Item 1. Business
Item
1. Business
General
Business Development
Founded
in 1982, we operate in the fragrance business, and manufacture, market and distribute a wide array of prestige fragrance, and
fragrance related products. Our worldwide headquarters and the office of our wholly-owned United States subsidiaries, Jean Philippe
Fragrances, LLC and Inter Parfums USA, LLC, are located at 551 Fifth Avenue, New York, New York 10176, and our telephone number
is 212.983.2640.
Our
consolidated wholly-owned subsidiary, Inter Parfums Holdings, S.A., and its majority-owned subsidiary, Interparfums SA, maintain
executive offices at 4 Rond Point des Champs Elysees, 75008 Paris, France. Our telephone number in Paris is 331.5377.0000. Interparfums
SA is the sole owner of three (3) distribution subsidiaries: Inter Parfums srl for Italy, Inter España Parfums et Cosmetiques,
SL, for Spain and Interparfums Luxury Brands, Inc., a Delaware corporation, for distribution of prestige brands in the United
States. Interparfums SA is also the majority owner of Parfums Rochas Spain, SL, a Spanish limited liability company, which specializes
in the distribution of Rochas fragrances. In addition, Interparfums SA is also the sole owner of Interparfums (Suisse) SARL, a
company formed to hold and manage certain brand names, and Interparfums Asia Pacific Pte., Ltd., an Asian sales and marketing
office.
Our
common stock is listed on The Nasdaq Global Select Market under the trading symbol “IPAR”. The common shares of our
subsidiary, Interparfums SA, are traded on the Euronext Exchange.
The
Securities and Exchange Commission (“SEC”) maintains an internet site at http://www.sec.gov that contains financial
reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. We maintain
our internet website at www.interparfumsinc.com, which is linked to the SEC internet site. You can obtain through our website,
free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, interactive data files, current reports on Form
8-K, beneficial ownership reports (Forms 3, 4 and 5) and amendments to those reports filed or furnished pursuant to Section 13(a)
of the Securities Exchange Act of 1934 as soon as reasonably practicable after they have been electronically filed with or furnished
to the SEC.
The
following information is qualified in its entirety by and should be read together with the more detailed information and audited
financial statements, including the related notes, contained or incorporated by reference in this report.
General
We
operate in the fragrance business and manufacture, market and distribute a wide array of fragrance and fragrance related products.
We manage our business in two segments, European based operations and United States based operations. Certain prestige fragrance
products are produced and marketed by our European operations through our 27% owned subsidiary in Paris, Interparfums SA, which
is also a publicly traded company as 73% of Interparfums SA shares trade on the NYSE Euronext.
Our
business is not capital intensive, and it is important to note that we do not own manufacturing facilities. We act as a general
contractor and source our needed components from our suppliers. These components are received at one of our distribution centers
and then, based upon production needs, the components are sent to one of several third party fillers which manufacture the finished
product for us and deliver them to one of our distribution centers.
Our
fragrance products focus on prestige brands, each with a devoted following. By concentrating in markets where the brands are best
known, we have had many successful product launches. We typically launch new fragrance families for our brands every year or two,
and more frequently seasonal and limited edition fragrances are introduced as well.
1
The
creation and marketing of each product family is intimately linked with the brand’s name, its past and present positioning,
customer base and, more generally, the prevailing market atmosphere. Accordingly, we generally study the market for each proposed
family of fragrance products for almost a full year before we introduce any new product into the market. This study is intended
to define the general position of the fragrance family and more particularly its scent, bottle, packaging and appeal to the buyer.
In our opinion, the unity of these four elements of the marketing mix makes for a successful product.
As
with any business, many aspects of our operations are subject to influences outside our control. We believe we have a strong brand
portfolio with global reach and potential. As part of our strategy, we plan to continue to make investments behind fast-growing
markets and channels to grow market share. We discuss in greater detail risk factors relating to our business in Item 1A
of this Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and the reports that we file from time to
time with the SEC.
European
Operations
We
produce and distribute our fragrance products primarily under license agreements with brand owners, and fragrance product sales
through our European operations represented approximately 78% of net sales for 2020. We have built a portfolio of prestige brands,
which include Boucheron, Coach, Jimmy Choo, Karl Lagerfeld, Kate Spade New York, Lanvin, Moncler, Montblanc, Paul Smith, Repetto,
Rochas, S.T. Dupont and Van Cleef & Arpels , whose products are distributed in over 120 countries around the world.
United
States Operations
Prestige
brand fragrance products are also produced and marketed through our United States operations, and represented approximately 22%
of net sales for the year ended December 31, 2020. These fragrance products are sold under trademarks owned by us or pursuant
to license or other agreements with the owners of brands, which include Abercrombie & Fitch, Anna Sui, bebe, Dunhill, French
Connection, Graff, GUESS, Hollister, MCM and Oscar de la Renta .
Recent
Developments
Anna
Sui Corp.
In
January 2021, we renewed our license agreement with Anna Sui Corp. for the creation, development and distribution of fragrance
products through December 31, 2026, without any material changes in terms and conditions. Our initial 10-year license agreement
with Anna Sui Corp. was signed in 2011. The renewal agreement also allows for an additional 5-year term through 2031 at the option
of the Company.
Building
Acquisition - Future Headquarters in Paris
In
December 2020, our majority owned Paris-based subsidiary, Interparfums SA, signed a purchase contract, subject to certain conditions,
to acquire an office building complex for its exclusive use as its future headquarters located in the heart of Paris. In order
to maintain our current cash position, it is expected that approximately 90% of the €125 million ($153 million) purchase
price, excluding taxes and related expenses, will be financed by a bank loan. The transaction is expected to be completed in the
spring of this year with the move planned for the end of 2021 or the beginning of 2022.
This
acquisition is a unique opportunity with benefits to be realized over the long-term. Owning our corporate headquarters in a very
prestigious part of Paris, and customizing the complex for our European operations, will enhance our reputation, provide an exceptional
work environment, as well as a welcoming and productive atmosphere for our suppliers, distributors and licensors.
