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Estée Lauder Companies (ELC) is betting on fragrance to counter weakening demand in China. The US beauty giant’s strategic early-stage investment arm, New Incubation Ventures (NIV), has taken a minority stake in Melt Season — marking the first time it has invested in a Chinese fragrance brand.
Launched in 2021 by Nishi Li and owned by Shanghai-based company Verse China, Melt Season operates in the luxury sector, selling perfumes for $100-200. This sets it apart from other home-grown fragrance labels, whose products tend to target a mass audience. The terms of the deal were not disclosed.
“Melt Season reflects Chinese emotion, attitude and vitality in a modern way. We bring together Eastern and Western philosophies with a water-like inclusiveness [and avoid the] superficial use of cultural symbols,” says Li. The brand launched online, selling via a WeChat mini program, and has since expanded its offline presence to include six physical doors, including locations in Shenzhen, Beijing, Hangzhou and Shanghai. Last July, it opened its first store in Shanghai — a showroom-style space that prioritises experiences over transactions. Its customer base is roughly 25 to 40 years old and tends to have “relatively high standards and self-awareness”, says Li.
ELC has been dealing with a softer Chinese and international travel market that has hurt profits. (Rival L’Oréal has also faced setbacks in North Asia, but is less reliant on the market; China accounts for more than 30 per cent of ELC’s sales, according to analyst estimates.)
NIV’s investment in Melt Season follows recent minority stakes in Chinese clean beauty startup Code Mint in September, and in Vyrao, the UK-based fragrance and wellness brand by former buyer and consultant Yasmin Sewell. These should boost ELC’s standing in the market, experts say. “It’s critical because, right now, Estée Lauder’s decrease in China has not been offset by growth in the US or Europe,” says Pauline Mexmain, senior manager in the consumer practice of global strategy and management consulting firm Kearney.
Fragrance has been a bright spot for ELC; increasing 5 per cent in the first quarter and 14 per cent during the 2023 fiscal year, on gains at Le Labo and recently acquired Tom Ford. It was also the fastest-growing category in APAC, up double digits.
“We look to build future engines of growth for the company, and in China, the fragrance category is extremely dynamic and exciting,” says Shana Randhava, senior vice president of NIV. She notes that consumers in China use an average of four fragrances, compared to seven in the US. “We see a massive runway to build out a portfolio of brands that could be added to the consumer’s wardrobe and see space for a local player within that.”
Conversations with ELC began over a year ago, according to Melt Season’s Li, who felt “sincere support and respect” from the group. “The group conducted extremely rigorous background checks on Melt Season’s product line. Instead of focusing on short-term metrics such as GMV and ROI, they prioritised a long-term perspective,” Li explains.
China’s fragrance market has a 16 per cent compound annual growth rate, on track to hit $3.1 billion by 2025, up from $2 billion in 2022, according to the latest data from Euromonitor. While the country’s per capita fragrance consumption is low at $1.5 a head, compared to Japan’s $4 and South Korea’s $12, there’s room for further growth.
“It’s still an emerging category, with only about 5 per cent of the population in China using fragrances today, compared to other markets like the US or France, which is upwards of about 40 per cent,” says Randhava. As high-end fragrances emerge as a driving force in the C-beauty market, the gap could narrow and propel China from the world’s 10th largest luxury perfume market in 2020 to the second largest by 2025.
The shift is driven by a growing pool of increasingly sophisticated and discerning consumers of luxury goods in China. Younger generations also embrace individualism and seek fashion and beauty products that uniquely express themselves. As scents serve as clear, individual signifiers, they’ve emerged as a desirable product that can help the wearer stand out from the crowd. For ELC, it offers “massive” opportunity for “acceleration, particularly in the luxury fragrance segment, which is where we’re really seeing the consumer gravitate,” says Randhava.
However, global brands benefit from a more sophisticated supply chain. In China, there is no traditional fragrance industry, making it difficult to produce high-quality perfumes and secure formulation patents.
NIV’s investment could support Melt Season’s growth. The brand uses local and natural ingredients — such as flowers, teas and foods of Chinese origin — to formulate its “juices”, which it says pays homage to China in an approachable and modern way. That’s attractive at a time when patriotic consumption is on the rise in the country. “The phenomenon offers an opportunity for new local fragrance concepts and olfactive directions that have a lot of direct relevance to the consumer here,” says Randhava.
Melt Season’s goal is to compete with global fragrance brands such as Diptyque and Byredo. It has sought to elevate and broaden the appeal of its offering by collaborating with internationally recognised perfumers, such as Aurélien Guichard, co-founder and creative director of French perfume house Matière Première, and Francis Kurkdjian, co-founder of namesake fragrance company Maison Francis Kurkdjian and perfume creation director for Dior.
Expansion is the focus over the next few years, with plans to expand Melt Season’s product range to include home fragrances and personal care products, such as bath and body, says Randhava. Future store openings are also a priority, with “thoughtful door expansion” to take place across China in Shanghai, Beijing, Hangzhou and Chengdu, she notes. “We want to continue building on the [brand] that Li has beautifully crafted. We are excited about the market and its future growth opportunities, not only across our existing portfolio of brands but new and emerging ones as well.”
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