Is AnnickGoutalback for sale again ?
History of the acquisition
Korean cosmetics giant Amore Pacific Group acquired French luxury perfumebrand AnnickGoutal as part of its move to generate greater profits byexpanding further into overseas markets.
Amore Pacific Global Operations Ltd, the wholly owned overseas subsidiaryof Amore Pacific, sealed a takeover deal with Starwood Capital in France on August 9th 2013.
Amore Pacific invested 30 billion won($28 million) twice the annual turnover 2012 & estimated 2013 in order to assume full control of AnnickGoutal's shares.
This is thefirst time Amore Pacific has purchased a foreign cosmetics brand throughsuch a merger, but not its first dealing with either the country or theproduct.It launched its own perfume brand, LoritaLempika, in 1997 andproduces it at a factory in France.
AnnickGoutal, named after the latepianist-turned-model who launched the brand, has a presence in more than20 international markets, and can be found at Harrods in London and SaksFifth Avenue NY.
It raised 20 billion won in global sales revenuein 2012 , Amore Pacific said."AnnickGoutal perfumes are also availablein Asian markets like Japan, Hong Kong and Singapore," said Ju Jae-heung,
an Amore Pacific employee. But the brand "has not yet officially launchedin the Korean market, so now we are considering whether to bring itsproducts (here) ," Ju added.
"We hope the acquisition will pave the way forus to go global in the long term," Ju said.
"In terms of market share,AnnickGoutal is not a top-10 brand in France because it targets a nicheluxury market."Amore Pacific is Korea's leading cosmetics company,recording 370 billion won in operating profit and 2.67 trillion won of revenue in 2012.
It derives 14 percent of its total revenue from overseasbut aims to boost this to 29 percent by 2015, when it hopes to breakinside the world's top 10 cosmetics firms.
Existing situation and market outlook
We have seen no change since the management shuffle that happened during the last 24 months.
It seems also that declining sales of the brand in 2014 and Q1 results in 2015 have been pushing the Seoul based senior management of the group to reconsider the strategic stakes behind this brand acquisition.
It is true that the niche market is a very selective perfume segment. Industry rumors believe that the lack of strategic vision today is the main reason behind the willingness of the south Korean ownership to redeploy financial resources in order to probably resell the brand even though the financial performances are not there yet.
It is true that poor performances of other similar niche brands such as Paris based L’ArtisanParfumeur or London based Penhaligons under the senior management between 2004 and 2007 are well known.
London based MrsSarah Rotheram was appointed as CEO of both brands and implemented the restructuring that led finally to their acquisition by Puig in Jan 2015 after her departure end of 2013.
This deal allowed Mr Saul Fox a long term and strategic investor to finally achieve an interesting ROI after years of cash drain.
Will Seoul based group Amore Pacific be able to support such a long term period ?
The last paragraph reminds us how brands such as Goutal or L’Artisanare “fragile” and have limited growth opportunities in a limited niche segment by definition.
“Fragile” is used here in order to explain various situations where management goes through strategic errors such as trying to copy world brick and mortars retailers or trying to becomemore affordable to a lower income customer segment.
This type of errors in spreading resources in real estate site search and lack of digital marketing rather than focusing on their strong but very powerful customer database worldwide.
This selective niche market that represents a new “trend” for top industry financial groups , has nothing than a limited distribution through high end department stores & specialty chains worldwide.
Sales stagnation or growth are very limited and that’s the biggest challenge of this segment in addition to higher operating costs.
The essence of this market is exceptional ingredients quality that means high pricing, affluent customer and a high level of sophistication….despite this uniqueness, let’s say it again “the retail distribution is limited by definition even in top retail markets worldwide”.
However this market customer exists and it is by essence, a very unique customer…that’s why it will remain a very creative segment with new players coming in and existing one getting out.
Rare players such as Guerlain will remain recognized and acknowledged worldwide. The number of players are limited and financial bets have not provided high ROI comparing to other brands in the industry.
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Pierre Moise C LuxuryLondon office
April 9, 2015