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Ecommerce on Tap is a world where Supply Chain meets storytelling. Join Nathan Resnick and Aaron Alpeter each week as they offer insights into the backend of successful businesses. Brought to you by Sourcify and Izba Consulting!
Aaron Alpeter (00:00)
Le Labo becomes simply impossible to ignore They had no outside capital. No prolonged brand development phase. No traditional product roadmapping. No wholesale rollout. No exit plan
Nathan Resnick (00:16)
Hey, welcome back to Ecommerce on Tap brought to you by Sourcify and Izba. I'm your host, Nathan Resnick, joined by my co-host, Aaron Alpeter. And for those joining for the first time, you want to give a quick introduction of what we do on Ecommerce on Tap.
Aaron Alpeter (00:30)
Absolutely. So every episode we take a well-known DTC company. We tell their founding story, reverse engineering their supply chain, talk about their exit potential. And this season we're focusing on fragrance. And so we've done deep dives into the industry itself, into Phlur, into DedCool And I'm really excited for today's episode as well.
Nathan Resnick (00:50)
So am I, but before we dive in, gotta ask, were there any quick tidbits that caught your eye the past week?
Aaron Alpeter (00:57)
Yeah, I was actually at Cosmoprof in Miami, which is a large beauty conference, kind of very international flair. So a lot of Latin American countries or suppliers would come to Miami and you have people from all over the world there. And the fragrance section was just a complete takeover. mean, there were booths, if you can call them that, that were probably like 100 feet by 100 feet. They had like live violin that was going on. They were giving out champagne.
all to sell a fragrance. And so I learned very quickly how much money there is in fragrance and how much money there is to be had in these sorts of trade shows.
Nathan Resnick (01:37)
That's awesome. Any key takeaway from it?
Aaron Alpeter (01:42)
Yeah, I sat through a couple of sessions and there was one thing that stuck out to me is that in Latam so South America, ⁓ over the last five years, the top five fragrance brands had a market share of 46 % that dropped to 38%. And so the top five brands have lost eight percentage points of market share. And this is despite those brands growing at 15%. So they're growing at 15 % double digits and they're still losing market share.
And that's because the rest of the market is growing at 27%. And it just was really interesting kind of what we talked about over the last couple of episodes where consumers are actively searching for something new. And so even if you're a legacy brand, even if you're doing hundreds of millions of dollars, and even if you have double digit growth, the market is still moving on looking for something new.
Nathan Resnick (02:30)
That's awesome, very cool. Yeah, this season's been pretty fun. We just covered DedCool and Phlur and now today we've got a pretty amazing story as well. So I'm excited to dive in.
Aaron Alpeter (02:42)
Yeah, we're going talk about Le Labo and this episode is going to focus on an acquisition that reframed how the industry approaches fragrance. And I think Le Labo is kind of the perfect example of showing how fragrance has changed and evolved to get to where we are today. And when we look back at major beauty and fragrance acquisitions of last 50 years, it's pretty easy to say, you know, they were all about scale. was built bigger distribution, bigger launches, bigger brands, but that's not really the case anymore.
Nathan Resnick (03:10)
Yeah, I think what they were really about was risk, just a very different definition of risk than we use today.
Aaron Alpeter (03:15)
You're right. In the eighties, nineties, and even the early two thousands, risk meant being too small. That's the one thing you didn't want to do. You didn't want to be too narrow. You didn't want to be too dependent on a single founder or a single point of view. And if you wanted to be acquired, you had to prove that you could be predictable. And so you optimize for things that would travel very, very well. This is why you had so many celebrity brands, celebrity partnerships. There's a lot of focus on department store velocity and launch after launch, after launch of all these new fragrances, flavors, flankers, et cetera.
And so if you could do that, you have the opportunity to fit cleanly inside a portfolio and you wouldn't surprise anybody. And that was what was considered to be success.
Nathan Resnick (03:54)
But I think somewhere along the way that equation flipped, right? Because once everyone could scale, scale stopped being scarce. And I think what became scarce was actually relevance. And so suddenly the risk wasn't that a brand was too niche. It was that the risk was that it didn't mean anything.
Aaron Alpeter (04:13)
I think you're absolutely right. And that's the shift that we are really going to dive into today on this episode. It's not when conglomerates start buying smaller brands. They've always done that, but it's when they started to buy restraint, taste, and credibility as really the core assets, the core thesis for why they bought a brand.
Nathan Resnick (04:30)
Yeah, I think that leads us to a very different definition of success, right? Not, this brand be everywhere, but should it be really?
Aaron Alpeter (04:41)
Right. And once that question enters the acquisition math, everything changes and what founders build, what buyers look for and what exits are actually rewarded.
Nathan Resnick (04:51)
Yeah, and I think you understand that shift. We should look at how acquisitions work before in this space and why a brand like Le Labo ends up sitting right at the center of that change, really.
