Beauty And The Beastliness

Profits drop, and things get not so pretty at Elizabeth Arden

If you can't get excited about a $100,000 diamond-studded bottle of perfume, about whether a new fragrance should be called No No, or about aging movie stars, half-dressed Swedish models, and "revolutionary" lipsticks, then the beauty business isn't for you. Don't be fooled by all the glamour and hype: The $10 billion fragrance-and-cosmetics industry is a brutal place--one where reputations are made or destroyed by products that cost practically nothing to make but millions to market.

Joseph F. Ronchetti's abrupt resignation on June 11 shows how brutal it can be. During 14 years as CEO of Elizabeth Arden Co., the 51-year-old Ronchetti survived four different owners and gave Arden's image a makeover. He introduced several high-profile new products and won two prestigious Fragrance Foundation (FiFi) awards for his launch of Elizabeth Taylor's fragrance, White Diamonds.

But Arden, which was bought by Anglo-Dutch Unilever PLC in 1990, hasn't been as profitable as its sister company, Calvin Klein Cosmetics Corp. For Unilever, which saw its North American operating profits drop 8% last year, to $590 million on $8.4 billion in sales, that was enough to force a realignment of the personal-care products division. The upshot? Ronchetti is out and his boss, Robert M. Phillips, 53, is in. Phillips is taking over as Arden's CEO and becomes chairman of Unilever's new Prestige Personal Products Group, which includes the $300 million Calvin Klein fragrance operation. "What you're seeing here is a lot of impatience on the part of Unilever," says Edwin Rice, executive director of image consultant Landor Associates in San Francisco. "They're very tough taskmasters."

STREET SMARTS. Ronchetti will continue as vice-chairman and consultant until his contract expires in August. Reached at his home in Manhattan, he is sanguine about his fate. "Unilever had acquired a group of managers, and we were sort of like hired guns," he says. "To be honest, this did not come as a surprise."

Ronchetti, a former Arden salesman who was hired in 1966 during the regime of founder Elizabeth Arden, had developed solid relationships with the department stores that carried his products. "Joe is one of these scrappy guys who made it on his own street smarts," says one cosmetics industry veteran. "Though he was doing wonderful things in the marketplace, business was not so terrific." Ronchetti concedes that Arden's earnings last year were hurting. "Unilever certainly hasn't gotten a return on their investment as yet," he says. But "we're ahead of profit plans for the year."

ELIZABETH II. The appointment of Phillips, a Columbia MBA who has spent years marketing beauty products for large public companies (table), seems to signal not only that Unilever wants a significant return on its investment, but also that the entire prestige beauty market is changing. "Come on, it's a stupid business," says Joseph Kozloff, a cosmetics and soap analyst at Smith Barney, Harris Upham & Co. "It's glitzy and all that crap, but it's going to have to be much more disciplined as the packaged-goods companies get involved."

Although some on Wall Street speculate that the appointment also signals Unilever's intention to sell off the Arden-Klein division, Phillips says that's news to him. "In the beauty business, there are constant rumors," he says. "That's one I'm not aware of." Says a Unilever spokesman: "We would never comment on rumors." Phillips says his main concern is to stabilize a company that's "really been through a dramatic change." After being owned by the Bank of New York, Eli Lilly, Faberge, and now Unilever, "We really need to get the organization in a more stable frame of mind and focus on being innovative."

Among expected introductions: the U.S. launch of the fragrance Chloe Narcisse, distribution of Klein and Arden products in Western Europe, and a new Liz Taylor fragrance. With all that and more, Phillips figures to remain a busy man in this brutal business of beauty--so long as Unilever keeps smiling.

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