French Fragrances, Inc.

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French Fragrances, Inc.

14100 Northwest 60th Avenue
Miami Lakes, Florida 33014
U.S.A.
(305)818-8000
Fax: (305) 556-8392
Web site: http://www.frenchfragrances.com

Public Company
Incorporated: 1960 as Suave Shoe Corporation
Employees: 170
Sales: $140.5 million (1996)
Stock Exchanges: NASDAQ
SICs: 2844 Toilet Preparations

French Fragrances, Inc. manufactures and markets fragrances and other scented cosmetic products for men and women. The company’s product offerings include the brand names Geoffrey Beene, Halston, Benetton, Elancyl, Faconnable, Ombre Rose, Lapidus, Balenciaga, Chevignon, and Talisman. Although the Halston and Geoffrey Beene fragrance products are sold mainly at high-quality department stores, the majority of French Fragrances’ products are sold through mass marketing channels such as Wal-Mart, Kmart, T.J. Maxx, and Target. The company also owns nearly one-half of another fragrance distributor, Fine Fragrances.

The Early Years as Suave Shoe Corporation

Although French Fragrances, Inc. was founded as a manufacturer of fragrance and cosmetics products in 1992, the company can actually trace its beginnings back to 1960. At that time, two Cuban refugees began an unbranded shoe-making business called Suave Shoe Corporation. The enterprise was riddled with numerous problems in its early years, however, and labor strikes caused the shoe factories to close down and threatened to put Suave out of business. Also problematic was the rapid pace at which Suave’s owners attempted to expand the company through acquisitions, which served to erode much of its early potential for profit.

Throughout the 1970s and early 1980s, Suave Shoe purchased Oriental Trading Corp., Shoe Supply, Inc., Allied Shoe Corp., Cabrera Vulcan Shoe Corp., Universal Shoes, Inc., Siboney Shoe Corp., Carol’s Shoe Corp., American Knitting Mills of Miami, Inc., and Bari Shoes, Inc. The company soon found that it had overextended itself, however, and began selling off some of its holdings in 1984. The first to go was American Knitting Mills of Miami, Inc., which was the division having the least to do with Suave’s operations. Next, Suave sold Bari Shoes, Inc. in 1986. Four years later the company decided to sell its entire Shoe Import Division, which consisted mainly of Oriental Trading Corp. The struggling division was sold to Oriental Acquisition Corp. for $7.5 million and the assumption of most of the liabilities involved in that division.

Even after the divestiture of the company’s most problematic divisions, the remainder of Suave Shoe Corporation was still in financial trouble. The year 1989 had seen the company lose $4.3 million on sales of $21.3 million, and the future did not look much brighter. Increased competition from foreign shoe manufacturers was beginning to affect the company’s sales adversely and, consequently, its potential to reap a profit. After a failed attempt at restructuring its operations, Suave Shoe decided to discontinue most of its manufacturing activity in late 1994.

Suave Shoe Teams Up with French Fragrances in 1995

Meanwhile, French Fragrances, Inc. had been formed in 1992 as a spinoff of National Trading Manufacturing, Inc. National Trading was founded in 1953 as a manufacturer of souvenirs, jewelry, and perfumes. The company came to be controlled by Rafael Kravec in 1981. In 1992 the perfume division was successful enough to function on its own as a privately held enterprise, and thus French Fragrances was formed to continue developing and manufacturing perfumes, colognes, and other scented cosmetic products. After its formation, Kravec became the company’s first president and chief executive officer.

In early 1995 one of the members of French Fragrances’ board of directors who had previously served on Suave Shoe’s board of directors introduced the two entities. Suave Shoe Corporation, after discontinuing its shoe manufacturing operations, was actively searching for a buyer for its manufacturing facility. French Fragrances, on the other hand, was in the market to purchase a larger facility for its distribution operations. Furthermore, French Fragrances had been exploring the possibility of going public to fund further growth. The two companies met for negotiations and began to hammer out a deal that entailed merging the assets of French Fragrances into those of Suave Shoe. The deal, essentially, was to be a reverse takeover of Suave Shoe, to push French Fragrances into the public realm.

The merger was completed in November 1995, with the new company retaining the name French Fragrances, Inc. A total of 20 percent of the new company’s equity went to Suave Shoe’s shareholders, with the remaining 80 percent going to shareholders of French Fragrances. J.W. Nevil Thomas, who had served as French Fragrances’ chairman of the board prior to the merger, remained in the same capacity following the merger. Similarly, E. Scott Beattie remained as French Fragrances’ vice-chairman and assistant secretary, and Rafael Kravec continued to serve as the company’s president and CEO.