Aaron Alpeter (05:04)
Yeah. we're just going to start within the 1950s. So we'll call this the pre conglomerate era. And this is really something where fragrance is a craft. It's not really an asset. And in the mid 20th century, fragrance brands weren't acquisition targets at all. Most fragrance houses were founder owned single brand businesses.
And they were tightly linked to couture houses or individual perfumers. And, and control really lived with these founders and their families and growth in these types of businesses really came from launching new scents ⁓ expanding into more department stores and fashion licensing. And as a result, there was very little m&a in this space. fragrances were seen as products, not platforms. so success meant having cultural events and longevity.
not exit potential. And there really was no incentive to design a brand to be acquired yet because the buyers on the other side of the transaction didn't really exist in any meaningful number. And then so that's kind where things were in the 1950s, 1960s, 1970s. And then when you get to 1980s, and you start to see fragrances become a little bit more of an asset class. And this is where the market begins to change a little bit. Large companies woke up to the fact that fragrances had really attractive margins. And that
brand equity often outlived the founders who started these perfume brands. And so they said, hey, you we can leverage all of our distribution capability and we can extract even higher margins by putting these things together. And so this is where you see companies like Estee Lauder, LVMH, L'Oreal start to assemble portfolios and they start to acquire brands instead of building everything in-house. And the logic on their side was actually pretty simple. They said, let's buy brands that are already working. Let's keep the front end pretty distinct.
but let's centralize the back office, the supply chain, the distribution, all that sort of stuff. And we're going to grow these things through skill. If they're only selling in France, we're going to take them to the U.S. If they're only selling in North America, we're going take them to Asia. And these acquisitions were typically full acquisitions. They were focused on size, reach, predictability, those sorts of things. And these acquirers would ask questions like, you know, can this brand get big without creating any surprises for our business? And so that's really where things were in the 80s. And then you get to the 90s and
the conglomerates themselves start to mature and they start to focus not just on growth, but on cashflow stability. And they really want a durable brand. want ownership control and they become really good capital allocators. And so if you look at Estee Lauder as a really good example, they IPO'd and I think it was 1995, but the family who owned Estee Lauder maintained voting control through like the dual class share system.
And what they did is they, they, they IPO, they owned a percentage of the business and then they use cash from operations to purchase share of the non-voting stock. And so what this ended up doing is they ended up offsetting the delusion ⁓ and, basically tightening their control of the business, owning a higher and higher percentage without actually having to buy anything themselves because they remove the other shareholders. And so this kind of created this liable for them where they said, Hey, we're going to grow these brands. We're going to generate cash.
We're consolidate ownership. going to be, we're going to acquire rinse, repeat, keep doing that over and over again. And so by the early two thousands, these companies were really no longer collections of brands. were capital allocation machines. And this is why they leaned so heavily into celebrity fragrances because they were very predictable. They were scalable. They were replaceable. You know, if you, one celebrity fell out of favor, you just get another one and kind of keep that fly while turning. And so success was really defined by volume and velocity, not really by, by meaning of any particular brand.
Nathan Resnick (08:46)
Yeah, I mean, this feels like big business as I would imagine it and something that you would look to do to maximize a share price, scale of profits. I'm curious. I mean, how did consumers respond to this?
Aaron Alpeter (08:58)
That's a good question. So as we talked about on some of the other episodes in the early 2000s, consumer behavior began to shift consumers started moving away from celebrity driven launches and kind of scent profiles that all smelled the same. And they felt more attracted to founder stories, craft authority, authenticity. And this didn't mean that the acquisition strategy changed, but they, there was some doubt that was interested into these conglomerates as a result of consumer shift.
And so they began to experiment with prestige and niche acquisitions, more as a hedge to what they were doing versus anything else. And so at the time, these deals were viewed as exceptions or brand building or credibility plays. And so one example is an acquisition that Estee Lauder did in 2006 of a brand called Frederic Malle And it was a really small brand at the time. It was only doing 20 to $30 million. They bought the whole thing, but they kept Frederic Malle, the perfumer.
on as the creative director. So it was an interesting kind of play there where we're in the past, they may have purchased it, given them money and sent them on to an island somewhere. They said, no, keep working with us. Let's keep doing what you were doing, but just under the Estee Lauder family. And they. really did something where they were emphasizing the perfumer in this case, so it wasn't a celebrity that they were leaning into. It was Frederic Malle, the person who was coming up with these perfumes, who was the hero of this particular brand.
And so he would go through and author and sign each scent that he created. ⁓ and he positioned himself as more of an editor, not necessarily a marketer. And, ⁓ you know, Estee Lauder tried to professionalize the backend and wanting to also protect the uniqueness of the front end. I think we're going to come back to this example a little bit, but you know, both the founders and the acquirers generally view this as an exception when it came to deals that were happening in this space. And if you look at the other deals that were going on around this time,
You've got Estee Lauder purchasing other brands. You've got COTY, which partnered with Britney Spears and Calvin Klein and Marc Jacobs and Adidas, was throwback to middle school Aaron. That's what I wore for a little bit. L'Oreal acquired YSL Beaute in 2008 for 1.15 billion. And so this was a massive global distribution and a strong licensing deal. And I didn't know about this. Did you know that P &G used to own perfumes and fragrances?
