Industry Talks: Bulgari CEO Jean-Christophe Babin & Global Managing Director Fragrances Business Unit Jonathan Brinbaum

 

Jean-Christophe Babin, CEO of LVMH-owned brand Bulgari, gives his views on the challenges in China and how he sees the market evolving, while the brand’s fragrance head Jonathan Brinbaum provides insights into the luxury perfume category

 

How do you see the state of the fragrance market?

Jean-Christophe Babin: The fragrance market is quite resilient and posting sell-out growth in virtually all countries, with China being the exception. But the decline in China is much more limited in fragrance than it is in fashion or in hard luxury. For Bulgari, we are growing thanks to the restructuring we did over the past five years, which involved reducing distribution from 24,000 points of sale to 6,000, revamping our brand portfolio and creating a true high end with Gemme and Allegra, which will be close to 30% of sales this year. We also upgraded the older fragrances so that the whole portfolio remains consistent with the brand elevation, which is driven by our high jewelry and jewelry. This year, we relaunched Omnia with new packaging that raised the quality perception in line with the high-end collection and reduced its carbon footprint. Also, next year Bulgari Man will have a reduced carbon footprint and will be refillable, so this is the direction we are taking.

In addition, we have worked on some icons of the past, which were perhaps a little neglected and became more regional. For instance, Pour Homme is a bestseller in China, but was no longer distributed in the rest of the world, so we re-launched it globally this year and added an EdP; the fact that it is number three in China says a lot about its potential. So there is also a revamp not only of the high end, but the middle part of our portfolio, in terms of quality of the ingredients and sustainability, and a revival of some icons.

Jonathan Brinbaum: In all luxury markets we see that 2025 is going to be slightly softer than the post Covid years. But we are talking about a softening on record-high years, and it is a softening —not a drop. The second point is that fragrances at the high-end retailing at above €200 to €250 continue to have much stronger growth than the core of the market—brands backed by a celebrity and major media and retailing at €100-€130 for 100ml. This is the part of the market that we see suffering the most. China is a different story, as there is a general deceleration of the economy, rising unemployment and the real-estate crisis, which obviously creates a situation where there is less disposable income. But this is affecting not only beauty and luxury; it is an overall economic issue. However, in the other markets, the growth perspective for fragrance remains solid.

 

Could the increased prices of fragrance, especially at the high-end, see consumers purchase less?

Jonathan Brinbaum: Generally speaking, there was a huge pressure on the cost of ingredients, glass and packaging post Covid, and the consumer absorbed a lot of these costs. But there was inflation in every sector. This pressure on costs has slowed and the price increases in 2024 were much lower than in 2023. Yes, fragrance still costs more in 2024 than it did in 2021, but the price increase for 2025 will not be as much as it was between 2020 and 2023.

But to your point, the industry needs to be careful about at which price level the consumer will begin to say no. In some luxury categories, there are doubts from consumers. We need to keep showing that the quality is linked to tangible things—so how we source our ingredients, our perfumers and the quality of the packaging. I’m not saying we can expect clients to follow us if we double our prices, but if you explain properly what you do and why you do it, the consumer understands.

 

How are you dealing with the difficulties in China?

Jean-Christophe Babin: Fragrance is performing better than beauty and is probably around -7%. The perfume market in China is much bigger than all other Asian markets together, except India, which is becoming the other big Asian market. So the market may not be in positive territory, but it’s not a drama.

 

However, given the double-digit growth that China saw for years, its decline is nonetheless a shock for the industry.

Jean-Christophe Babin: Last year and the year before, luxury grew in double digits. This is not normal growth, but post Covid revenge—so we cannot consider the past two years as regular years. If this year a company manages to be flat versus last year it’s a miracle.

The disposable income that was available at the beginning of 2024 was much less than at the beginning of 2023, as 2023 was still full of savings created by Covid. But once they have spent their savings, consumers go back to normal spending patterns.

For some companies, the Chinese were weighting more than 60%, which is deadly. Firstly, Covid and then this crisis, is speeding up a rebalancing. I think most companies had already strategically decided to rebalance, but it was hard for them to shift the balance from China, whose economy was growing at 8% to 9% to other economies where GDP was at +2% to +3%

Bulgari CEO Jean-Christophe Babin

Do you think China’s consumer spend is just normalizing, or is there a deep-seated shift in Chinese consumer behavior and how they are spending and will continue to spend?

