LVMH Consolidates in Russia as Distributor of Luxury Cosmetics

The French group Moet Hennessy Louis Vuitton has completed the purchase of 100% of the perfume network «Ile de Beaute» after fully acquiring the shares of Igor Denisov, founder of this great Russian distributor, with whom the French group maintained joint ventures. As indicated on its website Île de Beauté has become part of the company Sephora (LVMH group) and occupies a leading position in the market of perfumery and cosmetics for more than 10 years in Russia. The network currently has 140 stores across the country, including an on-line portal that delivers cosmetics to any point in Russia.

The transaction took place in November 2016 and the purchase of the shares would have taken place through the Cypriot company Galonta Hold., owner until now of “Île de Beauté. Let us point out that many Russian entrepreneurs use companies from Cyprus in which they have shares to conduct corporate operations in their country of origin and that is why Cyprus is one of the world leaders in direct investment in Russia. The fact that other leading countries in direct investment in Russia are Luxembourg or the Virgin Islands speaks for itself of the nature of such investments.

Although they have not gone beyond the details of the transaction, the marketing and sales managers of the chain are very excited to belong to one of the most powerful luxury sector in the world, which will certainly give Ile de Beaute the chance to win market share.

A very competitive market with a French accent
«Ile de Beaute» is, by volume of sales, the third specialized retailer of cosmetics and perfumes of Russia, after «L’etoile» and «Rive Gauche». «Ile de Beaute» revenues in 2016 amounted to 300 million euros, to achieve a net profit of around 6.5 million euros. «L’etoile» turnover in 2015 amounted to 1.2 billion euros, «Rive Gauche» invoiced 500 billion euros, according to an estimate by RBK, news agency and market reports.

There have been radical changes in the market since at the beginning of 2010, according to estimates, when the three major networks – “Ile de Beauté”, “Rive Gauche” and “L’etoile” – collectively control more than 63% of the market, The active development of drugstore formats, where not only cosmetics are offered but also, for example, household chemicals, has changed the structure of consumption.

Apart from the specialized perfumeries, dominated by these three large chains, a large part of cosmetics (about 60%) are now sold in drugstores, among which stand out those of Magnit, the largest chain of Russian hypermarkets. Its «Magnit Kosmetiki» cosmetics store formats (€ 1 billion sales in 2015) have grown dramatically in recent years, being very close to the sales of «Létoile», the current leading perfumery chain in the market.

A very dynamic sector in Russia
The Russian cosmetics market (2.2% of the world) occupies the fourth place in Europe after Germany, France and the United Kingdom. The attractiveness of Russia for the perfumery sector is due to the size of its market with a population of 142 million inhabitants, mostly urban, its demography: a third of the population – women between 20 and 60 are the most consumers of cosmetics.

Their average annual expenditure on cosmetics is around 170 euros for personal hygiene and beauty, which implies active spending up to 30% of their salary. The Russian cosmetics market is one of the most dynamic in the world and, despite the acute  economic crisis of the country, has been able to grow at a rate of over 12% per year. The LVMH bet is a winning horse. And more will be soon to improve the Russian economic situation in the upcoming years.

Disclosure: The Luxonomist is not responsible for the views expressed in the article. The text has been written freely expressing their own ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.