Nathan Resnick (11:19)
I didn't know. I had no clue.
Aaron Alpeter (11:20)
Yeah, it's kind of odd. They, so they, they purchased Gillette in 2005 and Gillette actually had some fragrance brands that went with that acquisition. And they tried to run these brands for about 10 years, like you would with CPG. but they ended up selling these to COTY. So these were like Gucci, Hugo boss Dolce and Gabbana I mean, could you imagine P and G owning Gucci and trying to deal with that? Like I just, couldn't figure that out.
Nathan Resnick (11:43)
Yeah, that's pretty wild.
Aaron Alpeter (11:45)
Yeah.
So, you know, I guess to summarize, if, if you were a founder who is building a fragrance brand for most of the last couple of decades, there was a very specific model that conglomerates said that they were rewarding get big quickly, build massive distribution and aim for a fragrance that's universal. And this is what people did. And what's so interesting about Le Labo is that they completely rejected it. And in doing so quietly changed how founders think about what success and fragrance actually looks like.
Nathan Resnick (12:13)
Yeah, I mean, I think you hit the nail on the head, right? And I think now in order to meet our founders, we've got to go to New York in the early 2000s where two Frenchmen, Fabrice Penot and Eddie Roschi decided they want to build a different type of fragrance house. And unlike the founders of Phlur or DedCool that we previously covered who were self-taught or ⁓ industry outsiders, Fabrice and Eddie were basically as inside as you could get in this industry.
Fabrice worked in a large fragrance house where he really was exposed to the kind of industrialized fragrance development, trend driven launches and marketing led product decisions. And Eddie, on the other hand, had a background in fragrance distribution and retail, specifically bringing fragrance to market versus just creating it. And so he understood how fragrances were sold, how stories were constructed and how retail shaped perception of fragrance.
In other words, they both understood exactly how the current system worked. And in fact, we're kind of turned off by it. And so they both share the frustration with how fragrance is being treated as a kind of disposable and a belief that the industry had really actually lost respect for the product itself. And so I think for them, it was kind of a sense of ritual for fragrance that had been stripped away in favor of mass marketing, celebrity deals and the likes.
So they decided to form a partnership, not necessarily to find white space in the market, but more so about correcting a direction that they felt the market had gone wrong.
Aaron Alpeter (13:52)
is so interesting because you can definitely tell that they loved fragrance just by what you were saying there. What exactly did they feel was wrong with the market? What were they trying to correct?
Nathan Resnick (14:03)
Yeah, I mean, was a kind of few things that stuck out to me. think number one, they rejected companies treating fragrance as marketing artifact instead of actual product. So, you know, at this point in the fragrance industry, there was a ton of celebrity led launches, seasonal releases, and just, you know, scent profiles that were driven by trend reports. ⁓ And they really believe fragrance had to be had become too loud and too empty.
think secondly, they rejected the idea that faster meant better. And so they pushed back and kind of rapid flanker cycles, constant novelty, and just launch velocity as a success metric. And thirdly, I think they believe that the push to make universal fragrances was producing these kind of forgettable products, I.e. fragrances that, you know, designed to offend no one. They wanted to, you know, stand out with their fragrance.
really be different and most fragrances kind of have this broad appeal at the expense of character. And so I think to be clear, they decided when they were founding their own fragrance house that they had kind of several core beliefs, right? Number one, fragrance should be treated like a craft, not content. Number two, perfumers should be credited, not hidden. Three, products should age, not expire. Four, a smaller audience that cares better than a mass audience that doesn't.
Number five, last but not least, the ritual and the process matter as much as the formula here.
Aaron Alpeter (15:32)
Wow, that's I love those five things there. It seems that they had a very specific mindset and I would imagine were kind of rare at the time. How did they find each other? You said they were both in New York, but I mean, there's lots of people in New York and like, how do you how do actually find this and say, hey, we want to do this?
Nathan Resnick (15:47)
Yeah, I mean, I think they were actually noticing these same things independently, right? So, you know, the emptiness of fragrance, the, know, overall reliance on marketing language, you know, all of these things, they both noticed independently and they were both, you know, deep insiders in the industry. But I would say they were kind of uneasy insiders because, you know, they knew each other tangentially by being in the same industry and, having same conversations and retail environments.
you know, being in the same culture spaces in New York, but they both, you know, felt that fragrance had become more ⁓ performative and it was all surface level, didn't really have a center. And they were just kind of lost in this meaning of what fragrance, you know, had become. And so when they connected more directly, they really quickly realized that they had this shared conviction that the industry wasn't broken financially. It was more broken from a, you know, philosophical
matter, right? And so most brands here at the time were solving for scale, not, you know, sincerity. And they felt that fragrance, you know, needed to slow down. ⁓ but, know, on the other hand, in order to slow down, they decided to tackle this and move extremely, extremely quickly. It went from this idea to launch and something like, you know, six weeks, it was pretty crazy. So 2006, they found a small space in New York and basically went to work on designing a store.
that kind of looked more like a working lab as opposed to a temple of luxury. And so they took a different approach. They decided to compound fragrances on site. So they stripped down everything to bare essentials. And they did this with a massive scent of urgency, not necessarily building for an exit, but think really just building based on a feeling that something like this needed to exist. And so you can imagine walking into their first store,
It looks more like a fragrance house than an actual luxury store. And I think was just so different than what was happening in the market at this time. And I think it was a brand that's built by people who rejected this kind of acquisition logic of their time. And eventually became one of the clearest signals that the logic itself had changed in this industry.
