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 best magnificence merchandise agency inaugurated a model new headquarters in Barcelona attended by the Iberian nation’s then Prince Felipe and threw a splashy social gathering for larger than 1,000 people on the world’s largest art work nouveau superior.

Nonetheless in a quieter however additional important marker of that milestone, chief govt officer Marc Puig, a member of the founding family’s third period, took 50 of his prime staff that yr to Harvard School — his alma mater — to chalk out a improvement path for the company in a case analysis that was co-authored by Krishna Palepu, a distinguished enterprise faculty 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 elegance producers as Rabanne, Jean Paul Gaultier and Carolina Herrera, revenue at Puig — which presents itself as a smaller however additional luxurious mannequin of France’s L’Oréal — has larger than doubled and the group is able to go public inside the largest European offering of the yr.

Nonetheless Puig’s share sale comes as the company increasingly goes in opposition to well-heeled luxurious corporations from LVMH Moet Hennessy Louis Vuitton to Kering SA in an intensely aggressive market, suggesting it may need to maintain investing to keep up its improvement and should spend large on acquisitions if it wishes to increase its market share.

“Puig’s journey to becoming luxurious just isn’t going to be easy,” said Xavier Brun, a portfolio supervisor at Trea Asset Administration, who plans to buy the company’s shares. “Although a couple of of its additional distinctive producers compete with luxurious houses, complete the additional conventional perfume fluctuate, like Carolina Herrera or Rabanne, is one step behind.” That said, the “element of luxurious is what attracted us to the title,” he said.

On April 18, the company and the Puig family detailed plans to elevate about €2.6 billion ($2.8 billion) in an preliminary public offering that may give the group a market price of as rather a lot as €13.9 billion, in response to phrases seen by Bloomberg. Puig’s stock might be valued at between 11 and 15 situations earnings, decrease than the 18 to 22 fluctuate for its additional established buddies L’Oréal and Estée Lauder, based on Bloomberg Intelligence analysis. The company plans to utilize the proceeds to refinance present acquisitions, fund the growth of its producers and improve its portfolio.

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

It would moreover mark a pivotal second for the 110-year-old family-owned enterprise. Solely two relations — every of their early 60s — at current work for the group, which has said the next period gained’t be involved in its day-to-day working. That leaves it with an issue confronting many family owned firms: generational change. Being held accountable by the markets will protect the company as a result of the number of heirs to the family fortune expands, it said. The third period alone has 14 heirs.

The switch mirrors efforts by completely different family owned entities that search to every professionalise and put additional rigid constructions in place to avoid conflicts as holdings of their groups grow to be additional disperse.

“It’s pretty frequent that households will switch within the route of probably having a family share on the board nevertheless not having a family CEO on the enterprise,”  said Jennifer Pendergast, a professor who analysis such entities at Northwestern School’s Kellogg College of Administration. “They generally do it on account of they acknowledge that the additional relations there are the additional subtle that’s going to get, and it’s going to be one factor that may create stress or battle all through the family so it’s merely easier to say going forward we gained’t have relations on account of we don’t have to worry about deciding on them.”

Even sooner than saying the IPO plan, Puig had begun making changes to the family-run enterprise. Recently it labored on making the board additional neutral: CEO Marc and Vice Chairman Manuel, every 62, are the one relations on the 13-strong agency board.

In its early days, Puig was run very similar to a family concern. The founder’s 4 sons talked about agency method over family lunches or all through holidays on the clan’s journey dwelling in Vilassar de Dalt, outside of Barcelona. Nonetheless now, the family says it wishes its members  to solely be “good householders.”

The company traces its historic previous 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 objects, inserting an end to that purchasing and promoting enterprise. Antonio’s new agency distributed perfumes, and sooner than prolonged began to offer its private line of merchandise, along with the first lipstick manufactured in Spain and a best-selling lavender fragrance.  The vast majority of its improvement inside the twentieth century obtained right here from perfumes beneath license. Inside the 50s, the second period led by Antonio and Mariano, focused on revitalising the group’s image and promoting, and rising overseas, along with in France, the US and the UK.

The road obtained bumpy on the flip of the century, as Marc and Manuel Puig had been readying to take the helm. Product sales had been falling and various different product launches failed. Poor financial outcomes, paired with breaches to credit score rating obligations, compelled the company to endure a complete restructuring in 2004.  Appointed co-CEOs that yr, the cousins over the next few years cut back a fifth of the company’s staff and abandoned a couple of of its mass-market merchandise like soaps and deodorants to prioritise fashion and perfumes, turning Puig spherical from a loss-making entity.

Over the previous 13 years, the company constructed nearly all of its 17-label portfolio, spending €2.5 billion on a purchasing for spree that included the acquisition of Swedish cult perfume company Byredo and sweetness mannequin Charlotte Tilbury. Closing yr the group observed a 33 % bounce in income of €849 million on revenue of €4.3 billion.

Puig’s acquisition drive began with a transformative address designer Paco Rabanne in 1968 to make and distribute his perfumes. The accord lastly led to the acquisition of Rabanne’s fashion enterprise, too. Puig tapped an equivalent playbook, of using fashion to advertise fragrance by the use of affords with Carolina Herrera, Nina Ricci and Jean Paul Gaultier inside the a few years that adopted. In 2018, it bought a majority stake in Dries Van Noten, one among many last neutral names on the prime of Europe’s fashion sector, and later launched a perfume and cosmetics line.

It moreover orchestrated a shift away from selling merchandise beneath licenses to take care of the producers it owned. The company’s turnaround has catapulted Puig into the world’s fourth-biggest perfumes agency inside the standing class, in response to its IPO prospect. Two of its producers — Rabanne and Carolina Herrera —  are among the many many 10 best-selling fragrance producers globally, it said, citing Euromonitor.

Nonetheless the company faces rising opponents as a result of it increasingly runs up in opposition to French luxurious behemoths LVMH and Kering, every 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’re collaborating in a market the place measurement points,” said Bloomberg Intelligence analyst Andrea Ferdinando Leggieri. “Nonetheless the additional the bigger producers buy, the more durable it turns into to catch up so I imagine now’s the second for Puig to catch up, or hold behind.”

Closing yr, Kering reportedly paid €3.5 billion for one such mannequin known as Creed fragrances as a result of it builds its private magnificence division beneath the course of a former Estée Lauder govt. L’Oréal has moreover been in talks about in all probability purchasing for a minority stake in Omani luxurious fragrance agency Amouage, Bloomberg reported on Apr. 4.

“LVMH, Kering, Richemont, found all through the previous couple of years that the big class for income improvement is definitely jewellery, watches, purses and sweetness, ” said Linda Levy, president of US-based commerce group the Fragrance Foundation. “These express lessons had been in silos all through the corporations and all operated individually, and what I see inside the large picture is that they should grow to be additional atmosphere pleasant. It’s going to be an fascinating shift inside the commerce.”

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

“Puig primarily has on a regular basis been a fragrance pushed agency, pure and simple; almost all of rivals have fragrance as a part of a wider enterprise,” she said.

And with additional acquisitions vital to its future success, reaching out for funding from markets was the most effective reply for the group, said Northwestern’s Pendergast.

“You develop by shopping for completely different producers and inserting quite a few {{dollars}} behind promoting, promoting you producers, so for a family to have the power to fund that with out some form of public equity is pretty troublesome,” she said. “So in the event that they’ll nonetheless retain administration of the flexibleness of electing the board, deciding on the CEO and usher in money to help develop, that’s a incredible revenue for them. You get the most effective of every worlds.”

By Clara Hernanz Lizarraga