2
Origines-Parfums
In
June 2020, the Company through its 73% owned subsidiary, Interparfums SA, and Divabox SAS (“Divabox”), owner of the
Origines-parfums e-commerce platform for beauty products, signed a strategic agreement and equity investment pursuant to which
we acquired a 25% of Divabox capital for $14.0 million, through a capital increase. In connection with the acquisition, the Company
entered into a $13.4 million term loan, which has been amended such that the loan was repaid in full in February 2021. As a website
of reference for all selective fragrance brands, Origines-parfums is a key French player in the online beauty market recognized
for its customer relationship expertise. This agreement should enhance the introduction of dedicated fragrance lines and products
designed to address a specific consumer demand for this distribution channel and accelerate our digital development.
Moncler
In
June 2020, the Company entered into an exclusive, 5-year worldwide license agreement with a potential 5-year extension with Moncler
for the creation, development and distribution of fragrances under the Moncler brand. Our rights under this license are subject
to certain minimum advertising expenditures and royalty payments as are customary in our industry. Moncler was founded at Monestier-de-Clermont,
Grenoble, France, in 1952 and is currently headquartered in Italy. Over the years, the brand has combined style with constant
technological research assisted by experts in activities linked to the world of the mountain. The Moncler outerwear collections
marry the extreme demands of nature with those of city life. Our first fragrance launch for the Moncler brand is scheduled for
the first quarter of 2022.
S.T.
Dupont
In
January 2021, we renewed our license agreement with S.T. Dupont for the creation, development and distribution of fragrance products
through December 31, 2022, without any material changes in terms and conditions. Our initial 11-year license agreement with
S.T. Dupont was signed in June 1997 and had previously been extended through December 31, 2020.
Abercrombie
& Fitch and Hollister
In
November 2019, we extended our license for both the Abercrombie & Fitch and Hollister brands, until either party
terminates on 3 years notice.
MCM
In
September 2019, we entered into an exclusive, 10-year worldwide license agreement with German luxury fashion house MCM for the
creation, development and distribution of fragrances under the MCM brand. Our rights under such license are subject to certain
minimum advertising expenditures and royalty payments as are customary in our industry. Our first fragrance launch for the MCM
brand is scheduled for spring 2021.
Oscar
de la Renta
In
September 2019, we extended our license through December 31, 2031, and added an additional five-year extension option through
December 31, 2036. The original license agreement, signed in October 2013, would have expired on December 31, 2025.
Kate
Spade New York
In
June 2019, we entered into an exclusive 11-year worldwide license agreement with Kate Spade New York for the creation, development
and distribution under the Kate Spade brand. Our rights under such license are subject to certain minimum advertising expenditures
and royalty payments as are customary in our industry. Our first fragrance launch for the Kate Spade New York brand began in the
first quarter of 2021.
3
Fragrance
Products
General
We
are the owner of the Rochas brand, and the Lanvin brand name and trademark for our class of trade. In addition, we have built
a portfolio of licensed prestige brands whereby we produce and distribute our prestige fragrance products under license agreements
with brand owners. Under license agreements, we obtain the right to use the brand name, create new fragrances and packaging, determine
positioning and distribution, and market and sell the licensed products, in exchange for the payment of royalties. Our rights
under license agreements are also generally subject to certain minimum sales requirements and advertising expenditures as are
customary in our industry. As a percentage of net sales, product sales for the Company’s largest brands were as follows:
Year
Ended December 31,
2020
2019
2018
Montblanc
21 %
22 %
19 %
Coach
17 %
14 %
15 %
Jimmy
Choo
16 %
16 %
17 %
GUESS
(license commenced April 1, 2018)
11 %
10 %
n/a
Lanvin
7 %
8 %
10 %
Our
licenses expire on the following dates:
Brand
Name
Expiration
Date
Abercrombie
& Fitch
Extends
until either party terminates on 3 years’ notice
Anna
Sui
December
31, 2026, plus one 5-year optional term
bebe
Stores
June
30, 2023
Boucheron
December
31, 2025, plus a 5-year optional term if certain sales targets are met
Coach
June
30, 2026
Dunhill
September
30, 2023
French
Connection
December
31, 2027, plus a 10-year optional term if certain sales targets are met
Graff
December
31, 2026, plus 3 optional 3-year terms if certain sales targets are met
GUESS
December
31, 2033
Hollister
Extends
until either party terminates on 3 years’ notice
Kate
Spade New York
June
30, 2030
Jimmy
Choo
December
31, 2031
Karl
Lagerfeld
October
31, 2032
MCM
December
31, 2030, plus 4 option years
Moncler
December
31, 2026, plus a 5-year optional term if certain conditions are met
Montblanc
December
31, 2025
Oscar
de la Renta
December
31, 2031, plus a 5-year optional term if certain sales targets are met
Paul
Smith
December
31, 2021
Repetto
December
31, 2024
S.T.
Dupont
December
31, 2022
Van
Cleef & Arpels
December
31, 2024
In
connection with the acquisition of the Lanvin brand names and trademarks for our class of trade, we granted the seller the right
to repurchase the brand names and trademarks in 2025 for the greater of €70 million (approximately $86 million) or one times
the average of the annual sales for the years ending December 31, 2023 and 2024.
4
Fragrance
Portfolio
Abercrombie
& Fitch — In 2014, we entered into a worldwide license to create, produce and distribute new fragrances and fragrance
related products under the Abercrombie & Fitch brand name. We distribute these fragrances internationally in specialty stores,
high-end department stores and duty free shops, and in the U.S., in duty free shops and in select Abercrombie & Fitch retail
stores. Our initial men’s scent, First Instinct was launched in 2016 followed by a women’s version in 2017.
During 2018 and early 2019, we introduced several First Instinct brand extensions. In the spring of 2019, we unveiled a
new fragrance family for Abercrombie & Fitch, Authentic , for men and women, and in 2020, we released Authentic Night .