Aaron Alpeter (18:07)
Yeah, I just keep going back to this this idea of like, you know, you and I meet each other. We hit it off. Probably have a good conversation at a conference or an event. And then six weeks later, we're like, yeah, let's go start a store. And I think it like just that speed of idea to launch and really a matter of weeks is really unheard of, especially when you're doing this perspective where it's a labor of love versus a very clear exit mentality. Right. So I think it could be different if you are like, hey, I think we can make a lot of money in this. Let's let's start something and sell it in a year.
That's a different thing when they said no look we we don't know if anybody's ever gonna sell this but this should just exist and When you we peel back and look at it nothing about the early decisions that they made Looks like a company that was being built for an acquisition and yet every one of them ends up being a reason why Le Labo becomes simply impossible to ignore They had no outside capital. No prolonged brand development phase. No traditional product roadmapping. No wholesale rollout. No exit plan
and
the first store Nolita really helps solidify what the brand was and wasn't. I think like Nolita is an interesting location as well if you know New York well, because it's not a luxury destination. It's not Fifth Avenue. It's not Soho. It's a place where people go to discover things, not really to be sold to. And as you mentioned, their store is really interesting. There's a great YouTube video maybe we'll put in the show notes that will kind of walk you through what it is like to be in a Le Labo store. I mean, it's very...
Artisan it's you know people are are you know taking out the the lavender and and the florals and kind of laying it on table and putting it together and it feels much more like an apothecary or working lab where something is being done as opposed to a product being displayed and Just you know the the fixtures like the raw wood and steel and glass and you know, nothing's ornate There's no velvet no gold it really feels functional as opposed to a temple of luxury is what you'd normally see these things and so
Even their bottles are very utilitarian. there it's almost as if the product itself is slightly unfinished. And what it does is it kind of has this element where you may walk past and be curious to say, what is this? Uh, you know, is this a coffee shop? Is this something else? But when you step in, that curiosity pulls you in even further. And they, did this, uh, in a phenomenal way. And there are a few principles that they execute on. thought were very good. The first one is that.
their scents are numbered, they're not named for fantasies. And so we'll get to some of those like, know, Rose 21 or something like that. ⁓ And they also saw themselves not really as founders of a brand, but more editors of an experience or editors of a fragrance house. And so they really didn't wanna be known as the Le Labo people, you know, the Le Labo founders. They were just like, hey, we're here, Le Labo is what it is, we're going to curate this, we're going to steward.
you know what this thing is and they they didn't try to demonstrate the craft of fragrance making for a marketing effect. They were actually compounding and making these fragrances in store and so you know everything was was made on site. So you know the bottles were filled to order the labels were printed in real time with the fragrance name the batch name the city and even the customers name in the bottle and it what this did is a few things as well as it it helps slow down the purchase process.
for the consumer and it made that consumer part of the process. And it turned buying a fragrance into witnessing a fragrance. It's just very, very different than anything else that's out there.
Nathan Resnick (21:45)
Yeah, I mean, it sounds like a pretty amazing experience to be honest and very different than, you know, really any other fragrance shopping experience at the time. Does this mean that each fragrance was custom for each person or how did that work?
Aaron Alpeter (21:59)
That's a good question. You would kind of think if they're compounding everything that they would be, you know, making unique fragrance for each person. But the answer is no. They were actually incredibly disciplined instead. So if they had chosen to have custom blended fragrances, then this would have broken the consistency, would have turned the brand into a novelty and just basically making it impossible to scale. Instead, what they had was fixed core formula for each fragrance.
And what ended up being unique was when it was made, where it was made and who was made for. So early on Fabrice and Eddy were the ones that were behind the counter that were testing and refining the ideas. And they created fragrances like Rose 31, which was, um, subverted the traditional Rose by making it dry, woody, uh, almost, uh, amolek. Uh, and then you've got, uh, Vetive 46, which was very austere. It was not mass friendly. It wasn't meant to be mass appeal. And these early Le Labo fragrances were
weren't designed to win over everybody, which I think was kind of the point. They wanted to have familiar notes, but ones that were treated differently. And if you stopped optimizing for comfort and started optimizing for the actual smell, it'd be something that's very interesting. so when they launched this, again, after just a couple of weeks of having the idea, they didn't have a big launch party. They didn't have a big influencer campaign. They didn't have a big press splits.
at the time when most fragrance brands were inventing fantasies about these other worlds or who you could become, Le Labo was listing batch numbers and ingredients and it wasn't trying to tell you who you could be. It was just telling you what it was. And they really relied on traffic in Nolita and word of mouth. And they would have people who would stop by and then bring their friends saying, hey, you have to see this. And so their growth, their launch was really slow.