Jean-Christophe Babin: Generally speaking, a normal spending pattern has returned worldwide, which is making the comparison versus last year more challenging. When it comes to China, it is the first time that today’s generation of Chinese are up against a crisis—if you are 40 and you entered the workforce when you were 20, you’ve seen only growth, upon growth, upon growth—your salary, your disposable income, your assets, everything has grown. The reaction is perhaps over proportional to the crisis itself. In the West we are used to crises—internally at LVMH we call it a perma-crisis world. This means you have to adapt, be agile and move your resources from one market to another very quickly. Today, if you think about it, China is in an economic crisis, there is a war in the Middle East, there is a war in Ukraine, but luxury is still afloat.

 

But do you see the situation in China as temporary, or will the economy and therefore consumer spend not get better until there are major changes in the country?

Jean-Christophe Babin: I’m not a macroeconomist, but in China it is a real-estate crisis, and real estate takes a few years to digest, so we can imagine that in 2025 China will still struggle. On the other hand, we don’t know what the impact will be of the stimulus measures announced by the Chinese government at the end of September, which are designed to relaunch consumption.

The crisis is a supply crisis—the country has over-built and over-produced. The infrastructure in China is at a maximum, and GDP growth by infrastructure has reached a plateau, so GDP growth now has to come from consumption. There is no other option but to relaunch GDP by consumption because they cannot build more airports and trains.

 

 

Are you worried about that given many luxury and beauty brands’ exposure to China?

Jean-Christophe Babin: Obviously China has been the engine of growth for luxury for the last decade. According to experts, 70% to 80% of the luxury growth worldwide was China-driven, which is obviously far too much. This means that for some companies, the Chinese were weighting more than 60%, which is deadly. Firstly, Covid and then this crisis, is speeding up a rebalancing. I think most companies had already strategically decided to rebalance, but it was hard—almost impossible—for them to shift the balance from China, whose economy was growing at 8% to 9%, to other economies where GDP was at +2% to +3%. Now we have a very short window where it is possible. Firstly, we have no choice, but secondly, it’s a good choice. That’s why it’s time for the US, for Europe, for India. But it’s true that in the future we don’t expect the growth in China that we enjoyed in the past.

China is becoming a mature market, and it will also have to offer more support for an aging population, so tax probably will rise. However, China will continue to be big, because with a population of 1.2 billion, even lower growth is still good. On the other hand, growth probably won’t be plus 20% per year, so we have to find new boosters. There are several in the Middle East—countries like Saudi Arabia—and in Asia, with countries like Vietnam and India; all those countries are showing very dynamic GDP growth. They are where China was 20 years ago on infrastructure-driven GDP and are moving to consumer-driven GDP. They offer a lot of opportunities, but also a lot of challenges. For example, if you want to expand in India today, you have to find a mall. While there are many lifestyle malls, if you want to buy Bulgari jewelry or a Louis Vuitton bag, you have basically two or three malls in India today that have the right environment for luxury. So we are a bit limited right now, but we are pushing a lot of landlords to accelerate—if landlords elsewhere in the world have invested luxury, it’s probably because luxury is profitable.

 

How much of your business was done with China and the Chinese consumer and have you re-balanced?

Jean-Christophe Babin: I can’t say how much, but it is now a reasonable number. I would say if we can keep this percentage in the future, we would be very happy because China continues to be a source of growth—even 5% growth applied to such a large population continues to be a big source of growth. Percentage-wise growth may be less than it used to be, but it is still a lot in absolute added turnover every year, so obviously it would be crazy to dis-invest from China.

 

How do you see the travel-retail market?