In April 2021, we have Naturally Fierce Perfume ready for international distribution and in the second half of 2021, we
have a new pillar ready for launch.
Abercrombie
& Fitch believes that every day should feel as exceptional as the start of the long weekend. Since 1892, the brand has been
a specialty retailer of quality apparel, outerwear and fragrance – designed to inspire our global customers to feel confident,
be comfortable and face their Fierce.
Anna
Sui— In 2011, we entered into an exclusive worldwide fragrance license to create, produce and distribute fragrances and
fragrance related products under the Anna Sui brand. We work in partnership with American designer, Anna Sui, and her creative
team to build upon the brand’s growing customer appeal, and develop new fragrances that capture the brand’s very sweet
feminine girly aspect, combined with touch of nostalgia, hipness and rock-and-roll. Anna Sui’s devoted customer base, which
spans the world, is concentrated in Asia.
The
successful launch in 2017 of Fantasia by Anna Sui together with the benefits that accrued from our continued commitment
to advertising and marketing, produced a significant increase in 2018 brand sales. Brand sales declined modestly in 2019, as new
product launches were primarily brand extensions. The COVID-19 pandemic, which resulted in retail store closings and a virtual
shutdown of travel retail, significantly affected Anna Sui brand sales in 2020. A recovery began in late 2020, and to take advantage
of markets reopening, we began the initial rollout of our newest Anna Sui fragrance, Sky by Anna Sui in China and Hong
Kong. For 2021, we plan a broader distribution of Anna Sui Sky throughout Asia.
Boucheron—
In 2010, we entered into an exclusive 15-year worldwide license agreement for the creation, development and distribution of
fragrances under the Boucheron brand. Boucheron is the French jeweler “par excellence”. Founded by Frederic Boucheron
in 1858, the House has produced some of the world’s most beautiful and precious creations. Today Boucheron creates jewelry
and timepieces and, under license from global brand leaders, fragrances and sunglasses. Currently Boucheron operates through over
40 boutiques worldwide as well as an e-commerce site.
Boucheron
brand sales continue to be driven by legacy scents Boucheron Femme and Boucheron Homme as well as its legendary
Jaipur lines. A scent collection was launched under the Boucheron brand in 2017, and additional scents are added annually.
In 2019, two new fragrances, Boucheron Fleurs and Boucheron Quatre en Rouge, were added to the Boucheron collection.
For 2020, we added Rose D’Isparta and Serpent Boheme and for 2021, Quatre en Bleu and Cuir de Venise
will be making their debuts.
Coach —
In 2015, we entered into an exclusive 11-year worldwide license to create, produce and distribute new men’s and women’s
fragrances and fragrance related products under the Coach brand name. We distribute these fragrances globally to department stores,
specialty stores and duty free shops, as well as in Coach retail stores.
Coach,
established in New York City in 1941, is a leading design house of modern luxury accessories and lifestyle collections with a
rich heritage of pairing exceptional leathers and materials with innovative design. Coach branded products are sold worldwide
through Coach stores, select department stores and specialty stores, and through Coach’s website.
In
2016, we launched our first Coach fragrance, a women’s scent, and in 2017, a men’s scent, both of which have quickly
become top selling prestige fragrances. The Coach brand achieved remarkable sales growth and quickly become one of the largest
brands in our portfolio. Coach sales were driven by the continued popularity of the Coach signature lines, as well as the success
of flankers. In 2020 we launched a new Coach women’s scent, Coach Dreams . We also have a new fragrance, Dreams
Sunset , which is scheduled to debut in 2021. Coach is part of the Tapestry house of brands.
5
Dunhill— In
2012, we entered into an exclusive 10-year worldwide fragrance license to create, produce and distribute fragrances and fragrance
related products under the Dunhill brand.
The
house of Dunhill was established in 1893 and since that time has been dedicated to providing high quality men’s luxury products,
with core collections offered in menswear, leather goods and accessories. The brand has global reach through a premium mix of
self-managed retail outlets, high-level department stores and specialty stores. Known for its commitment to elegance and innovation
and being a leader of British men’s style, the brand continues to blend innovation and creativity with traditional craftsmanship.
Beginning
in 2015, we rolled out a new Dunhill scent, Icon, the success of which has made the Dunhill brand one of the stars within
our United States based operations at that time. Building upon the established success of the Icon fragrance family, we
launched several product extensions in 2017 and 2018. In 2019, the Dunhill Signature Collection debuted exclusively at
Harrod’s followed by a global rollout, and brand extensions dominated for Dunhill in 2020. For 2021, we have a completely
new fragrance family for Dunhill called Driven.
Graff —
In 2018, the Company entered into an exclusive, 8-year worldwide license agreement with London-based Graff for the creation, development
and distribution of fragrances under the Graff brand. The 8-year agreement has three 3-year automatic renewal options, potentially
extending the license until December 31, 2035.
Since
Laurence Graff OBE founded the company in 1960, Graff has been dedicated to sourcing and crafting diamonds and gemstones of untold
beauty and rarity, and transforming them into spectacular pieces of jewelry that move the heart and stir the soul. Throughout
its rich history, Graff has become the world leader for diamonds of rarity, magnitude and distinction. Most notably, it has dominated
the list of historical and important rough diamonds discovered, cut and polished this century. Each jewelry creation is designed
and manufactured in Graff’s London atelier, where master craftsmen employ stone-led design techniques to emphasize the beauty
of each individual stone. The company remains a family business, overseen by Francois Graff, Chief Executive Officer.
For
Graff, a six-scent collection for women, Lesedi La Rona , debuted exclusively at Harrods beginning in March 2020. The
exclusive was extended through 2020 as a result of the interruption from mandatory store closings at various times throughout
2020. In 2021, a select market rollout will begin in the Middle East, with selective luxury distribution limited to only the
most exclusive, upmarket retail outlets. In 2021, we have two new scents in the works for the Lesedi La Rona
collection.
GUESS —
In 2018, the Company entered into an exclusive, 15-year worldwide license agreement with GUESS?, Inc. for the creation, development
and distribution of fragrances under the GUESS brand.