It was socially motivated, was very credible, and they didn't try to explain kind of who they were initially, they just let people ask questions about what the experience was and who they were.
Nathan Resnick (23:52)
Yeah, I mean, from my research, seems that the reaction from consumers was kind of mixed, right? I mean, some people didn't get it and they were just kind of craving that traditional luxury, you know, dynamic. And this store wasn't for them, obviously, right? But the people that did get it, they really talked about it a lot with their friends. They came back and kind of treated it as if it was, you know, their place. so without really knowing it at the time, what they were doing with this one store was proving that, you know,
If we treated fragrance like a craft again in a public setting, we would get people to come back, draw attention and they would tell their friends. Right. And so I think, you know, what this, this proved is that people slowed down and paid attention and attached the meaning to what was there in this first store. And so they felt that being kind of unoptimized in this experiment setting was something that was, you know, really kind of able to build upon and enable them to kind of, you know,
expand despite being a small store and having this heavy founder involvement. And so they felt that the store was successful enough to keep going. this, I think, success didn't necessarily immediately trigger expansion thoughts. It triggered more confidence. so by 2008, they still didn't have lines out the door or explosive sales. But what they did have is some very, very loyal customers. And so instead, they kept saying that their customers were coming back.
And kind of that ritual of the sale experience, you know, didn't feel stale in the second or third visit for the customers. so, you know, I think this told them that there wasn't this kind of one-off curiosity purchase that they had, you know, real loyal customers. so, you know, they started to add a small number of people to train them to support production and retail operations, but, know, they still weren't doing any marketing or, you know, really focused on growth. so by early 2010s,
They had actually expanded into multiple stores. The first one was in New York and then a handful across global cities. so they kind of, I think, sought to treat these stores as local outposts, not clones of the one they had in Nolita. And so they emphasize in-store compounding and labeling, and they minimize overall skew expansion. And so what they wanted to protect against, in hindsight, I think, was overexposure of the brand.
and a loss of ritual or kind of just turning into this showroom instead of a workspace. And so when they opened another store, it wasn't about just more distribution. It was about, can this still feel real here? And can we craft this experience here? And so as they began to expand their store count into the highest single digits, they recognized that they needed better infrastructure. They needed a stronger backend, more consistent training, a reliable supply chain.
and they began to kind of professionalize everything quietly. And so they were still very much founder led, they were still very private, but they were a bit allergic to the growth theater. And so their hiring philosophy was really about finding people who would help them preserve what they had built as opposed to people that could help them scale faster. And I think this is kind of a bit counterintuitive, but really kind of honed in on that notion of staying true.
to the craft that they really originally set out to build.
Aaron Alpeter (27:13)
Yeah, that's a great way to look at it. And the way you grow your team determines how you're going to grow your business. I think what's interesting to me is the product strategy. And I think we should dive in that for a little bit more detail. So generally speaking, they had about 15 to 20 fine fragrances in their permanent collections. But they also had a small number of city exclusives. So meaning you couldn't get the same fragrance in London that you were getting in New York. And it was unique to that city or unique to that store.
In general, their products are luxury products. So a 30 milliliter bottle often sells for over $200. So again, not a small impulse purchase, at least not for me. It'd be something you'd have to go like, OK, yeah, I'm really bought into this. ⁓ But they had this small restrained line of like body care products like soaps, lotions, shampoos, candles. But really, the most important thing is that they weren't focused on what you would expect a fragrance platform to be, which was really focused on seasonal scent churn.
or Constant Flankers or Celebrity Tints. There's no pumpkin spice latte type fragrances out there with a Labo. And when they introduced to fragrance, each one was expected to stand on its own and earn its place in the portfolio. Otherwise they got rid of it. And they didn't lean into mass marketing with these fragrances. So they had to kind of find their own audience with each fragrance. And so generally speaking, they focused on woods, resins, musks, leather, kind of very dry austere notes.
as opposed to sweet floral or things that make you think you're immediately pretty type of fragrances that were common in mass market department stores. So inherently these are very, very different than what you'd expect to see at a Macy's or Nordstrom. And so as a result of doing this, they inadvertently started to avoid obvious gender coding and hyper trendy scent. And their clientele was equally strong among men and women and really resonated with people who
just disliked the traditional fragrant shopping. And so, I mean, as you can imagine where the stores were, their clients were more urban. They tended to be more creative or skeptical of overt luxury. And what was important about their consumer as they got to know them is that they didn't buy their products to smell good. They bought them to smell intentional. I think this authentic baseline they had created
is what led them to have a company defining moment when they launched Santel 33, which is a famous scent that they have. And it was a fragrance that was not engineered to be a hit, right? It was meant to be kind of, you know, another one in the collection. It was inspired by the American West. So think like Marble Man, open landscapes, those sorts of things. And it was built around like a sandalwood leather dry spice sort of structure. And it was very, very simple.
but emotionally very distinct from what was out there. And at its launch, it was really one of many fragrances. It wasn't positioned as a hero skew and wasn't promoted more than the others, but it took off because it did a few things very well all at once. First is it smelled unlike anything else that had been in the market and it presented differently on different people. So it smelled different on you than it smelled on me or someone else's wearing it.
