Coty’s CEO on Gucci Makeup Relaunch, Shelf Space Losses and China
Coty Inc. is facing backend issues that caused its fiscal firstquarter numbers to plummet — but if one takes that out of the equation, the company’s Luxury and Professional divisions have sustained momentum, according to chief executive officer Camillo Pane.
“We clearly are frustrated and disappointed with this temporary headwind, but this is really a temporary setback to our plans. We are absolutely convinced in the ambitious transformation agenda we are pushing,” Pane told WWD in an interview.
The market took a different view, however: Coty’s stock tanked on Wednesday, falling more than 20 percent in midday trading to $8.92.
The beauty business posted a 9.2 percent drop in net sales, to about $2 billion, and a $12.1 million loss — widening by 39 percent from the prior-year period. The diluted loss per share was $0.02.
The company said that warehouse and planning center consolidation disruptions in Europe and the U.S., as well as component shortages from external suppliers and Hurricane Florence in the U.S. (which impacted North Carolina manufacturing), caused more problems than anticipated.
In an exclusive interview, Pane talked more about Coty’s backend problems, which are partially due to the company’s continued integration of the 41 beauty brands it bought from Procter & Gamble in 2016, as well as the company’s Amazon strategy and the relaunch of Gucci’s makeup line — coming in mid-2019. WWD: Can you give us more color on the supply chain disruptions?
Camillo Pane: We knew about 40 percent of the supply chain disruption that eventually we had in Q1. We knew about this supply chain disruption in the U.K. in our planning hub, and we knew about the disruption in the North American warehouse for professional beauty. What we didn’t know was the disruption that happened in the last part of September in the Luxury warehouse in Germany, plus the hurricane, which nobody knew, plus component shortages which are also mainly from our suppliers of pumps and glasses, and they mainly affect luxury.
WWD: What is it that’s causing the slowdown in some established markets, and is it possible to reestablish growth there?
C.P.: The comments about the slowdown on the developed markets really relates to Consumer Beauty, to the mass beauty markets. We’re seeing a decline in markets in some key European markets, like the U.K., Germany, France, and also declines in North America. It’s important that both the retailers, but also in the mass market, keep working on the experience in store.
There is a trade up to the prestige channel, to specialty — you’ve seen the performance of Ulta — and there is, of course, the very large growth of e-commerce, so we’re going to keep working together to do that.
We are confident on some of the programs we’re putting in place. One of them is CoverGirl with the certification of cruelty-free from CFI [Cruelty-Free International]. This I believe is a really compelling proposition for consumers, both Millennials and Gen Z.
WWD: What emerging markets do you think are going to be the most important markets for you, and does it vary by segment?
C.P.: For us it’s Brazil, China and the Middle East, for very specific but different reasons. In Brazil…the portfolio of brands that we have is a mix of local or regional and global brands, and they are very well-positioned, especially in terms of pricing and in-store execution versus our competitors in the market. This is appealing to Brazilian consumer especially in a market that is under pressure from an economic point of view. In China, it’s a different thing. We have still a small portfolio — it’s mostly Max Factor, Adidas and we just launched Bourjois. In the Middle East we have Bourjois, Max Factor and Rimmel, where Bourjois is the number-one color cosmetics brand.
When you look at EMEA or emerging markets for Luxury or Professional beauty, this is growing double digits in both divisions. Think about fragrance penetration in China – it’s still in the low, mid-teens and there is a lot of room for growth of penetration for this category in China.
We’re also going to expand our efforts with the relaunch of Gucci color cosmetics. This will happen towards the very end of the fiscal year, so Q4 of fiscal 2019, and we’re excited about the work that the team is preparing with the fashion house. We just also signed a collaboration, a strategic collaboration, with Alibaba for working together on Tmall.
WWD: With Gucci when you launch color cosmetics, will it be global?
C.P.: It’s going to be global. I imagine not everywhere in the world at the same time. It’s a launch but it’s a relaunch — it’s present, but in a very small size and through the creative approach of the previous team. We’re going to relaunch under the full direction of Alessandro Michele.
WWD: You mentioned the Alibaba partnership, but what else are you doing on the digital front?
C.P.: Over the next three years, we’re going to invest $90 million to step-change our capabilities in digital, to make the growth we’re having in e-commerce truly sustainable. This is investment in people, in talent, investments in systems, to make sure we’re able to capture all the opportunities in a simple and more agile way, and of course also in supply because we also need to adjust and create our supply chain to make sure we can keep up with the more personalized demand coming from our e-commerce partners.
Even in consumer beauty where we’re still having market pressure, the results with Amazon are very strong. And in Professional we have MyWellaStore.com, which is a very important platform to ensure loyalty and predictability of our business in the future.
WWD: Let’s talk more about Amazon. I’m curious how you approach Amazon divisionally — for Consumer, for Professional and for Luxury?
C.P.: We have a strategic partnership with them across all three divisions. We have a different approach in Consumer Beauty, we work with all the brands and we’re having strong results including a very successful Prime Day across many markets. Professional Beauty — actually we just expanded the portfolio so now we have Nioxin, Sebastian, on Amazon for professional beauty, these are professional brands that are sold to consumers. In Luxury, we’ve partnered with Amazon prestige beauty on certain brands, Calvin Klein, Hugo Boss and Lacoste in the U.S., Lancaster in the U.K. We continue to work with them because the execution and the consumer journey on the platform is paramount.
Camillo Pane discusses the impact of supply chain disruptions this quarter.
WWD: In the North American market, are there more shelf space losses?
C.P.: The first thing we’re going to focus on is improving productivity on the shelves with our products. On CoverGirl, improvement in productivity in distribution has now been going on for four months across most of the customers. The productivity improvement is not strong enough to stop the distribution headwinds, that’s why we’ve embedded in our analysis predictions of more distribution losses in the second half of fiscal 2019. At some point, we will be able to negotiate and discuss with partners that we should not be anymore the brand that needs to lose [space]. In some retailers, we’re also advanced in these discussions... and in others we’re not there.
WWD: How important is the innovation you’re planning for CoverGirl?
C.P.: We are launching a collection called the Active Collection, a sweatproof makeup, which leverages the ath-leisure trends. We have an innovation that talks about inclusion of skin care into cosmetics, we have a product called Simply Ageless Wrinkle-Defying Complex, which is coming to the market, and also liquid foundation which includes hyaluronic complex and vitamin C to hydrate and tone the skin over time.