Established
in 1981, GUESS began as a jeans company and has since successfully grown into a global lifestyle brand. GUESS?, Inc. designs,
markets, distributes and licenses a lifestyle collection of contemporary apparel, denim, handbags, watches, footwear and other
related consumer products. GUESS products are distributed through branded GUESS stores as well as better department and specialty
stores around the world.
This
license took effect on April 1, 2018 and we began selling GUESS legacy scents in 2018. In 2019 the GUESS brand quickly became
the largest within our U.S. operations, with legacy fragrances dominating the sales mix. In 2019, we began shipments of 1981
Los Angeles and Seductive Noir , both flankers of established scents, which accelerated brand growth further.
Nearly
three years in the making, our first new blockbuster scent, Bella Vita , will debut for the GUESS brand both domestically
and internationally in 2021. In addition, a new men’s grooming and fragrance collection is now scheduled for a spring 2021
launch.
6
Hollister—
We have a worldwide license to create, produce and distribute new fragrances and fragrance related products under the Hollister
brand name. The Company distributes these fragrances internationally in specialty stores, high-end department stores and duty
free shops, and in the U.S., in duty free shops as well as select Hollister retail stores. In 2016 we launched a men’s and
women’s scent, Wave , for Hollister. In 2017, we introduced a fragrance duo, Wave 2 , to complement the Wave
franchise by Hollister. During 2018 we debuted an entirely new fragrance family for Hollister, Festival Vibes . In 2019,
we launched the Wave limited edition duo, plus our first Festival brand extension, Festival Nite . For 2020,
we released Canyon Escape for men and women in select markets, with the global rollout planned for the first quarter of
2021.
The
quintessential apparel brand of the global teen consumer, Hollister Co. celebrates the liberating spirit of the
endless summer inside everyone. Inspired by California’s laidback attitude, Hollister’s clothes are designed to
be lived in and made your own, for wherever life takes you.
Jimmy
Choo— In 2009, we entered into an exclusive 12-year worldwide license agreement for the creation, development and distribution
of fragrances under the Jimmy Choo brand, and in 2017, we extended the license agreement which now runs through December 31, 2031.
Jimmy
Choo encompasses a complete luxury accessories brand. Women’s shoes remain the core of the product offering, alongside handbags,
small leather goods, scarves, eyewear, belts, fragrance and men’s shoes. Management at Jimmy Choo shares a vision to create
one of the world’s most treasured luxury brands. Jimmy Choo has a global store network encompassing more than 200 stores
and is present in the most prestigious department and specialty stores worldwide. Jimmy Choo is part of the Capri Holdings Limited
luxury fashion group.
Our
first fragrance under the Jimmy Choo brand, a women’s signature scent, rolled out globally in 2011. In 2013, we launched
our second Jimmy Choo line, Flash , and in 2014, we debuted Jimmy Choo Man, our first men’s scent. In 2015,
the launch of Jimmy Choo Illicit , our third women’s fragrance under that label hit the market. In 2017,
building on the very strong fragrance family trees of the women’s signature scent and Jimmy Choo Man , we successfully
launched Jimmy Choo L’Eau for women and Jimmy Choo Man Ice . In 2018 we released another men’s flanker,
Jimmy Choo Man Blue , and the brand’s women’s signature scent added Jimmy Choo Fever . During 2019, we
introduced a Jimmy Choo Floral line, and an entirely new scent for men, Jimmy Choo Urban Hero , launched late in
the year. For 2020, we expanded our product line to include a lipstick and nail polish line, and our new women’s fragrance,
I Want Choo is being launched in 2021. Lastly, we will also be adding four new lipsticks to our Jimmy Choo makeup line
in 2021.
Karl
Lagerfeld— In 2012, we entered into a 20-year worldwide license agreement with Karl Lagerfeld B.V., the internationally
renowned haute couture fashion house, to create, produce and distribute fragrances under the Karl Lagerfeld brand.
Under
the creative direction of the late Karl Lagerfeld, one of the world’s most influential and iconic designers, the Lagerfeld
Portfolio represents a modern approach to distribution, an innovative digital strategy and a global 360 degree vision that reflects
the designer’s own style and soul. In 2017, we changed the strategic positioning and instituted new pricing with the launch
of a new duo called Les Parfums Matières. Building on excellent sales results of the initial scents, in the second
half of 2018, we expanded the Les Parfums Matières line with another fragrance duo, and in 2019, we added new scents
to the brand’s expanding multi-scent collection. In 2021 Karl Cities, a new collection, is being prepared.
Kate
Spade— In 2019, we entered into an exclusive, 11-year worldwide license agreement with Kate Spade New York to create,
produce and distribute new perfumes and fragrance-related products under the Kate Spade brand. We will distribute these fragrances
globally to department and specialty stores and duty free shops, as well as in Kate Spade New York retail stores. Our first original
scent, Kate Spade , debuted in January 2021.
Since
its launch in 1993 with a collection of six essential handbags, Kate Spade New York has always stood for optimistic femininity.
Today, the brand is a global life and style house with handbags, ready-to-wear, jewelry, footwear, gifts, home décor and
more. Polished ease, thoughtful details and a modern, sophisticated use of color—Kate Spade New York’s founding principles
define a unique style synonymous with joy. Under the vision of its creative director, the brand continues to celebrate confident
women with a youthful spirit. Kate Spade New York is part of the Tapestry house of brands.
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Lanvin—
In 2007, we acquired the worldwide rights to the Lanvin brand names and international trademarks listed in Class 3, our class
of trade. A synonym of luxury and elegance, the Lanvin fashion house, founded in 1889 by Jeanne Lanvin, expanded into fragrances
in the 1920s.
