Coty’s CEO on Gucci Makeup Re­launch, Shelf Space Losses and China

WWD Digital Daily - - News - BY AL­LI­SON COLLINS

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.

Camillo Pane

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