Travel Retail and Duty Free Business Intelligence    Friday 19 September 2014

FEATURES

Sisley's Philippe d’Ornano talks perfume, paranoia and black swans

Published: 06/02/13

Source: ©The Moodie Report

By Martin Moodie

Founded in 1976 by beauty pioneer Hubert d’Ornano, Sisley is a French, family-owned company with a growing global reach. Quality, innovation and entrepreneurial spirit were the founding values of the house – all qualities which continue to play a key role as the brand expands its presence on the international stage. The Moodie Report Founder & Chairman Martin Moodie sat down for a fascinating conversation with the erudite Sisley President, Philippe d’Ornano.

Sisley is unashamedly high-end, but these days ‘luxury’ can be an over-used word. How would you define it, and what does it mean to your consumers?

Philippe d’Ornano: "High-end is about doing exceptional products; it's not about price."
Philippe d’Ornano: I think high-end is about doing exceptional products; it’s not about price. Price can be the consequence of that, but not always. I don’t believe in a strategy based just on price: that’s not how it works. In-store advice – how you explain and service these high-quality products – is also important.

I think that Sisley is the market leader in very high-end skincare worldwide, because we are strong all over the world. We have the same position everywhere. The fact that we are still a family business helps us with this. We are focused on one brand – and we are not on the stock exchange. That allows us to maintain our long-term policy.

What are the other key advantages of being an independent, family company?

We are not obliged to launch tons of new products, which is the quick trick to make money in this business, but doesn’t build your brand in the long term. We can be very careful about where we do and do not want to be, and how we want our brand to be sold. And we don’t need to cut our investments at the end of the year because we’re on the stock exchange.

That’s important. There’s a family business association in France led by Yvon Gattaz [a famous French proponent of the merits of entrepreneurial and family-run businesses] which has conducted some interesting studies. Similar research has been done by financial firms in France, England, Germany, Spain and Japan. The results are very striking, and they’re the same everywhere: the medium-sized family business outperformed the market by +50% over ten years.

There’s a fascinating book about this called La stratégie du propriétaire which was written by three professors [Iain Bloch, Nicolas Kachaner and Sophie Mignon –Ed]. It explains that while the over-performance is +50%, it’s not constant. In a period of economic growth, the performance of family businesses quoted on the stock exchange is more or less similar to non-family businesses, maybe even a little bit less. But in a period of crisis, it’s much more. My father often said ‘You take the market share gains in a period of crisis.’

Philippe d'Ornano: "We have a long-term vision, and are not afraid to do things differently."
Because you don’t cut back on your investment at times of crisis?

That’s right, if you have a long-term vision and you’re well-organised and your company is financially solid. I saw this in 2009, for example, when we continued to hire people. There was absolutely no instruction to limit either our investment or our hiring. We were of course careful to do things right, and to question ourselves even more than usual, to ask ‘Are we spending this money well?’ That is a big strength, which allowed us to do what luxury brands need more than anything – to build our brand, and our brand image.

I consider our image to be our most important company asset. It allows us to research prospective products for five, ten years. Our reputation is such that when we launch a new product, people are waiting for it. But you really have to earn that image – and you can lose it so quickly if you don’t do the right things.

You are very firm about not launching products just for the sake of having something new. How then would you describe Sisley’s strategy regarding innovation?

We have a long-term vision, and are not afraid to do things differently. For example, we still believe that perfume can be an artistic creation, which can be launched without consumer tests. Eau de Soir, launched 20 years ago, is in the top 30 in France, and it’s been growing by +10%. This perfume is a completely different model from that of the mainstream market [which dictates that fragrance] will not be too shocking, or specific, or surprising or different, but needs huge advertising. And if you’re lucky, once in a while it will stay around, but if not, you go to something else immediately.

TRAVEL RETAIL TURNAROUND

The Moodie Report: It’s about a year since we last spoke, and in that time you have opened more doors in travel retail. How important is the channel becoming for Sisley, and what has prompted the change?

Philippe d’Ornano: Yes, we have opened some doors. As we discussed last time, for the first 20 years of the company travel retail was not a major focus. Our belief was that we had to concentrate first on the French market – because we were French – then on [other] local markets, and build a strong position in each. That was the primary target.

Then we started to work closely with some travel retail [doors]. We quickly became a very strong player in Seoul, which is also the biggest [travel retail] door in skincare. We had the opportunity to open some other airports, but it was not a global strategy. I would say that five or six years ago we started to really change that. The reasons? Firstly, our strength in the local market made it more interesting for us to be in travel retail too, and it was also interesting for the operators. Second was the change in travel retail itself. The shopping experience has changed, and the stores have become much nicer. Also travel retail has become more interested in advice and in skincare, which is 60% of our business.

We have grown again this year, as we did last year, with very strong figures: around +40% in Europe and +30% exactly in Asia to date in travel retail. That is partly due to openings, but also due to growth in existing stores. If you take Aelia, World Duty Free Group and Heinemann, for example, we have seen big double-digit growth.

We are now much better organised, we have more teams, we are more present. We are doing the right things to catch up. But domestically the level of the brand has also changed; on local markets it is doubling every five years on average.

If you put all your travel retail business together, what would it represent? As a market, would it be among your top five?

