Estee Lauder Increasing Focus On Its Fragrance Business With Another High End Brand Acquisition

Estee Lauder (NYSE:EL)  announced recently that it had acquired By Kilian, a Paris based prestige fragrance brand, for an undisclosed sum.  By Kilian was founded in 2007 and is sold in 40 countries worldwide (primarily in North America, Europe and the Middle East) through freestanding stores and select prestige departmental stores.  Its product offerings include candles and other accessories apart from fragrances.  Towards the end of 2014, Estee Lauder had acquired both Le Labo, a high end fragrance and sensory lifestyle brand, and the storied fragrance brand Editions de Parfurms Frederic Malle. By Kilian is the third acquisition of a company in the high end fragrance market. Niche fragrance brands are invading the $26 billion fragrance industry, capturing market share from big players, according to industry reports. Estee Lauder appears to be well poised to tap into this trend with its recent acquisitions and an increased focus on high end niche fragrance brands.

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Niche Fragrance Brands Gaining Market Share

Although there are no official statistics on niche scents, analysts estimate that they may represent more than 10% of the total high end fragrance annual sales. A Euromonitor report suggests that niche fragrances will become more popular in 2015, as customers look for individuality in perfumes and lean towards scents which they can personally relate to, as opposed to mass appeal products. In the last few years, niche fragrances have been experiencing double digit growth and are the best performing category within the global prestige fragrance market. However, as the number of niche fragrances available in the market grow, it is essential for companies to ensure that their brand remains “niche” and exclusive. To ensure this, Estee Lauder appears to be deploying  the right strategy of acquiring brands with a high prestige appeal. Its latest acquisition By Kilian is known to offer an exclusive “wardrobe” of scents which reflect its founder Kilian Hennessy’s legacy of luxury and creativity. Elements of its packaging including perfume bottles and candle holders are meant to be kept as keepsakes reflecting Kilian’s philosophy that luxury should not be disposable.

According to our estimates, the fragrance division accounts for nearly 10% of Estee Lauder’s valuation and we expect its fragrance market share to steadily increase from around 7.35% in 2016 to 8.25% by the end of our forecast period.

While the niche fragrance market is growing as customers move towards unique and customized products, maintaining exclusivity would be key to succeed in this market. We believe Estee Lauder has the right strategy in place to establish itself in the premium fragrances market and the recent acquisition of By Killian should drive revenues of its fragrance division in future.

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