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THE SCENT OF CELEBRITY
Eau de J. Lo? Beckham in a bottle? Star-powered fragrances are hotter than ever, and Coty has mastered the formula.
(FORTUNE Magazine)
By Julia Boorstin
November 14, 2005

(FORTUNE Magazine) - WHAT DOES J. LO SMELL LIKE?

White musk and Georgia peach? A splash of rhubarb? Jennifer Lopez herself is trying to decide. She closes her eyes and inhales, a fragrance-soaked strip of paper under her nose, tapping the heel of her black suede pump on the carpet of a suite at the Peninsula in Midtown Manhattan. "Glow is so fresh and sexy and clean," she purrs, referring to her first fragrance, launched in 2002. "This is so ... the dark side of Glow."
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Lopez passes the paper strip to Catherine Walsh, one of half-a-dozen Coty executives hovering in the room, waiting for the pop star to make up her mind. Walsh, a silver-haired pixyish woman, runs the licensing arm of Lancaster, Coty's high-end cosmetics division, which creates and markets Lopez's line of perfumes. "You can't just slap my name on a bottle," Lopez says, flipping through Walsh's color swatches, her diamond ring flashing, riffing on packaging ideas.

"I bet you've got it all figured out," says Coty CEO Bernd Beetz, walking into the room. A proper, 55-year-old German, Beetz greets Lopez with a double-cheek kiss. She sits up straight and nods. "This can be like a black-tie, nighttime version of Glow, for an older demographic," she exclaims. "Oh, and I want to try it in a white bottle with diamonds." Beetz, who created J'Adore for Christian Dior and previously ran Procter & Gamble's Europe division, shrugs. "It's not always easy," he says. "But I let Jennifer have the final word, because creating a fragrance consistent with her world is entirely worth it."

Indeed, Jennifer Lopez has been very good to Coty: Glow was one of the most successful fragrance launches ever, and her family of fragrances (Glow, Miami Glow, Still, and Live) brings in more than $100 million a year. Coty has also been good to Lopez. Although the privately owned New York company won't reveal the details of its license agreement with the pop star, most celebrities get between 5% and 10% of sales just for putting their name on a bottle of perfume.

Welcome to the $1 billion celebrity-fragrance business, the fastest-growing segment of the $25 billion global fragrance industry. Every star, it seems, from Donald Trump to Paris Hilton, has introduced scents, and many--including those two--have fizzled. But Coty, the world's largest fragrance maker, hasn't had any stinkers. And this fall it is unveiling its largest roster of new celebrity scents--from Sarah Jessica Parker's Lovely to Kimora Lee Simmons's Baby Phat, from eau de Shania Twain to David Beckham in a bottle.

LINKING CELEBRITIES TO FRAGRANCES IS hardly new. In the 1930s, Schiaparelli designed a bottle to look like Mae West's figure. In the 1950s, Givenchy created a perfume for Audrey Hepburn. In the early 1980s, Dynasty stars Joan Collins and Linda Evans promoted fragrances linked to their TV show. And in 1987, Elizabeth Taylor--her movie career long since faded, but her fan base intact--put her name on a perfume called Passion. Taylor's White Diamonds perfume, launched a few years later by the company that is now Elizabeth Arden, became the most successful celebrity fragrance of all time, with more than $1 billion in sales. It's a smart strategy. "Building a fragrance brand name from start, without any affiliation, is a very expensive proposition," says Candace Corlett of WSL Strategic Retail, a New York City consulting firm. "A much quicker route to sales is to borrow a star's identity."

But with the exception of Taylor, whose line continues to sell well, television and movie stars were displaced on perfume shelves by fashion designers such as Giorgio Armani and Calvin Klein. Fashion-branded perfumes were dominant through the 1990s--until the market became saturated earlier this decade. That's when fragrance houses turned their attention back to Hollywood. Elizabeth Arden hired Catherine Zeta-Jones as its public face, and Chanel did the same with Nicole Kidman.