I don’t really calculate it like that. I tend to look at a country’s local and travel retail market as a whole. Sometimes you’ve got to be careful not to under-invest in a local market with a strong travel retail counterpart… For example, we are creating a subsidiary in Brazil, where there are very high import taxes. Brazilians are good cosmetics customers, and they can buy everywhere, but we think we should control the job we are doing and invest on the Brazilian market.
Instead, we launch a perfume we like, which we believe in, and we think people will like in the long term. We don’t start with a big advertising splash, but work constantly to support it over a long period of time. It’s a model that is interesting from an artistic and financial point of view – it’s a profitable model. And we don’t limit ourselves in terms of price: Eau de Soir is about +40–50% more expensive than a Chanel or a Dior.

At Sisley we have three different worlds: skincare is close to medication; make-up is fun, but also treatment; perfume is high-end, and a choice. I do not understand a brand which would put US$50 million on the table in advertising [to support a fragrance launch]. If you do that you can’t risk a flop, which is limiting.

The way we launch allows us to bring something different to the consumer, because we are more free to take some risks, without putting the company in jeopardy. And we have time to fight for something we believe in. Eau de Soir was small when it started. It didn’t begin high up in the rankings, and then drop, which is the more usual pattern. When it was launched it was small, and year after year it improved its ranking, until people realised “Nobody talks about this, but it’s a great perfume.” And then you know that you’ve done a good job.

So what is it that guides your product launch philosophy?

We launch when we think that we have something to bring to the market, and when we are ready; not just to make money. So we have a schedule, rather than a plan. We are very mobile, very flexible in the way we work, and as owners we work directly with our research, which is not the case in most companies. We meet with our research people every Wednesday morning, and this personal, direct contact allows us to make the right decisions, even if that decision is ‘I don’t like it, it’s not good enough, it has to be delayed.’ Can you imagine a marketing or product manager – however good or talented – trying to authorise or explain such a delay [in a big group]?

We do not impose a launch programme. My father used to say to me, when I was more in charge of the commercial side, “You need to be able to work when you have no new products. You have plenty of products already; why do you need new ones?”

It’s also important to have a clear line, not just for the retailer, but for the customer too. If you think your new product is so great and innovative, why do you need to change it two years later? When you hit the right skincare formulation, you can be competitive for a long period of time.

You’ve told me before that Sisley will not be acquired, but let’s say, in a hypothetical world, one of the household name giants took you out 100%. What do you think would happen to your company?

It’s difficult to say. It would depend on the company, because they don’t all have the same strategies. But you’ve seen examples with other acquired brands, which gives you an idea of what can happen. German companies are very competitive. One of their strengths is their Mittelstand [small and medium-sized enterprises] which are very much about the long term. British companies, however, seem to want a quick return on their investment. In luxury this is very important. It’s very easy to make a quick return if you have no long-term vision.

Take subsidiaries. They are an investment; they cost money, not make it, in the beginning. But my father knew that was the way to build the Sisley brand, as opposed to running the whole thing through distributors for a quick return. If you want to build, in big countries at least, it’s a necessary investment.

Because it allows you to maintain the quality, maintain the control?

Absolutely. But in a big group that changes. Of course, sometimes there are brilliant managers in big groups too, and at the end of the day it’s people who make a company successful. But in general we have seen that a luxury business needs a long-term vision and a stable environment of management and people, who put a bit of themselves into the company.

Sisley's latest skin care treatment, Botanical D-Tox, is being launched this month
How is your company set up in the Chinese market?

We’ve had a subsidiary there since 2006. We started with a distributor, but felt that we needed to invest. It’s our second biggest country in terms of employed people after France. And it’s great – very competitive – but we have managed to build a good team, which is very creative and certainly not shy. They are doing a great job. We are ranked five in the stores where we are present in China.

We live in a troubled world, economically speaking. Europe’s problems are well documented, and now even China is starting to slow. Yet you seem very bullish, very upbeat – why?

I think the cosmetics industry withstands crises very well, as past experience shows. Yes Europe, and especially France, is very depressed, but compared with 50, 100 years ago, the world has become much richer. Unless there is a major catastrophe – and of course there may be – we think cosmetics is a growing market, and still underdeveloped in terms of high-end. We can persuade a lot more people to buy, especially through good service, which I still don’t believe there is enough of. And of course we started later. We are still a young brand and in some areas, including travel retail, we are not yet at the level we should be. But we are on the right path.

Which doesn’t mean I am not worried about the economic situation. I’m very worried about France taking a wrong direction and dragging Europe down. That said, our business is global, and we are a well-run company, so financially we could withstand even a big shock.

There’s an excellent book called The Black Swan [The Black Swan: The Impact of the Highly Improbable is a literary/philosophical work by the epistemologist Nassim Nicholas Taleb. It focuses on the extreme impact of certain kinds of rare and unpredictable events and the human tendency to find simplistic explanations for these events retrospectively. This theory has since become known as the Black Swan Theory –Ed].

The author maintains that we always underestimate things that have never happened. Yet in our society, the risk of things happening that have never happened is increasing. The more complex a society becomes, the more these black swans can appear. I don’t know what the next black swan could be, but I am trying to run the company in such a way that we could face it without collapsing.

Jean-Charles Decaux, of JCDecaux, which has become a global giant while remaining a family business, says that a family company has to always be paranoid. Do you agree?

Yes, I believe that. You can’t be blocked by your paranoia – you have to be optimistic and always go forward. But you do have to be paranoid [in a good way]. Take IT. Very often I ask my IT team – and it creates great productivity gains – “What happens if it breaks?” The answer is usually “It can’t.” [Laughs]. But it’s always a discussion worth starting.