And it was instantly recognizable as a result, but it was very hard to describe. And as a result, it became a signal sent. So not a signature sent, but a signal sent a way for people to say, I'm part of a creative class without having to say anything. so by the early 2010, Santel 33 was everywhere in specific cities, especially in New York or other creative hubs. And it became shorthand for, you're part of our creative culture. And, you know, it wasn't that they had this mass adoption.
by lots of people and you know, which is what Legacy Fragrances have been looking for. But instead they had very dense adoption in the right places which made it feel much bigger than it actually was.
Nathan Resnick (31:10)
Yeah, I mean, I think this is a great segue to 2014 where they basically had grown from one store in New York City to about 30 stores globally. And each one of these locations were high impact stores. They were very much still experience led. We don't necessarily know what their revenue was at this time.
But we estimate it was around $30 million by 2014. so while this wasn't massive for a conglomerate from that type of dynamic, it was still extremely high margin, highly defensible. And most importantly, think, was it was culturally outsized. And so they punched much harder than their weight would have suggested just because this experience led dynamic at each one of their stores was really kind of custom tailored to each.
customer that walked in one of those stores. And so I think what's remarkable is by the time they had multiple stores and real revenue and global relevance, it still didn't look like the kind of company Conglomerates used to buy, right? And so this kind of raises that real question, you know, when did Estee Lauder realize this wasn't a risk, but a real asset that they should look into?
Aaron Alpeter (32:19)
Yeah, that's a great question. And I think by the early 2010s, Le Labo wasn't a cult favorite, right? It is very different, like you said, than the other acquisitions that people would normally look for. But it was quietly being noticed by retailers, industry insiders, and by a lot of the same conglomerates that had once dismissed this kind of brand as being too narrow to actually matter. And at the same time, Estee Lauder was also a very different company than had been in the 90s. And there were a few things that were
that were true simultaneously. They had really mastered scale. had built global distribution and they had built a really good playbook for managing celebrity and designer fragrance licenses. But they'd also proven internally that they could buy niche credibility and that that niche credibility could survive ownership, which is why the Frederic Malle matters so much. So by 2013, Frederic Malle had been owned for about seven years and it had not been diluted from a
prestige perspective. mean, in fact, it had grown steadily, but not explosively. So, ⁓ Frederick Mollet is probably like a hundred million dollar plus brand today, which sounds small. And she realized that it's been doing that without any of the normal tricks that you would usually have. So ⁓ no chasing scale, no chasing celebrities. They did it without burning their authority. And this is exactly what mattered when Estee Lauder was looking at Le Labo because they already had proof that, that taste could compound
over decades. You didn't have to have massive marketing budgets to make something a lot bigger than what you purchased it. And so it really helped Estee Lauder answer a question of, you know, can we help, can we own a brand built on restraint or authority or just good taste and not destroy it, which is actually a really hard question for a lot of conglomerates to answer. But for them, the answer was yes. And that changed what they were willing to look at. And so the lava became attractive because it solved a problem that Estee Lauder knew that they had at the time.
which was by 2013, 2014, younger consumers were disengaging from traditional fragrances. Celebrity driven launches were losing cultural impact and then just department store fragrance traffic was declining. Those fragrances felt interchangeable. But Le Labo offered something that Estee Lauder couldn't build internally. It was a living brand. It had cultural gravity. was this retail model that created belief, not just conversation and a consumer base that was really trusting the brand and not just the logo. ⁓
Really, had, La Labo had also proven out that they could scale the brand without losing coherence of who they were. So they'd done a of those important things before.
Nathan Resnick (34:54)
Yeah, I mean, what's interesting to me about the founders of Le Labo is that they weren't necessarily actively looking to sell the business, right? They were open to the right partner. And so in the mid 2010s, know, Le Labo had really achieved meaningful global demand. And as a result of its store counter operations, they were definitely beginning to become more complex, right? Supply chain rigor was mattering more and more in the years past because of poor supply chain.
would result in potentially breaking the experience that was so core to what they were doing. And so it was kind of like at this point where they realized staying small was no longer realistic and that scaling alone risked kind of recreating the system that they had originally rejected. And so I think they didn't necessarily feel maxed out from a creative standpoint, but they felt exposed operationally. I mean, you could imagine as you grow past 30 stores,
There's just so much complexity that goes into making sure you have the right ingredients and product at each store. so other luxury players are of course aware of Le Labo and we're paying attention. But I think Estee Lauder had two unique advantages in the eyes of the founders in terms of ⁓ one, the credibility within these brands in the case of ⁓ Frederique Malet. And number two, culture and patience to not force the growth of a brand that they kind of thought would.
would kill the culture and the roots of what they had created.