Lanvin
fragrances occupy an important position in the selective distribution market in France, Eastern Europe and Asia, and we have several
lines currently in distribution, including: Arpège , Lanvin L’Homme , Éclat d’Arpège ,
Rumeur 2 Rose , Jeanne Lanvin, Marry Me, Modern Princess and A Girl in Capri . Our Éclat d’Arpège
line accounts for almost 50% of brand sales. We debuted a new scent called A Girl in Capri in 2019, and also introduced
a new flanker, Éclat d’Arpège Sheer in the second half of 2020. Mon Éclat, a new fragrance,
is scheduled for a second half 2021 release.
MCM—
In 2019, we entered into an exclusive, 10-year worldwide license agreement with German luxury fashion house MCM for the creation,
development and distribution of fragrances under the MCM brand. The agreement has a 4-year automatic renewal option, potentially
extending the license until December 31, 2034.
Fusing
modern German craftsmanship and the traditional art of French perfumery, Inter Parfums will develop exceptional fragrances for
women and men that will celebrate the boldness, attitude and essence of MCM which defined the brand since its birth in Munich.
The long-term collaboration will thrive on innovation with a passionate, tailor-made approach built on a mastery of fragrance
expertise. Positioned in the prestige fine fragrance arena, MCM fragrances will fuse luxury with an expressive spirit of originality
and optimism. Every detail will enhance MCM’s identity, transcending perfumery with elegance and excellence.
Our
plan is to develop extraordinary fragrances for women and men that capture the creative spirit of MCM, with our first new fragrance,
MCM , targeted for a first quarter of 2021 launch. We expect our distribution strategy to include MCM stores, high-end department
stores and prestige beauty retailers, with a geographic focus on Asia, the Americas and Europe.
Montblanc— In
2010, we entered into an exclusive license agreement to create, develop and distribute fragrances and fragrance related products
under the Montblanc brand. In 2015, we extended the agreement which now runs through December 31, 2025.
Montblanc
has achieved a world-renowned position in the luxury segment and has become a purveyor of exclusive products, which reflect today’s
exacting demands for timeless design, tradition and master craftsmanship. Through its leadership positions in writing instruments,
watches and leather goods, promising growth outlook in women’s jewelry, international retail footprint through its network
of more than 600 boutiques, high standards of product design and quality, Montblanc has grown to be our largest fragrance brand.
In
2011, we launched our first new Montblanc fragrance, Legend, which quickly became our best-selling men’s line. In
2014, we launched our second men’s line, Emblem . The Emblem line was expanded in 2015 to include Montblanc
Emblem Intense , and in 2016, we further extended our successful Montblanc Legend line with another men’s scent,
Montblanc Legend Spirit . For 2017, we continued the rollout of the highly successful launch of Montblanc Legend Spirit
and launched Montblanc Legend Night . In 2019, we unveiled Montblanc Explorer , a new men’s scent, with
distribution in all geographic markets around the globe. For 2020, we introduced an eau de parfum version of Legend which
debuted in the fall, and in 2021, we have a new flanker ready for market, Explorer Ultra Blue .
Oscar
de la Renta— In 2013, we entered into an exclusive worldwide license to create, produce and distribute fragrances and
fragrance related products under the Oscar de la Renta brand. In 2019, the agreement was extended through December 31, 2031, with
an additional five-year option potentially extending the agreement through December 31, 2036. In 2014, we took over distribution
of fragrances within the brand’s legacy fragrance portfolio, and our first new women’s fragrance under the Oscar de
la Renta brand, Extraordinary , was launched in 2015. Oscar de la Renta Bella Blanca , a new Oscar de la Renta scent,
debuted in early 2018, and the Bella Rosa flanker was introduced in 2019. In 2020, the Oscar de la Renta Bella pillar
added Bella Essence to the family tree. Debuting in 2021 we have a completely new fragrance for Oscar de la Renta, Alibi .
Oscar
de la Renta is one of the world’s leading luxury goods firms. The New York-based company was established in 1965, and encompasses
a full line of women’s accessories, bridal, children’s wear, fragrance, beauty and home goods, in addition to its
internationally renowned signature women’s ready to wear collection. Oscar de la Renta products are sold globally in fine
department and specialty stores, www.oscardelarenta.com and through wholesale channels. The Oscar de la Renta brand has a loyal
following in the United States, Canada and Latin America.
8
Paul
Smith— In 2017, the Company renewed its license agreement for an additional four years with Paul Smith for the creation,
development, and distribution of fragrance products through December 2021, without any material changes in terms and conditions.
Our initial 12-year license agreement with Paul Smith was signed in 1998, and had previously been extended through December 31,
2017.
Paul
Smith is an internationally renowned British designer who creates fashion with a clear identity. Paul Smith has a modern style
which combines elegance, inventiveness and a sense of humor and enjoys a loyal following, especially in the UK and Japan. Fragrances
include: Paul Smith Men, Paul Smith Women, Paul Smith London, Paul Smith Rose and Paul Smith Extrême, for
men and women.
Repetto—
In 2011, we entered into a 13-year exclusive worldwide license agreement to create, produce and distribute fragrances under
the Repetto brand.
Created
in 1947 by Rose Repetto at the request of her son, dancer and choreographer Roland Petit, Repetto is today a legendary name in
the world of dance. For a number of years, it has developed timeless and must-have collections with a fully modernized signature
style ranging from dance shoes, ballet slippers, flat shoes, sandals, handbags and high-end accessories.
With
Repetto boutiques in several countries throughout the world, the brand has branched out into Asia, notably China, Hong Kong, Singapore,
Thailand, South Korea and Japan with a mix of cross-generational appeal and French chic. Despite this brand’s success with
footwear, handbags and high-end accessories, fragrance sales have been modest.
Rochas —
In 2015, we acquired the Rochas brand from The Procter & Gamble Company. Founded by Marcel Rochas in 1925, the brand began
as a fashion house and expanded into perfumery in the 1950s under Hélène Rochas’ direction. This transaction
included all brand names and registered trademarks for Rochas ( Femme, Madame, Eau de Rochas , etc.), mainly for fragrance,
cosmetics and fashion.
This
acquisition opened a new page in the Company’s history by integrating for the first time both fragrances and fashion, allowing
us to apply a global approach to managing a fragrance brand with complete freedom in terms of creativity and aesthetic choices.