After the completion of the merger agreement, French Fragrances engaged solely in the business of developing, manufacturing, marketing, and distributing perfume, cologne, and other scented cosmetics products. All shoe manufacturing operations were ceased prior to the merger and have never been reinstated.

French Fragrances’ Product Offerings

Traditionally, the fragrance industry has been divided into prestige products that are distributed through department stores and specialty stores and mass market products that are distributed through drug store chains and discount retailers. Manufacturers of prestige fragrances typically restrict the distribution of their products, to ensure that their items are marketed in high-profile, quality retail settings. This practice helps maintain the reputation of and demand for such products. Mass market fragrance products, on the other hand, are distributed throughout the discount retail arena to stores such as Walgreen’s, Target, Wal-Mart, Kmart, Eckerd, T.J. Maxx, and Marshall’s.

French Fragrances deals in both realms of the fragrance market, offering a total of more than 1,700 individual brand name items to its retail customers in both settings. The company distributes its prestige products to more than 300 retail customer accounts, which equal a total of more than 3,000 store locations throughout the country. In addition, mass market products are also distributed to more than 900 mass merchant accounts, which equal a total of more than 20,000 store locations throughout the country.

French Fragrances either manufactures or has obtained distribution rights to the following fragrance lines: Halston, which includes the brands Halston, Catalyst, 1-12, and Z-14; Geoffrey Beene, which includes the brands Grey Flannel, Bowling Green, and Chance; Cofci, which includes the brands Salvador Dali, Laguna, Dalissime, Cafe, Taxi, and Watt; Benetton, which includes the brands Colors of Benetton and Tribu; and Versace, which includes the brands Gianni Versace, Signature, V’E, L’Homme, Versus, and Jeans. The company also distributes the Galenic Elancyl skin care products made by Pierre Fabre throughout the United States on an exclusive basis. Other products that French Fragrances deals with are Faconnable, Ombre Rose, Lapidus, Balenciaga, Chevignon, and Talisman.

The End of the Century and Beyond

With an impressive array of product offerings under its umbrella and a large scope of distribution channels to work with, French Fragrances posted 1995 sales of $88.0 million and achieved a net income of $3.0 million. The company then began to focus on methods for becoming more efficient in its operations. One major change was the company’s heavy investment in updated technology. Implemented near the end of the 1990s was new electronic data interchange software from American Software. The software solution package included integrated accounting, order processing, and scheduling applications. One of the new system’s greatest advantages was that it allowed French Fragrances’ retailers to order products electronically and then custom-schedule delivery so as to avoid having excess inventory on hand.

In 1996 the company announced plans to initiate a secondary offering of its stock as a means of raising capital to continue its expansion efforts. The following three main business strategies were identified by the company: (1) to acquire and maintain control of additional fragrance brands, (2) to further expand direct distribution, and (3) to provide value-added services.

With respect to the first of the three objectives listed above, French Fragrances noted the benefits that it had gained as a result of either its brand ownership or exclusive distribution rights to different fragrances in the past. Although the company made clear its support of the practice of owning and/or controlling fragrance lines, by 1997 it had made no plans to acquire the rights to any more products and also was not actively searching for prospects.

The company had, however, announced plans to expand its distribution capabilities. It began attempting to increase the number and scope of retailers to which it shipped products, in addition to developing marketing programs that would better serve its retail customers’ needs. To add value to the products it shipped to retailers, French Fragrances began to include in-store displays and planograms for the layout of each shipment of fragrance product to a store. The hope was that French Fragrances would make itself so easy to work with that more retailers would jump on the bandwagon and do business with the company.

Company Perspectives:

The Company’s objective is to maintain and enhance its position as a leading distributor of prestige fragrance and related cosmetic products.

In 1997 French Fragrances was ranked number 41 on Business Week’s list of “100 Hot Growth Companies.” The recognition helped increase awareness of French Fragrances for manufacturers looking for someone to distribute their product. According to French Fragrances’ CFO William Mueller in the July 1997 issue of The South Florida Business Journal, “Manufacturers who might want to break into the U.S. mass market now know who we are. And the more manufacturers we get, the more important we are to the mass market. It’s a snowball effect.” The accolades came to the company following its record sales in 1996 of $140.5 million.

As the end of the century drew near, French Fragrances was moving to position itself for continued growth and profitability. After just five years of operating on its own and after just a couple years as a public entity, French Fragrances had become a leading manufacturer and distributor of fragrance products in the United States. More than 95 percent of its business was occurring domestically, in a market that accounted for approximately half of the worldwide fragrance industry sales. To expand its distribution successfully, it appeared that French Fragrances would need to tackle the international market in the years ahead.