Fabrizio Freda, the chief executive officer of Estee Lauder Cos., could tell the fragrance industry was changing by watching the members of his own family.
His grandfather picked a signature cologne and never changed it, Freda says. But the executive's son hasn't shown that kind of loyalty — a typical attitude for younger consumers. If they wear cologne or perfume, they switch between niche brands and opt for smaller bottles.
"The new generation really looks at fragrances as a wardrobe but not anymore as a personal signature," the 59-year-old said in an interview.
Many millennials don't want mass-market perfumes, and celebrity scents — once a vibrant part of the industry — have fallen into decline. But so-called artisanal fragrances are surging. Sales of the products, which sometimes come in offbeat varieties, rose 22 percent last year, according to the research firm NPD Group. That made them the fastest-growing fragrance segment.
In short, millennials no longer want to smell like Justin Bieber or Britney Spears — they'd rather have the scent of a smoky fireplace or old lipstick. And they don't want to wear the same perfume every day.
Merger deals also are reshaping the industry and intensifying competition. Revlon agreed to buy Elizabeth Arden this year, teaming up with a large maker of celebrity perfumes. And Coty is poised to become the world's largest seller of fragrance when it completes its purchase of Procter & Gamble Co.'s 41 beauty brands this year.
Premium scents have kept the industry growing despite a slump in mass-market perfumes and colognes. The $6.6 billion market for U.S. artisanal products and other premium fragrances is projected to grow 18 percent by 2020, according to Euromonitor International. Mass-market fragrances, meanwhile, are forecast to drop 15 percent.
Celebrity brands were once seen as key growth drivers for Elizabeth Arden and Coty. But sales in that category dropped 31 percent in 2015, according to the NPD. Coty Chairman Bart Becht said his company plans to refocus on top designer brands, such as Marc Jacobs and Gucci, while cutting out some other names. Elizabeth Arden, which gets three-quarters of its sales from scents, also could shift more toward premium names under Revlon.
Estee Lauder, best known for cosmetics and face cream, has used on the artisanal trend to fuel growth. Its fragrance sales increased faster than any other segment besides makeup last year. And the scents are more profitable than some designer-label products because they don't require the same advertising and promotion, Freda said.
Estee Lauder's Frederic Malle, Le Labo and By Kilian scents might not be known to most consumers, but they are some of its most promising fragrance brands. It also sells scents under the more recognizable names of Tom Ford and Jo Malone, offered in such varieties as nutmeg, ginger, and wood sage and sea salt.