At the same time, we enjoy a very high degree of visibility establishing a position of even greater preeminence for Rochas in
the luxury goods universe. Rochas brand sales currently include approximately $2.2 million of royalties generated by the fashion
and accessory business via its portfolio of license agreements. Our first new fragrance for Rochas, Mademoiselle Rochas ,
had a successful launch that began in the first quarter of 2017 in its traditional markets of France and Spain. In 2018, we debuted
flankers for Eau de Rochas and Mademoiselle Rochas and in late 2018, we launched our first new men’s line,
Rochas Moustache . In 2019, a seasonal limited edition called Escapade Exotique came to market, as well as the debut
of Mademoiselle Rochas Couture. A new women’s line, Byzance, debuted in early 2020. For 2021, we have a new
two new fragrances debuting, Rochas Girl in the first half of the year, and later in the year, a flanker for the L’Homme
Rochas collections.
S.T.
Dupont— In 1997, we signed an exclusive worldwide license agreement with S.T. Dupont for the creation, manufacture and
distribution of S.T. Dupont fragrances. The license agreement had been renewed several times and is now renewed annually, without
any material changes in terms and conditions. S.T. Dupont is a French luxury goods house founded in 1872, which is known for its
fine writing instruments, lighters and leather goods. S.T. Dupont fragrances include: S.T. Dupont pour Femme , S.T. Dupont
pour Homme, S.T. Dupont Essence Pure and S.T. Dupont Collection.
Van
Cleef & Arpels— In 2018, the Company renewed its license agreement for an additional six years with Van Cleef &
Arpels for the creation, development, and distribution of fragrance products through December 2024. Our initial 12-year license
agreement with Van Cleef & Arpels was signed in 2006.
Van
Cleef & Arpels fragrances in current distribution include: First and Collection Extraordinaire. Sales of the
Collection Extraordinaire line have experienced continued growth since its debut. We continue to introduce new additions
to the Van Cleef & Arpels Collection Extraordinaire assortment annually, including Oud Blanc , in 2020. We have
new additions to the Collection Extraordinaire , including Réve de Matiere unveiling in 2021.
9
Business
Strategy
Focus
on prestige beauty brands . Prestige beauty brands are expected to contribute significantly to our growth. We focus on developing
and launching quality fragrances utilizing internationally renowned brand names. By identifying and concentrating in the most
receptive market segments and territories where our brands are known, and executing highly targeted launches that capture the
essence of the brand, we have had a history of successful launches. Certain fashion designers and other licensors choose us as
a partner, because our Company’s size enables us to work more closely with them in the product development process as well
as our successful track record.
Grow
portfolio brands through new product development and marketing . We grow through the creation of fragrance family extensions
within the existing brands in our portfolio. Every year or two, we create a new family of fragrances for each brand in our portfolio.
We frequently introduce seasonal and limited edition fragrances as well. With new introductions, we leverage our ability and experience
to gauge trends in the market and further leverage the brand name into different product families in order to maximize sales and
profit potential. We have had success in introducing new fragrance families (sub-brands, flanker brands or flankers) within our
brand franchises. Furthermore, we promote the performance of our prestige fragrance operations through knowledge of the market,
detailed analysis of the image and potential of each brand name, and a highly professional approach to international distribution
channels.
Continue
to add new brands to our portfolio, through new licenses or acquisitions . Prestige brands are the core of our business and
we intend to add new prestige beauty brands to our portfolio. Over the past 30 years, we have built our portfolio of well-known
prestige brands through acquisitions and new license agreements. We intend to further build on our success in prestige fragrances
and pursue new licenses and acquire new brands to strengthen our position in the prestige beauty market. To that end, in 2019,
we extended our license agreements for Abercrombie & Fitch, Hollister and Oscar de la Renta, and signed new licenses for Kate
Spade New York and MCM. During 2020, we signed a new license for the Moncler brand. In 2020, we also acquired a minority interest
in Divabox, which owns the Origines-parfums online platform. As a website of reference for all selective fragrance brands, Origines-parfums
is a key French player in the online beauty market recognized for its customer relationship expertise. This agreement should enhance
the introduction of dedicated fragrance lines and products designed to address a specific consumer demand for this distribution
channel and accelerate our digital development. As of December 31, 2020, we had cash, cash equivalents and short-term investments
of approximately $296 million, which we believe should assist us in entering new brand licenses or out-right acquisitions. We
identify prestige brands that can be developed and marketed into a full and varied product families and, with our technical knowledge
and practical experience gained over time, take licensed brand names through all phases of concept, development, manufacturing,
marketing and distribution.
Expand
existing portfolio into new categories . We selectively broaden our product offering beyond the fragrance category and offer
other fragrance related products and personal care products under some of our existing brands. We believe such product offerings
meet customer needs and further strengthen customer loyalty.
Continue
to build global distribution footprint . Our business is a global business and we intend to continue to build our global distribution
footprint. In order to adapt to changes in the environment and our business, in addition to our arrangements with third party
distributors globally, we are operating distribution subsidiaries or divisions in the major markets of the United States, France
and Spain for distribution of prestige fragrances. We may look into future joint arrangements or acquire distribution companies
within other key markets to distribute certain of our prestige brands. While building a global distribution footprint is part
of our long-term strategy, we may need to make certain decisions based on the short-term needs of the business. We believe that
in certain markets, vertical integration of our distribution network may be one of the keys to future growth of our Company, and
ownership of such distribution should enable us to better serve our customers’ needs in local markets and adapt more quickly
as situations may determine.
10
Production
and Supply
The
stages of the development and production process for all fragrances are as follows:
●
Simultaneous
discussions with perfume designers and creators (includes analysis of esthetic and olfactory trends, target clientele and
market communication approach)
●
Concept
choice
●
Produce
mock-ups for final acceptance of bottles and packaging
●
Receive
bids from component suppliers (glass makers, plastic processors, printers, etc.) and packaging companies
●
Choose
suppliers
●
Schedule
production and packaging
●
Issue
component purchase orders
●
Follow
quality control procedures for incoming components; and
●
Follow
packaging and inventory control procedures.
