Will The Sizzling Fragrance Category Cool Off Next Year?

Fragrance surprisingly gained traction during the pandemic—and it hasn’t stopped. According to market research firm Circana, fragrance was the fastest-growing prestige beauty category in the first half of this year. Looking at beauty retail traffic in the last 52 weeks, market research firm NIQ finds fragrance is “the sole category witnessing growth in in-store visits.”

The strength of fragrance has spurred investor interest, and recent deals in the category involve Bibbi, Vyrao, Ex Nihilo, and D.S. & Durga. During a panel discussion on fragrance at Beauty Independent’s Dealmaker Summit EU/UK on Monday, the panelists universally expressed optimism about the future of luxury fragrance deal flow. They explained that the high prices of luxury fragrances are attractive to investors and buyers as is the ability of fragrance brands to build immersive worlds that connect deeply with customers.

Javier Ferran, the chair of Diageo who sold his stake in the fragrance brand Creed to Kering in 2023, says a top-tier fragrance brand “really needs to be timeless. Ideally this timelessness will come from distinctiveness, whether it’s emotional, whether it is related to packaging…Most strategics in consumer groups want to buy things that on average are more premium than what they already have and grow faster than what they already have.”

To understand whether investors and investment bankers broadly agree with the sentiments shared on the Dealmaker Summit EU/UK panel, for this edition of our ongoing series posing questions relevant to indie beauty, we asked 10 of them the following: Do you believe fragrance will be the fastest-growing prestige category next year? What do you anticipate for investment and M&A in fragrance heading into 2025? What are challenges and opportunities in the category for investors and strategic buyers?

Tina Bou-Saba Investor

We are definitely having a fragrance moment, especially all of those delicious vanilla-based fragrances that I, too, am obsessed with. However, prestige fragrance is relatively expensive, and one’s vanity does get full. I wouldn't be surprised to see perfume growth slow a bit, while mist, mini and dupe growth remains robust. People love to smell good! (That’s of the most important things that I learned when I worked at Victoria's Secret and Bath & Body Works.)

If I had to pick, I'd bet on prestige fragrance or haircare growing fastest next year. Both have strong consumer interest, innovation, premiumization (for haircare) and format extension (for fragrance). To me, it feels like a toss-up. Of course, I could be completely wrong and skincare could explode likely driven by the body category. It's impossible to predict with great certainty.

We saw several large fragrance acquisitions in 2022 and 2023. I have to imagine that there will be more to come over the next 12 months. Fragrance can be a highly profitable category at reasonable scale, making it attractive to both strategic and financial buyers.

It also lends itself to a portfolio strategy, given the niche appeal of brands and scents. I wouldn't be surprised to see acquirors selectively add to their existing portfolios. The most promising emerging brands will be able to raise growth capital at healthy valuations given these industry dynamics.

As with beauty generally, the biggest challenge in fragrance is that it is crowded. The consumer has seemingly endless options, from legacy brands to niche ones. However, given prestige fragrance absolute price points, the unit volume needed to build a $20 million-plus business is far lower than that of other categories. This means that "niche" can still be quite sizable. As an investor, that's one of the things that I love about this category. Investors and acquirors need to determine which "niche" brands have true stickiness (customer love!) and scalability.

Rich Gersten Co-Founder and Managing Partner, True Beauty Ventures

Based on recent trends and industry insights, fragrance is likely to be one of the fastest-growing prestige categories into 2025. Fragrance has shown strong momentum as evidenced by prestige fragrance sales outpacing other beauty categories.

Drivers of this growth include consumers embracing fragrance as an affordable luxury and mood enhancer and the category benefiting from "fragrance wardrobing" trends, with consumers purchasing multiple scents. I expect the growth trajectory to continue, driven by ongoing premiumization in the category, an increased interest in niche and artisanal fragrances and expansion of fragrance into new formats such as hair mists, body sprays and even deodorants.

The fragrance category is poised for increased investment and M&A activity heading into 2025. For strategic buyers, the luxury conglomerates are showing renewed interest in fragrance as evidenced by Kering's $3.8 billion acquisition of Creed in 2023. In addition, other luxury groups may seek to bring licensed fragrance brands in-house and Estée Lauder’s acquisition of Tom Ford represents another example of this trend.

PE firms are more likely to target niche fragrance brands with growth potential, and there has been increased activity in the VC/growth equity world in this area, including TBV’s recent investments in The 7 Virtues and The Maker. Brands of interest to buyers and investors will likely focus on sustainable and clean fragrance brands and brands with unique positioning or storytelling.

Challenges in the sector include (1) market saturation as the fragrance market is crowded, making it even more difficult for new entrants to stand out; (2) increasing scrutiny of fragrance ingredients posing challenges for some brands; and (3) the ability to sustain strong growth after such long periods of historical growth (e.g. home fragrance finally declined in 2023 and 2024 after a meaningful COVID boom).

Opportunities in the sector include (1) increased personalization as technologies enabling custom fragrance creation are emerging; (2) sustainability-focused brands focusing on natural, eco-friendly ingredients and packaging; and (3) cross-category innovation with fragrance brands expanding into home, personal care or wellness categories.

While fragrance faces some challenges, its strong recent performance and evolving consumer preferences make it an attractive category for investment and M&A activity in the coming years. Strategic buyers and investors will likely focus on brands that offer unique positioning, sustainable practices or innovative approaches to fragrance creation and marketing.