It wasn't until Coty bottled the essence of Jennifer Lopez in 2002 that a company duplicated Elizabeth's Taylor's success. Lopez wasn't an obvious choice. She was still a rising star and had been tarnished by her relationship with hip-hop entrepreneur Sean "Puffy" Combs, who had been charged (and later acquitted) in connection with a nightclub shooting. But after test-marketing 20 celebrities with focus groups, Coty, which had never marketed a celebrity fragrance, swung into action. "She had just become the first person to ever have a No. 1 movie and album at the same time," says Coty's Walsh. "That green dress made her a fashion icon--a triple threat."

Walsh met with Lopez on her honeymoon with Chris Judd in Venice. She recalls that Lopez, fresh out of the shower, sketched a curvy bottle and said, motioning to her bathrobe: "Make it smell like this--like soap." Walsh sent her ideas to half-a-dozen fragrance houses. She met five more times with Lopez, refining the smell and the packaging. The result was Glow, which Beetz decided to sell exclusively in department stores. He figured the placement would attract Lopez's young followers to fragrance counters while also appealing to older department-store regulars. The counterintuitive strategy worked.

Today Coty has the widest range of celebrity licenses of any fragrance company. It is No. 1 in the mass-market perfume business (its cheapest product is an $8.75 bottle of Mary-Kate and Ashley) and No. 3, behind Estée Lauder and Chanel, in the department-store market (its priciest is a $250 bottle of Marc Jacobs). Coty's licenses have helped grow the 101-year-old company from $1.4 billion in revenue in 2001 to $2.1 billion for the fiscal year ended June 30. And those revenues are likely to approach $3 billion in the current fiscal year, with Coty's acquisition of Calvin Klein fragrances from Unilever in July, putting it within spritzing distance of the FORTUNE 500.

Coty's success with Glow inspired a rush of celebrity scents. Elizabeth Arden, which had made an unsuccessful bid to land Lopez, later signed Britney Spears. "Like Elizabeth Taylor, Britney has had some great successes and some personal challenges," says Ron Rolleston, chief marketing officer at Elizabeth Arden. "That makes her more accessible, and she has a really devoted fan base." Curious, which launched last fall, racked up about $100 million in sales in its first year. Estée Lauder embraced the trend with a Donald Trump scent, which analysts call a "disaster." (Lauder says it didn't quite meet industry expectations.) And to reposition its Tommy Hilfiger fragrances, Lauder signed singers Beyoncé and Enrique Iglesias.

Meanwhile Coty signed Céline Dion to target women in their mid-30s, Mary-Kate and Ashley Olsen to snag the tween market, and Shania Twain to appeal to the country-music crowd. It even began using celebrities to market its nonlicensed brands, featuring Matthew McConaughey in Stetson ads, singer Jewel for its Healing Garden bath and body products, and supermodel Kate Moss as the face of Rimmel London, Coty's fastest-growing business and, thanks largely to Wal-Mart, which rolled out the line in the U.S., the world's fastest-growing cosmetics brand.

BIG NAMES CAN BRING BIG TROUBLE. IN October, pictures of Moss snorting cocaine appeared on the front page of a London tabloid, leading many companies to dump her as a model. Despite rumors that Wal-Mart and Walgreens had encouraged Rimmel to break off the relationship--Walgreens denies it; Wal-Mart wouldn't comment--Coty says it will continue working with Moss.

"If you're selling a personality, you can't control whether an actress gets a front-page divorce," says Elizabeth Montgomery, who follows the perfume business for equity research firm SG Cowen. An even bigger risk is the unanticipated loss of cool, which can be deadly in the costly world of marketing fragrances. Brands must have a shelf life of more than a year to justify the expense of a launch. And while gross margins can be as high as 75%, marketing costs can push operating margins as low as 5%. A real payday comes only when customers return to buy a second bottle or a "flanker"--industry-speak for brand extension. But the benefits come with challenges: how to adjust a product mix while introducing new scents; how to expand a higher-end product from department stores to mass retailers.

None of this seems to be putting a damper on the industry's fixation with celebrities. Next year promises to be even more starstruck, with launches planned for his-and-hers fragrances inspired by Andre Agassi and Steffi Graf (Estée Lauder), a Hilary Duff perfume (Elizabeth Arden), and even the scent of celebrity author Danielle Steel (also Elizabeth Arden). For Coty and its rivals, managing celebrity brands will continue to be as tough as, well, managing a roomful of stars--you never know which one might implode.