Suppliers
who assist us with product development include :
●
Independent
perfumery design companies (Aesthete, Carré Basset, PI Design, Cent Degres)
●
Perfumers
(IFF, Givaudan, Firmenich, Robertet, Takasago, Mane) which create a fragrance consistent
with our expectations and, that of the fragrance designers and creators
●
Fillers
(Voyant, CPFPI, Omega Packaging, Societe de Diffusion de Produits de Parfumerie, TSM Brands)
●
Bottle
manufacturers (Pochet du Courval, Verescence, Verreries Brosse, Bormioli Luigi, Stoelzle Masnières, Heinz), caps (Qualipac,
ALBEA, RPC, Codiplas, LF Beauty, Texen Group, S.A.R.L. J3P SBG Packaging Group), Pumps (Silgan Dispensing
Systems Thomaston Corp, Rexam) or boxes (Autajon, MMPP, Nortier, Draeger)
●
Production
specialists who carry out packaging (CCI, Edipar, Jacomo, Societe de Diffusion de Produits de Parfumerie, MF Productions,
Biopack) or logistics (Bolloré Logistics for storage, order preparation and shipment)
Suppliers’
accounts for our European operations are primarily settled in euro and for our United States operations, suppliers’ accounts
are primarily settled in U.S. dollars. For our European operations components for our prestige fragrances are purchased from many
suppliers around the world and are primarily manufactured in France. For United States operations, components for our prestige
fragrances are sourced from many suppliers around the world and are primarily manufactured in the United States. However, occasionally,
we will utilize third party manufacturers in France, China and Turkey.
11
Environmental
and Social Governance
Both
our US operations and our European operations are good corporate citizens and take our responsibilities seriously. We comply with
all applicable laws, rules and regulations in general, and in particular with regard to chemicals and hazardous materials. From
procurement of components to distribution of finished products, we act as a good corporate citizen and monitor and comply with
all legal requirements.
Interparfums
SA, our European operations with their headquarters in Paris, was ranked number 11 in the Gaïa Index for 2020. This index
assesses the Environmental and Social Governance (“ESG”) performance of the top 70 small and medium enterprises for
French companies with revenue between €150-500 million.
Interparfums
SA also applies a comprehensive approach addressing issues of corporate, environmental and social responsibility and transparency.
Interparfums SA complies with IS 22716, International Standards for Good Manufacturing Practices, with all aspects of the manufacturing
process, including receiving of raw materials and packaging materials, production and quality control. In this regulatory environment,
regular audit campaigns are carried out for all packaging plants by the quality department based on the ISO 22716 standard in
place. The ultimate purpose of these audits is to ensure that packaging service providers maintain a good level of traceability
for their activities. All plant activities were reviewed: receiving process for raw materials and packaging materials, manufacturing,
packaging and quality controls. These reports demonstrated that Interparfums SA’s subcontractors comply with ISO 22716 Good
Manufacturing Practices and in particular traceability requirements for all perfume production operations. It is also in compliance
with EU directive entitled Regulation on Registration, Evaluation, Authorization and Restriction of Chemicals (“REACH”),
which governs and regulates the safe use of chemicals. Although not a manufacturer, per se, Interparfums SA has taken the initiative
and monitors its suppliers for compliance with REACH, and has commitments from each of them concerning “Substances of Very
High Concern” as listed in appendix XIV of REACH. No supplier of Interparfums SA has advised it of any such hazardous materials
in any of Interparfums products to date.
Interparfums
SA monitors the outsourcing of the entire production process of its manufacturing partners with expertise and accountable leadership
in their respective areas. These include producers of juice, glass, caps and cardboard boxes and packaging companies. We take
environmental issues into account at each of these phases, and in particular regarding the choice of materials used for components,
waste management and reducing the carbon footprint.
In
the US we are also a good corporate citizen. Like our French subsidiary, we are not a true manufacturer, but we regularly monitor
our subcontractors, suppliers and fillers for their compliance. In addition, our subcontractors and fillers are subject to inspection
and audit from our various licensors for compliance with all aspects of law. One of our largest pump manufactures is the recipient
of the 2020 Bronze Medal from EcoVadis for its corporate social responsibility rating, and a large glass bottle manufacturer was
awarded gold metals from EcoVadis for its corporate social responsibility rating two years in a row.
In
our US operations, we do not use any banned ingredients or components and use sustainable ingredients where practicable. Some
componentry (glass/folding cartons) is also recyclable where practicable. For example, our new Abercrombie & Fitch Away
fragrance uses glass and folding cartons that are 100% recyclable, and the carton liner is 100% recyclable and biodegradable.
We are also licensed to use the “Green Dot” logo on our packaging, and that licensing fee goes towards packaging recycling
efforts of consumer goods. Lastly, our product development team works with our fragrance houses – all very sustainable in
their own right – to incorporate sustainably sourced ingredients in the fragrance oils used.
In
addition to our production operations complying with applicable law, our managers, supervisors and traffic coordinators in our
New Jersey distribution center undergo the following training in order for us to comply with Dangerous Goods Regulations. Compliance
requires training and certification to deal in hazardous materials to prevent damage to the environment. The two main certifications
are:
International
Maritime Dangerous Goods (IMDG) Dangerous Goods Training – 3 year Certification for Ocean Shipment and International
Air Transport Association (IATA) Dangerous Goods Training – 2 year Certification for Global Air Shipments.
Further,
our distribution center in New Jersey has in-rack sprinklers to accommodate our hazardous material products. Our fragrances, Class
9 – Consumer Commodity ID8000, are registered with American Chemistry Council, Inc. (known in the chemicals industry as
Chemtrec). Chemtrec has a 24/7 hazardous materials emergency communications center, which provides immediate assistance for incidents
involving hazardous materials of any kind.
