Have you ever caught a whiff of a certain scent and boom…You’re hit with a wave of memories – you're back in your childhood home, mum getting ready to go out or you’re sneaking out to meet your first crush as a teen…or having late lunch on the beach a little exhausted from sun… It's wild, right? A real mystery how this works . Only fragrances and music have this effect on me, and every time, I'm just blown away.
The other thing I am blown away is the crazy returns the fragrance industry is making…just a few headlines for you:
Firstly, it always catches me somewhat off-guard when I discover that those adorable artisan French 'niche' brands like Diptyque (which I have a bit of an obsession with💘) are actually owned by large corporations. And what about Le Labo! 😫 I am no one to judge. The beauty and luxury industry operates in such a competitive world where staying independent and staying relevant often boils down to your marketing budget. Even after being acquired these are likely to operate with enough independence to continue nurturing innovation and creativity. Nevertheless, it's very apparent that large beauty conglomerates are relentlessly pursuing these gems.
So what makes these ‘niche’ (as they are often referred to) luxury fragrance businesses such attractive M&A targets?
The ‘luxury niche’ perfume market is projected to grow at 16% (😱) CAGR into 2030 (Market Research Guru), significantly outpacing both the prestige fragrance market (c.3-4% growth Statista) and the Luxury Goods market (average growth of 8% over the last few decades).
The average selling price appears to be well above £100 🤑 and it is certainly increasing annually. My recent purchases have been surprisingly expensive (though they brought me much joy). Consumers are willing to pay a real premium for these. To me that also depicts the extent of the emotional connection one might have with a certain perfume (going back to my opening statement).
Margins in the beauty industry are generally very attractive (c70% + according to some listed companies), ensuring solid profitability measures.
In summary:
growth ✅ + attractive profitability ✅ = great returns 📈
What is the recipe for success that explains the robust growth, key market trends, and overall achievement of these super trendy fragrance houses?
In trying to find the answer, I attended Space NK’s perfume festival (naturally) + and interviewed several anonymous yet incredibly insightful and knowledgeable industry sources. Here is what I discovered:
🧩Gen Z and Gen Alpha have a stronger need for differentiation compared to millennials. While millennials are more relaxed about wearing popular perfumes marketed by celebrities and stick to it for long periods of time, the new generation is keen on niche and unique scents to reinforce their personal identities…They seek a fragrance that embodies ambiance, storytelling, and, most importantly, authenticity to define their style and values. Brands are adapting their marketing strategies accordingly. For example, at the perfume festival, Maison Margiela's installation for 'Lazy Sunday Morning' left a lasting impression on me—I ended up purchasing it myself. They showcased a vertically positioned huge double bed with seemingly fluffy pillows and a duvet, alongside a big basket of croissants for visitors to enjoy while listening to bird recordings..In a separate room David Seth (DS from DS & Durga) captivated the audience with detailed stories behind each perfume, representing memories of trips, objects, and emotions. I could vividly imagine myself in a New York coffee shop, staring at the neon-coloured cake that inspired one of DS & Durga's best selling perfumes.
📱 Social media is huge. I mean, this isn’t breaking news, but perhaps it’s why we see so many successful smaller brands using this more democratic approach to storytelling and marketing across various channels to build and strengthen their brand image. Also why dupes get so much attention and traction (there is an article with an elaborate list of Baccarat dupes! out there). It’s incredible how perfumes can go viral on TikTok without users even being able to smell the product. Notable viral cases include Diptyque's Tam Dao, Le Labo's Santal 33, Baccarat, of course, by Francis Kurkdjian. Influencers excel at linking perfumes to visuals, feelings, and atmospheres, generating significant buzz and associating specific scents with identity and style ie gen z buys the associated aesthetics! Like i’ve just seen a tiktok on best perfume pairing for the first date (‘5 perfumes that guarantee the second date’ :). There is also lots of education content of course which makes fragrance shopping just a lot more exciting and special. I personally loved Perfumerism feed!
🪄Make your life smell good. I don’t know if you noticed but recently perfume brands are expanding beyond candles into body and hair mists, creams, detergents, and even car air fresheners! They are basically targeting every aspect of daily life with its signature scents, expanding into all the adjacencies possible. DedCool, for instance, a very trend brand, ‘translates fragrances across mediums so that scent is practically applied in your life’. There are several compelling reasons for that:
It broadens the addressable market, reaching a larger volume than just operating as a perfume brand
It captures a larger share of the consumer’s wallet by offering multiple product lines
It diversifies income streams, providing resilience against market trends or unexpected events (like a global pandemic..)
It strengthens the brand, creating multiple point of connection and the potential to become a household name
👤Unisex is the way to go. I used to believe that the rise of the unisex fragrances was solely due to our evolving understanding of gender roles. However, from a business perspective, it also makes a lot of sense. Why cap certain scents to specific demographics? Culturally, there are many differences. For example in Asia, rose scents are associated with men, while in Europe with women. You don’t want to limit the in potential of perfumes based on particular beliefs or demographics.
👃🏻The rise of the ‘Nez’. In classical French perfumery, a 'nez' refers to individuals whose profession involves composing perfumes. What a fascinating job! It only takes up to 7 years of studying and a natural talent… 😅 (makes me also think of ‘Drops of God - highly recommend this TV series).Yet, how many can you name? I was struck by David Seth’s comparison of perfume to art. ‘Fragrance is an art form that could be equal to art music or poetry," he said. We often recognise creators of other art forms, so why not do the same for perfumers? It's also rewarding to learn about perfumes from their creators, especially since many perfume brands themselves are unaware of the ingredients in their scents. Recently, there has been definitely increasing recognition and attention given to various perfumers as they gain prominence. New business models are emerging to acknowledge them. Frederic Malle, for instance, operates as a publishing house for the industry’s very best perfume designers like Dominique Ropion, Maurice Roucel and Edouard Flechier. They not only release perfumes but celebrate the creators behind them.
💡 Lastly, I asked an industry insider what aspiring perfume brand founders should be aware of, and here is what he said:
🚩beware of insane competition
🚩securing the right scent is challenging, but the process of creating your own fragrance has become more accessible
🚩consumers are increasingly seeking ethical and traceable supply chains - this article literally just came up
🚩pay attention to the local - taste, design, demand
🚩sampling is pretty crucial for the industry; inexpensive to produce and can create lifelong customers - when someone falls in love with perfume, the likelihood of ongoing profitability is strong
In conclusion, what did I learn about the fragrance market? It thrives on evoking emotions and creating a sense of belonging, or even recreating a particular ambiance. The market relies on innovative marketing that emphasises authenticity over pure celebrity endorsements. Although making perfumes is complex, it can be financially rewarding if you follow trends and capture people's imagination…(simple, but not easy!).
P.S. thought it was appropriate to include my perfumes for life..
Escentric Molecules I have been wearing for a decade 🫶🏻🤯 ! now that’s what you call customer retention..
