P&G; to Buy Giorgio for $150 Million : Fragrances: The purchase from Avon will make Procter & Gamble a leader in the prestige perfume market.
Consumer product giant Procter & Gamble, better known for the fragrances it mixes by the ton into Tide or Charmin, agreed Tuesday to purchase the posh Giorgio Beverly Hills fragrance line from Avon Products Inc. for $150 million.
After several years of floundering as an also-ran in the pricey prestige segment of the estimated $14-billion fragrance industry, P&G; will immediately become a market leader. Three Giorgio fragrances--Giorgio, Red and Wings--rank among the nation’s 15 top sellers.
Don’t look for toilet tissue or laundry detergent on the shelves, but included in the deal is the chichi boutique that Santa Monica-based Giorgio opened on Rodeo Drive in 1989.
Avon, meanwhile, will finally be able to fully concentrate on its more successful direct-marketing operations when it unloads the Giorgio division, which it has had on the auction block for several years. Although Giorgio sales grew to $165 million, the upscale line was an uneasy fit with the more mid-scale products that Avon sells in catalogues and door-to-door.
Wall Street was underwhelmed. P&G; lost 12.5 cents to $54 a share Tuesday, and Avon fell by 75 cents to $57.625 in trading on the New York Stock Exchange.
Analysts say the move signals that big consumer product marketers still see room for growth in sales of pricey perfumes, despite increased consumer interest in discount prices and getting more for their money. Prestige fragrances, which are sold mainly in department stores for as much as $190 an ounce, remain the industry’s biggest single segment, with global sales of nearly $6 billion last year.
With this acquisition, P&G;’s fragrance business will exceed $500 million, some $330 million of which is prestige fragrances.
Yet P&G; was not even a player in that market until 1991, when it purchased Max Factor. Since then, the Cincinnati-based company, which makes Ivory soap and Pepto-Bismol, has also begun to market such upscale fragrances as Laura Biagiotti and Hugo Boss. Earlier this year, P&G; and Salvatore Ferragamo, the Italian maker of designer shoes and clothing, announced plans to jointly create a luxury perfume.
P&G; rival Unilever also entered the market in a big way in the early 1990s with its purchase of Elizabeth Arden and Calvin Klein Cosmetics, the maker of Obsession and Eternity.
“Procter & Gamble is a company that’s more accustomed to saying, ‘How many tons of laundry detergent do you need?’ ” said Andrew Shore, an analyst at the New York investment firm PaineWebber Inc. “But Procter’s mass-market business in the U.S. is generally tapped out, so this is an area where they can grow--and learn from a very successful brand.”
Industry analysts point out that P&G;, which strives to be No. 1 in virtually every product category it enters, will probably invest far more in the Giorgio brand than Avon ever could. Last year, P&G; posted worldwide sales of $30.4 billion, compared to about $4 billion in revenue at Avon.
“There really is no risk here for P&G;,” said Constance Maneaty, an analyst at the New York investment firm Bear, Stearns & Co. To P&G;, she said, this investment “is lunch money.”
“Our objective is to be the worldwide leader in fragrances,” Edwin L. Artzt, chairman and chief executive of P&G;, said in a statement. “Giorgio gives us a significantly stronger foothold in the U.S. prestige fragrance business.”
But P&G;, accustomed to mass marketing in supermarkets and drugstores, will now have to learn how to sell in department stores, PaineWebber’s Shore noted.
Most analysts believe that P&G; will try to capitalize on the familiar Giorgio name and market a number of products under that brand. Besides the fragrances, the Giorgio name also appears on everything from handbags to sunglasses.
The sale, which is subject to regulatory approval, is expected to be completed in the third quarter of this year.
Executives at Giorgio openly welcomed news of the sale Tuesday.
“P&G; has a strategic goal to be the best at whatever they do,” Linda LoRe, Giorgio president and chief executive, said in a telephone interview. Avon, she noted, “made it very clear that Giorgio was not a strategic fit.”
LoRe will remain president of Giorgio. She said there are “no indications” that P&G; plans to make any significant changes to the company’s 306-person work force.