Aaron Alpeter (36:22)
Yeah, this kind of sounds like a unique full circle moment because they had rejected the Fragrance industry and the conglomerates that had defined it for so long. And here they are selling their business to a conglomerate. And I know that they had talked about wanting to refresh and reframe how the industry looked at these things. Do you think that this was them selling out or recognizing they had been successful in reshaping industry?
Nathan Resnick (36:45)
Yeah, I mean, they didn't, they didn't go out and try to find a buyer. Right. And so I think it was more so for them, like trying to find a steward of the brand that could help them where they were weak. Right. I mean, you know, we just mentioned supply chain complexities that I think was really top of mind for them and just operational complexity as they grew. And so, you know, I don't think they were handing off a growth engine. think they were kind of handing off a belief system and asking someone else to protect it. And so I think operationally.
They had to choose to emphasize small batch production at scale. you know, in-store compounding was really the ritual here. And it wasn't obviously for efficiency because there's a lot more efficient ways to produce their products. And so what they were looking for was global expansion with capabilities that would enable them not to have a kind of full industrial kind of homogenous product. They wanted to stay unique to their roots. so their supply chain
I think really became a way that they showed their beliefs as opposed to something that was optimized for, you know, costs or throughput, right? Which is, you know, obviously a lot different than the way people look at acquisitions in general is, how do we optimize costs or how do we, you know, optimize for throughput here? And so I think that was kind of really kind of core. And if you look at the emotional side of the deal, you know, since Eddie and Fabrice were, you know, I think really deeply skeptical of overexpansion or.
marketing driven decision making, they were less interested in a sale price or a scale opportunity. And so for them, you know, in my mind, as I think about how they explore this, they were probably way more about the alignment on what they were able to maintain. Right. And so they prioritize the idea of preserving the creative autonomy, protection of that retail ritual that they created and that their customers came to love and guaranteeing that there was no pressure.
to chase mass market behavior. And so, they didn't want a buyer who'd make Le Labo louder, but someone who would help make it last, which is why they chose Estorlade, and they sold for about $60 million, which for two smaller kind of industry insiders at the time, that to me seems like a pretty amazing outcome for them.
Aaron Alpeter (39:01)
I take $60 million. I don't know about you. Yeah, I think that the initial reaction to this acquisition inside the industry was was pretty muted at the beginning. People felt that this was another prestige brand hedge or credibility acquisition. And for good reason. I mean, if you look at this brand, It's still sub $100 million. It wasn't a massive growth engine at the time. And it didn't fit within the traditional fragrance math.
but following the acquisition, Le Labo didn't behave like a. Expected prestige side project. ⁓ they continue to open stores globally and they really deepen the cultural relevance and strengthen the core Hewlett products. you know, Santel 33 became even more important, but they did this without resulting in overexposure. And even though Le Labo wasn't everywhere where it was, it was unavoidable. And so they had this cultural saturation in the right rooms and the right places.
And eventually the rest of the industry began to recognize that this wasn't a hedge. This was a new type of asset. This was actually something that was valuable. And for founders as well, Le Labo changed how founders talked about fragrance. And as you would hear people pitching things or talking about, you know, building a company, they often cited Le Labo as a case study, not just as a brand they admired, but of the type of exit that they wanted. And so they reframed founder ambition.
where you could build something that was opinionated and reject universality, but still be rewarded with an exit. And so by 2016, 2017, conglomerates start to see that Le Labo deal was really a watershed moment for the industry. And they realized that cultural defensibility outlasts launch velocity and that restraint can create more value than just a breadth of products. And so
they started to look after and buy identity rich brands over marketing optimized ones. so whereas Frederick Millet
that they could own taste without destroying it, Le Labo taught them that taste could be the growth engine. And as a result, mean, you see what would happen afterward. mean, Maison Fraise as Kajirikan is purchased by LVMH in 2017.
This was all about authority, not volume. They preserved the founder identity. They sought to avoid mass market distortion, which is something they wouldn't have done three or four years prior. ⁓ Brieto was acquired by Puig in 2022, and they explicitly said that they were going to protect the creative autonomy, and they used scale very quietly. They prioritize cultural relevance over distribution math. so these deals don't make scent by these other conglomerates without Le Labo as the precedent. And at first,
The industry really treated Le Labo as another careful, prestigious acquisition. But within a few years, became clear this wasn't about owning a beautiful brand. It was about redefining what a valuable fragrance business actually looked like.
