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LVMH Alters Course, Sells Kors Fragrances To Estée Lauder Cos.

Another step has been taken in the shedding of LVMH’s noncore beauty assets with the sale of the Michael Kors fragrance license to Estée Lauder.

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Michael Kors and Aerin Lauder

Michael Kors and Aerin Lauder.

Photo By WWD Staff

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NEW YORK — Another shoe has dropped in the expected shedding of LVMH Moët Hennessy Louis Vuitton’s non-core beauty assets with the sale of the Michael Kors fragrance license to The Estée Lauder Cos.

The handoff of the Kors business to Lauder also appears to be the first step in the anticipated sale of the beauty business of two other designers, Marc Jacobs and Kenneth Cole. Although no one is commenting, it is understood that Coty Inc. is in serious negotiations to acquire both businesses. This follows LVMH’s sale in December of two indie brands, Hard Candy and Urban Decay, to the Falic Group, a travel retail company.

The terms of the Kors deal were not disclosed, but sources estimate the price of the deal at roughly $20 million. Lauder said it will integrate the Kors business into its Aramis and Designer Fragrances Division, which is led by group president Patrick Bousquet-Chavanne and president John Karp.

The deal confirms a report that appeared in WWD on April 11, page 2. The purchase marks the second brand that Lauder has acquired this year, as the company snapped up French skin care firm Darphin, as well.

Shortly after the Kors deal was signed Thursday afternoon, Bousquet-Chavanne appeared extremely upbeat about the potential of the business, despite the bearish nature of the fragrance sector, particularly in the U.S. He seemed enthused about working with Kors and his majority partners, Lawrence Stroll and Silas Chou, all of whom he praised for their “tremendous track record, energy and talent.” He spoke of the “significant growth potential of the brand” and pointed to “the quality of the label and the quality of the management” in professing a faith in the odds for success.

“We inherited a good business,” he said. “The people at LVMH, under Camille’s [McDonald, president and ceo of Parfums Givenchy Inc.] leadership have done a good job of bringing this product to market.”

Bousquet-Chavanne pointed to the overseas potential of the Kors fragrance, particularly in London, where the brand has made early strides, and in Paris, where it recently launched. Speaking of the beauty and fashion brands working “side by side in tandem,” Bousquet-Chavanne described the new partnership as “a meeting of minds — the vision of what could be achieved jointly in a convergent future.”
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Karp said, “The Michael Kors fragrances further strengthen our position in the designer fragrance arena. This will be a powerful complement to our existing Donna Karan, Tommy Hilfiger and Kate Spade brands, each of which represents a unique and highly successful business.”

Stroll and Chou, whose Sportswear Holdings became the majority partners in Kors early this year, previously had worked with Lauder when the pair had been partners with Tommy Hilfiger when he had hooked up with the beauty company. In a statement, Stroll contended that they had taken the initiative in moving the Kors license to Lauder, rather than reacting to LVMH’s decision to divest.

Michael Kors described Lauder as “truly the bellwether in the beauty business…it’s what everyone else aspires to become. I know that with their expertise, my fragrance business is in the best of hands.”

“Silas and I were the Estée Lauder Companies’ first designer licensor with Hilfiger, and we look forward to new opportunities ahead with the Michael Kors business,” noted Stroll, co-chairman of Michael Kors LLC. “We approached the company a while ago about coming on board and taking Michael’s fragrance business to the next level, and together we have mapped out a long-term strategy that will allow us to maximize the brand while remaining true to Michael’s vision.”

Allison Ryba, interim president of Kors LLC, said the Lauder deal was “the first call Lawrence made” after taking his ownership position. “They are the perfect partner,” she said. “[Lauder] is the best at what they do.”

Patrick Choël, president of the LVMH Perfumes & Cosmetics Group in Paris, stated, “Under American Designer Fragrances’ talented leadership, Michael Kors fragrances have grown to be a sizable business in the U.S. Consistent with LVMH’s focus on its core businesses, this transaction follows the sale of the group’s interest in Michael Kors earlier this year and was done in conjunction with Sportswear Holdings, the new owner of the brand.”

Choël was referring to Sportswear Holdings’ acquisition of LVMH’s stake in Kors, along with the holdings of Onward Kashiyama USA and of Kors’ longtime business partner, John Orchulli. In March, Kors also announced that he would step down next year from his post as creative director of the LVMH-owned Celine brand. Meanwhile, Marc Jacobs remains the designer of LVMH’s Louis Vuitton fashion line.
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Despite assertions from Kors that it was its decision to leave, sources in the market suggest that the Sportswear Holdings initiative coincided with LVMH’s growing desire to sell.

LVMH launched American Designer Fragrances as a division of the New York-based Parfums Givenchy Inc. in the fall of 2000. It seemed like a high-octane idea to sign fragrance deals with Kors and Jacobs, top designers who were then both owned by LVMH and working for its other fashion houses. With the addition of Kenneth Cole, the business took off like a whirlwind, racking up about $55 million in combined retail sales in two years flat, with a possibility of breaking even this year. According to industry sources, Kors’ women’s fragrance, Michael, did $24.2 million at retail in 2002 and his men’s scent, Michael for Men, generated $8.8 million in the same year. Additionally, Kors Michael Kors was launched in February in only 300 doors and reportedly did $1.8 million at retail in its first two months on counter.

Despite market share successes of the newly established brands, that success story sailed into the increasingly choppy waters of a roiled fragrance market, where profitability has proved elusive at best.

Even as speculation swirls on the future of the Jacobs and Cole brands, McDonald, Parfums Givenchy’s president and architect of the American Designer Fragrances division, is pressing ahead with powerful plans for the two brands. Black, a men’s scent, will be launched in the fall in conjunction with the 20th anniversary of the Kenneth Cole fashion house, and the Cole fragrance advertising is being repositioned with more emphasis on being an urban lifestyle brand. There will be less social commentary and more fun, said McDonald, who added the new campaign represents the second stage in the Cole brand development. The objective is to bring out more of his personality or, as McDonald said, his wry humor. As an example, the tagline for the Black fragrance advertising will be, “It’s better in the dark.” Late next year, there will be another Kenneth Cole fragrance, called Reaction.

Meanwhile, a gardenia-influenced flanker fragrance for Marc Jacobs will be launched in the fall, paving the way for Marc by Marc Jacobs, hooked to his second fashion line, in early 2004. While Jacobs’ fragrances have been aimed at the upper market in specialty stores with a smaller distribution than the department store-oriented Kors, the Jacobs brand is still viewed as a potent success, despite the smaller dollar volume. The Jacobs women’s scent reportedly generated $17.6 million in retail sales last year, while the men’s pulled in $2.7 million. Meanwhile the Kenneth Cole New York brand, which was launched last fall, did $13.8 million on the men’s side and $7 million on the women’s for the year.
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McDonald said the decision to part with the Kors brand was one that took a long time to make, but she saw it as a compliment to her staff and LVMH in creating a brand of such value. “It’s a bittersweet time for us,” she said. “We never like to see our children grow up and move out of the house. But it’s something that could be harvested for the benefit of the more core business and the delivered value could be reinvested elsewhere.”