" for the person at another.

We tend to think of these levels having a hierarchy. The more we know about the subject, the more sophisticated we become, the "higher" we regard our level of taste. People who see themselves at the "higher" level tend to dictate the rules of aesthetics. It's our human vanity.

I have on my desk an 8-1/2 inch high metal fabrication. I am convinced that some would regard it as an artwork and strive to discover its meaning. Indeed, it sits on my desk because I personally take inspiration from it through a sort of zen contemplation. I've even adopted the view that it's creator really is an artist and I hope to acquire additional pieces from him when they are available.

Yet I know the origin of this piece. I know that it was "created" not through purpose or design but rather through three days of arc welding lessons graciously given to a neophyte who just wanted to learn to weld. Perhaps its a little like "art" produced by an elephant with a paint brush. The result might be beautiful and through provoking but that doesn't make the elephant an artist.

I came across a blog entry recently posted by Angela stating "Good perfume, like good wine, isn't easy to love." I had made some similar comments in my Perfume Maker's Club Newsletter ( #71, January 31, 2011.) What we were both writing about was the training that defines "good." Angela's point, in which I am in agreement, is that the "good" is recognized because the nose (actually the brain) has been trained to recognize and celebrate the qualities that, to experts, represent the good.

But I've also taken (lightly perhaps) the point of view that this training is (at least for some so-called perfumistas) is simply Pavlovian. They have been trained to bark when they detect certain qualities -- the very qualities they've been trained to detect. The judgment of "good" is not their independent judgment. It's simply a response to their training.

Good perfume is perfume you like. End of story.

But look now, if you accept to some degree my Pavlovian analogy, what happens to a new and UNIQUE perfume by some unknown perfumer that falls outside the parameters of what perfume appreciation training has identified as "good"?

This new and unique perfume would have as much chance of being called "good" as would Van Gogh's paintings by the Academie. I once showed a sample of Toxic to an IFF veteran and he gave me a very strange look.

Like any art form, it's hard to approach perfume with a truly open mind. We rely heavily on our education. But, only by trying to approach perfume with an open mine and, perhaps, thinking less about what is good and what is not good and instead asking our minds -- our brains -- whether the scent is INTERESTING ... whether it can PROVOKE ... whether it can STIMULATE the mind and the imagination of the person wearing it ... whether it can do all this AND be beautiful ... only then can we begin a really deep discussion about the virtues of perfume.

Why should anyone want perfume?

Perfume gives pleasure. It's as simple as that.

It gives pleasure to the woman who wears it. It gives pleasure to those who pass her by -- or stop.

Sometimes we make too much of perfume. We demand excellence in the graphics and packaging. The bottle's shape must be pleasing (even though it's just paper and glass and has no scent itself!) The brand and associations, the company or the personality, the advertising and "perfume reviews." It all gets into our head and we THINK. But perfume wasn't made for thinking. In thinking we lose the pleasure.

Try it. Make a Zen exercise out of it. Study the perfume alone.

Use it. On a smelling strip perhaps. And then forget it. Until the scent makes itself know, after you had forgotten it was there.

Then you're smelling the perfume. The perfume alone, and it gives pleasure.

Is it pineapple?

I'm working on a fragrance for men. It has passed the first test; several people liked it. So now my job is to refine it so that lots of people like it and many people love it, love it enough to buy it. But that's not my story today.

My story today is about how we smell and what we recognize, or fail to recognize, in an odor. In my new fragrance for men I wanted to add a “fruit” note. This would be an experiment for me. The idea had been suggested by a friend. But I wasn't making a bubble gum perfume for little kids. I wanted a note that would work with adult males and find favor with their wives or lovers.

Going through my inventory of “fruity” aroma materials I found myself rejecting one after another. This was too obvious. That didn't smell quite right. Finally I found one that had promise, an aroma material I had not worked with before.

So what does this note smell like? My own instant reaction was “pineapple.” But when I shared this view with a few others who had smelled my trials they were puzzled by this description. Apparently it didn't say “pineapple” to them.

This gave me pause. Was I smelling pineapple or did the aroma somehow trigger a memory that suggested pineapple? I wasn't sure. So I tried to imagine what a pineapple should smell like. We only buy pineapples a few times a year and working backwards, from the thought of pineapple to the aroma of pineapple didn't work at for me at all. It seems that “pineapple” -- the concept of a pineapple -- didn't trigger any intellectual scent recollections.

Ultimately my curiosity got the better of me and I went to several fragrance house catalogs to see how they described this aroma material. I was startled by what I found. One after another they all described it's odor as “pineapple.”

Now this response I had tells me something of the nature of perfume. Perfume -- aroma -- scent -- can penetrate the brain lightening fast ... faster than the brain can reason. Scientists explain that how scent is one of our most immediate reactions. My “pineapple” note was proof of that to me.

And this reaction -- this way the brain has of seizing on a scent and responding to it without thinking ... flashing “P I N E A P P L E” in big letters for me instantly in a way that I couldn't explain -- shows the power of perfume ... the power to get inside someone's head with scent. The reaction is immediate and unreasoning.

The perfumer's challenge is to find the notes to unlock memories -- memories so strong, so immediate, that before the person can think, the scent says “You want me! You must have me. Buy me now!” It's all that simple.