12
Marketing
and Distribution
Our
products are distributed in over 120 countries around the world through a selective distribution network. For our international
distribution, we either contract with independent distribution companies specializing in luxury goods or distribute prestige products
through our distribution subsidiaries. In each country, we designate anywhere from one to three distributors on an exclusive basis
for one or more of our name brands. We also distribute our products through a variety of duty free operators, such as airports
and airlines and select vacation destinations.
As
our business is a global one, we intend to continue to build our global distribution footprint. For distribution of brands within
our European based operations we operate through our distribution subsidiaries or divisions in the major markets of the United
States, France, Italy and Spain, in addition to our arrangements with third party distributors globally. Our third party distributors
vary in size depending on the number of competing brands they represent. This extensive and diverse network together with our
own distribution subsidiaries provides us with a significant presence in over 120 countries around the world.
Over
45% of our European based prestige fragrance net sales are denominated in U.S. dollars. We address certain financial exposures
through a controlled program of risk management that includes the use of derivative financial instruments. We primarily
enter into foreign currency forward exchange contracts to reduce the effects of fluctuating foreign currency exchange rates.
The
business of our European operations has become increasingly seasonal due to the timing of shipments by our distribution subsidiaries
and divisions to their customers, which are weighted to the second half of the year.
For
our United States operations, we distribute product to retailers and distributors in the United States as well as internationally,
including duty free and other travel-related retailers. We utilize our in-house sales team to reach our third party distributors
and customers outside the United States. In addition, the business of our United States operations has become increasingly seasonal
as shipments are weighted toward the second half of the year.
Competition
The
market for prestige fragrance products is highly competitive and sensitive to changing preferences and demands. The prestige fragrance
industry is highly concentrated around certain major players with resources far greater than ours. We compete with an original
strategy, regular and methodical development of quality fragrances for a growing portfolio of internationally renowned brand names.
Inventory
We
purchase raw materials and component parts from suppliers based on internal estimates of anticipated need for finished goods,
which enables us to meet production requirements for finished goods. We generally ship product to customers within 72 hours of
the receipt of their orders. Our business is not capital intensive, and it is important to note that we do not own manufacturing
facilities. We act as a general contractor and source our needed components from our suppliers. These components are received
at one of our distribution centers and then, based upon production needs, the components are sent to one of several third party
fillers which manufacture the finished product for us and then deliver them to one of our distribution centers.
Product
Liability
Our
United States operations maintain product liability coverage in an amount of $10.0 million, and our European operations maintain
product liability coverage in an amount of €20.0 million (approximately $24.5 million). Based upon our experience, we believe
this coverage is adequate and covers substantially all of the exposure we may have with respect to our products. We have never
been the subject of any material product liability claims.
13
Government
Regulation
A
fragrance is defined as a “cosmetic” under the Federal Food, Drug and Cosmetics Act. A fragrance must comply with
the labeling requirements of this FDC Act as well as the Fair Packaging and Labeling Act and its regulations. In addition, various
jurisdictions prohibit the use of certain ingredients in fragrances and cosmetics.
Our
fragrance products that are manufactured or sold in Europe are subject to certain regulatory requirements of the European Union,
such as Regulation number 1223/2009 on cosmetic products, but as of the date of this report, we have not experienced any material
difficulties in complying with such requirements.
Trademarks
The
market for our products depends to a significant extent upon the value associated with our trademarks and brand names. We have
licenses or other rights to use, or own, the material trademark and brand name rights used in connection with the packaging, marketing
and distribution of our major products both in the United States and in other countries where such products are principally sold.
Therefore, trademark and brand name protection are important to our business. Although most of the brand names we license, use
or own are registered in the United States and in certain foreign countries in which we operate, we may not be successful in asserting
trademark or brand name protection. In addition, the laws of certain foreign countries may not protect our intellectual property
rights to the same extent as the laws of the United States. The costs required to protect our trademarks and brand names may be
substantial.
Under
various license and other agreements, we have the right to use certain registered trademarks throughout the world for fragrance
products. These registered trademarks include:
●
Abercrombie
& Fitch
●
Anna
Sui
●
bebe
●
Boucheron
●
Coach
●
Dunhill
●
French
Connection
●
Graff
●
GUESS
●
Hollister
●
Jimmy
Choo
●
Kate
Spade New York
●
Lily
Aldridge
●
Karl
Lagerfeld
●
MCM
●
Moncler
●
Montblanc
●
Oscar
de la Renta
●
Paul
Smith
●
Repetto
●
S.T.
Dupont
●
Van
Cleef & Arpels
In
addition, we are the registered trademark owner of several trademarks for fragrance and beauty products, including:
●
Rochas
●
Lanvin
●
Intimate
●
Aziza
14
Human
Capital
As
of January 1, 2021, we had 396 full-time employees worldwide. Of these, 289 are full-time employees of our European operations,
with 107 employees engaged in sales activities and 182 in administrative, production and marketing activities. Our United States
operations have 107 employees, and of these, 21 were engaged in sales activities and 86 in administrative, production and marketing
activities. We do not have collective bargaining agreements relating to any of our employees, strive to maintain an inclusive
environment free from discrimination of any kind, including sexual or other discriminatory harassment and, believe that our relationship
with our employees is good.
Our
employees are one of our most valuable assets, and fostering long-term relationships are beneficial to the continuity of our business.
After experience and expertise in the respective fields of employment, we look for dedication and loyalty among our employees,
as we believe having long-term staff members benefits our company. All of our executive officers have been with us for more than
twenty years, and we have several senior and upper level staff members, who have also been with us long term. These long-term
executives and employees believe that our company and their co-workers are an extended family. Their efforts and dedication are
what allow our company to prosper.
The
safety of our employees is of paramount importance to us. In the early stages of the COVID-19 pandemic we experienced brief closures
at all of our locations, and adapted to working remotely. Upon reopening, we implemented prevention protocols to minimize the
spread of COVID-19 in our workplaces. These protocols, which remain in place, are in compliance with the Centers for Disease Control
guidelines and state requirements.