Nathan Resnick (41:55)
Yeah, I mean, what's pretty amazing is the results of the Lavo kind of proved that it wasn't just a nice acquisition story, but I think a driver of meaningful results for Estee Lauder, right? I mean, this niche brand is estimated at between 250 and 400 million revenue right now. So while not Estee Lauder's biggest fragrance brand by volume, it's definitely much larger than most niche fragrance brands would ever become and prove that they could.
know, get big without kind of changing their core operating philosophy. And I think it's definitely one of Estee Lauder's most kind of strategically important brands. It's kind of this benchmark for managing other founder driven brands. And it's a halo brand that, you know, lifts the credibility of Estee Lauder's entire fragrance portfolio. And so, you know, I think this credibility anchor with, you know, extremely strong economics.
which is a relatively new role for larger beauty conglomerates, but it's one that only exists because La Labo and Estee Lauder proved it could work. And so you can imagine how Estee Lauder kind of utilized this founder-friendly type of acquisition for other deals that it did in the future, right?
Aaron Alpeter (43:07)
Yeah, absolutely. And think it also proves out a very specific playbook for authenticity driven acquisitions that other companies started to follow. So most of the work that Estee Lauder did was really behind the scenes. They added global supply chain resilience. They professionalized manufacturing and QA at scale. And they also helped with things like real estate and expansion that way. These are the sorts of things that would have been very difficult for Le Labo to build alone without compromising the overall experience.
And in terms of what they intentionally didn't change, they've got the product philosophy and the retail experience basically the same. So even here, products like Centile 33, which have been, have been protected from overexposure is highly unusual for an acquisition of, of a company at this scale. And whereas before Le Labo, the dominant acquisition thesis was we buy scale, we normalize it, we grow faster. Le Labo validated that there was a different equation, right? You buy authenticity, you protect it, you nurture it, and you let it
compound at its own pace over time. And post-Lalaba, you can see the ripple effects clearly. mean, there's a greater emphasis on founder control post-deal. There's more patience around the growth curves and the math that goes into those. And there's more willingness to keep brands culturally narrow, less pressure to make them immediately plug into the machine. And what the Lalaba proved wasn't just that authenticity could survive an acquisition, it proved that authenticity could become one of the most valuable things a conglomerate could own. And so,
Really, once that belief starts to take hold, you don't just change what you buy, you change what success looks like for founders building the next generation of brands.
Nathan Resnick (44:43)
Yeah, I mean, this has been a really interesting episode in terms of how acquisition logic and math has changed, right? I mean, what do you think non-fragrance acquirers or founders should take away from this?
Aaron Alpeter (44:55)
I mean, there's, so much stuff here. think that this is a great blueprint of how. Acquire should buy startups. I think so oftentimes they, they buy it and try to mess with the front end and miss, you know, they end up ruining a lot of the value of what they purchase, but specifically for founders, think Le Labo didn't change how fragrance brands are built, but it changed what acquirers thought was worth buying. And that's a much harder thing to undo. And so I think that's like the paradigm shift of, of really what stuck with me for this episode.
⁓ a few takeaways that had for founders is just how important it is to build coherence over coverage. And Le Labo didn't win by being everywhere. It won by being unmistakable itself, wherever it showed up. So much better to be, you know, narrow and very deep than, you know, an inch deep and a mile wide. ⁓ if your brand can't explain what it refuses to do, it's really not defensible. And this cultural density really beats this broad awareness.
Dense adoption in a narrow cohort is really more valuable than shallow awareness everywhere. And you don't have to build for an exit, but you have to be legible at an exit. so Le Labo wasn't built to sell, but by the time it did, it had very clear principles, repeatable processes, and proven durability. And so I think the big lesson for me was that the best exits don't come from optimizing for buyers,
but it comes by making the acquisition logic very obvious for acquirers.
Nathan Resnick (46:19)
Yeah. I mean, I think for acquirers really my takeaway is that authenticity is measurable, right? Le Labo kind of reframe diligent questions from how fast can this scale to what breaks if we push it right. And then they kind of really, you know, optimize for back and scale and kind of front end restraint. Right. And so Estee Lauder my opinion succeeded because
It scaled the supply chain side of the business compliance and real estate, but left kind of that product philosophy and retail ritual intact. And I think the other side of it is that authority brands are portfolio anchors, not growth hacks. Right? So Le Labo isn't, know, Estee Lauder's biggest brand, but it's definitely one of the most strategically important brands in their portfolio. so, you know, some acquisitions exist to generate cash. Others I think exists at the ceiling of credibility.
for the entire portfolio, right? Because Le Labo is definitely one of those more anchored brands within the Estee Lauder portfolio that a lot of other people in the fragrance industry look up to. I mean, there are so many takeaways here on this episode. We've got to ask you to now like and subscribe to eCommerce on tap. We thank you again for listening in and tuning into this episode. And before we leave our listeners, is there any last tidbit you want to share?
Aaron Alpeter (47:39)
I just think that this is, I have loved going through fragrance so far and I can't believe we've got more episodes coming up on this topic. But Le Labo, what an important story that just shows how one deal can reshape an industry. And so I really appreciate kind of going into this and learning about the right way to acquire an authentic brand versus ⁓ a plug and play that may look good on the spreadsheet.
Nathan Resnick (48:05)
I agree. Well, thanks again for tuning into eCommerce on Tap brought to you by Sourcify and Izba. We'll see you next time.