Jean-Christophe Babin: Globally travel retail is doing fine, the exception being Chinese—Hainan and Hong Kong are extremely negative and Macau is very negative. The travel destinations that were favored before by the Chinese are less popular than they used to be, and the Chinese are traveling less than before globally for several reasons. One is obviously bureaucracy—for example, the Chinese need a visa to come to Europe. The second point is that there are very few connections, or much fewer than before Covid between China and other destinations, especially the US—I think connections between the US and China are 21% of what they were pre-Covid and connections between Europe and China are 80% of what they were pre-Covid. Today the war in Ukraine means that the Western alliance cannot fly across Russia, which is driving up costs, as the trip is three hours longer, so you need a second crew and more fuel etc. Many Western airlines are stopping their flights to China and to Japan because they can no longer afford to compete with airlines that are not banned to fly over Russia. The consequence is fewer Chinese traveling, and when they do travel, they travel closer by and travel cheaper.

The Chinese have also started to shift their destinations from the major metropolises of the world, which they have already discovered, to secondary cities, and this has reduced their shopping abroad. When you spend time in Milan, Paris, or New York, you are exposed to luxury brands day and night, but if you are in a small village somewhere you will not find these brands. We know that purchasing when traveling is very impulsive, and the impulse stems from the touchpoints—so if you go to places with fewer touchpoints, there will be fewer purchases. There has been a trend towards downtown duty free, but maybe in the future, airport duty free will come back as the main duty-free force, as people will travel less to the big cities with downtown stores, but they still have to go to the airport. So airport duty free could benefit from this slight shift in final destination.

The West is still very much fueled by Americans, who continue to travel, although proportionally less than last year. This summer there were fewer Americas, but they continue to spend quite well—and also people from Turkey, the Middle East and from Europe. There is still a strong dynamic in travel retail, but it’s a bit more skewed towards the West, is depressed in Greater China, and obviously buoyant in Japan and in any territory surrounding Japan, as these nations are very attractive for the Chinese.

 

There is a trend towards lower conversion and lower spend in travel retail. How have you been impacted?

Jonathan Brinbaum: Our basket size in travel retail is bigger this year than last year. We hear that travel retail is at a point where the basket is flattening, but for us it’s not the case. Over the past 12 months, travel retail has been the most dynamic channel for Bulgari, as we had decided to upgrade our locations to only medium high and high-end proposals of the brand and have been negotiating with our partners to get better and bigger space. Travel retail has been by far our biggest investment in terms of channel over the last three to four years, and today our biggest source of growth is travel retail, and within that travel retail Asia.

 

Most other companies have been suffering from the crisis in Asian travel retail, how do you explain your growth there?

Jonathan Brinbaum: In times of crisis, you have two ways to look at the situation: You cope with it, or you see an opportunity, so you push and you gain market share. I’m not saying we did that perfectly everywhere. However, in travel retail Asia over the last two years, we made the bet of investing. This was also because our network was very old in travel retail Asia and so we took the decision to change that and we gained market share.

We see a bit of a softening in travel retail in terms of what clients buy, but that is linked to the general spend decreases that we see in downtown, and I think it’s a correction. After the disaster of Covid, in 2022 and 2023 there was a massive rebound—revenge buying and revenge traveling—but now there is a slight correction. However, travel retail remains a very attractive channel for the luxury business.

For Bulgari fragrances, we will end the year with low double-digit growth, and in travel retail with good double-digit growth. Travel retail is now 30% of our fragrance business.

 

Even without the Chinese traveler and even given the daigou situation?

Jonathan Brinbaum: Overall, the market for beauty and fragrances in China has decreased. But because we completely changed our distribution model in China two years ago—we reduced our network and brought the distribution in-house—and we control our network, we are performing well. Today, if I look at the year to date, Bulgari fragrances is at strong double-digit growth in China, whereas the fragrance market is -7% to -8%.

And even at our boutique in Sanya [Hainan], although the traffic is not the same as it was in 2021, we’re still seeing 30% conversion, so one-third of the clients that enter the boutique are buying, and we are among the top five brands in beauty in the mall with our boutique. But this doesn’t mean that tomorrow we are going to open 50 doors like we have in Sanya. We want to be very careful, see the reaction from clients and be very choiceful about the doors we open and never get into the discount war that the brand was in a few years ago. A lot of brands and retailers are suffering and so they try to make volume by any means. We have the strength to be able to say no. It may cost us a bit of top line business, but we believe it’s the right thing to do.