ANNA WHITEMAN Partner, Coefficient Capital

Fragrance has certainly been a darling of the beauty world for the last several years at both prestige and mass price points. A number of factors seem to be driving this trend, including prestige fragrance’s ideal position in the realm of accessible luxury, the growth of fragrance as a medium for true self-expression (it’s no wonder that young consumers, striving for distinctiveness have taken to a segment of beauty that categorically can’t be reduced to a screen) and new segmentation within the category (clean, functional fragrances, broadened scent proliferation) driving new consumers to purchase for the first time.

However, there are also several corresponding factors to be mindful of that may hedge the overall category growth going forward: the lower frequency of replenishment relative to other categories of beauty, the more exceptional nature of luxury purchases in the super premium segmen, and the fragmentation of the category as new entrants have rushed to capitalize on growing consumer interest, to name a few.

Additionally, many of the recent acquisitions in fragrance were of longstanding heritage brands (Dr. Vranjes Franzen, Parfums de Marly, Creed), which take time to build, so we may see period of moderated M&A activity while newer niche brands take time to build out the landscape. I think this represents a great opportunity for investors to stake bets on which subsegments of fragrance they think will drive consumer interest in the near term and ultimately scale to a level suitable for renewed M&A interest.

MADELINE KAPLAN Partner, Selva Ventures

I believe the prestige fragrance category will continue to show strong growth in 2025. While other beauty categories will see a slowdown in price increases, fragrance is uniquely positioned as a form of self-expression.

Similar to fashion, we are seeing the rise in popularity of “quiet luxury” where people are buying high price point products with exceptional storytelling. Additionally, more people who never used fragrance or maybe stopped during COVID-19 are coming into the space as there are more gender neutral and clean options.

We have seen a lot of investment in fragrance given the category's growth and margin profile. The biggest challenge when it comes to M&A will be the fragmentation, competition and ability to convince strategic buyers that the brand/storytelling resonates and has staying power.

Some of the most successful high-end fragrance brands took decades to build and grew slowly with four-wall presence before eventually building a ground swell of interest and reaching an exit. Emerging brands should be patient and stay focused on profitability and deeply connecting with their customer.

ANDREW ROSS Senior Advisor and Venture Partner, XRC Ventures

Fragrance still has significant runway and momentum. It is in many ways the most personal and emotional category, and consumers remain fascinated with it. Younger consumers especially use more scents to express moods and cover different day parts. The biggest issue facing investment and M&A in fragrance is scalability. Investors need scale to get an acceptable return. Strategics need scale for acceptable margin and materiality for their portfolio.

There are scores of niche fragrance brands stuck between $1 million and $10 million, and many others stuck between $20 million and $40 million. Niche brands that have reached $70 million to $100 million are few and far between, way less than other categories. Picking a scalable, sustainable winner is the challenge in this category.

Meghan McLaughlin Executive Director, Moelis

We anticipate that fragrance will continue to be a fast-growing category into 2025, driven by the consumers’ increasing desire for optionality when it comes to fragrance, the continued trend of experimenting with layering, the improved ability to describe and demonstrate the sensorial experience of fragrances online, and gen Z’s continued interest in the category as an integral part of their wellness routines.

Fragrance has also started to penetrate other categories within beauty and personal care as consumers increasingly want a sensorial experience across all areas of their wellness routine and home. Many brands in the body care, haircare and home care space are leading with scent while a rise in scent-based collaborations have invigorated products in other categories.

All of that suggests that fragrance will be a target for M&A next year. As strategics are looking for unique fragrance brands that have built a community and have the ability to translate into international markets, several young brands are storytelling and communicating with younger consumers in an innovative way beyond just delivering a beautiful scent in a bottle. Brands that are at the forefront of this marketing and communication innovation will get the most attention from investors going forward.

The biggest challenge will be picking the winners that can scale without alienating their core customer base. Fragrance, by nature, has a longer repeat purchase cycle, which has always created an obstacle for fragrance brands to scale quickly. In addition, gen Z and gen alpha consumers want unique products that feel individual to them and are willing to sacrifice brand loyalty to fill their bathroom counter with multiple options. The ability to navigate these dynamics will be the key to achieving scale.

CLAIRE CHANG Founder and Managing Director, IgniteXL Ventures

While fragrance has been the fastest-growing prestige beauty category this year, it's uncertain if this trend will continue into 2025. Areas we are excited within the fragrance category are:

Technology integration: Investments in fragrance tech companies such as those focused on AI-driven scent creation or digital scent experiences
Sustainability focus: The trend towards clean beauty extends to fragrances
Personalization: Brands offering customized or bespoke fragrances
Emerging markets: Expansion into high-growth markets like India and the Middle East
Cross-category potential: Fragrance brands with successful expansions into body care or home fragrances

In conclusion, while fragrance has shown strong growth, its continued dominance in 2025 is not guaranteed. However, the category still presents numerous opportunities for investment and M&A activity, particularly in areas of innovation, sustainability and market expansion.

ODILE ROUJOL Founder, Fab Co-Creation Studio Ventures

I have BrownGirlJane in my portfolio which was founded by Malaika Jones and perfectly addressing the needs of millennials, who have different scents according to their mood. They wear them to feel good confident—it’s for wellness, not status or seduction—and want lasting products, cute packaging and brands with authentic and inclusive DNA.

There’s a new way to talk to customers in the fragrance space. Global brands are not used to it and will have difficulties to adapt. There will probably be a wave of mergers and acquisitions, but I believe that only a few new global champions will emerge.

Corporations have been burned in the past by purchasing makeup brands at high valuations, then losing their community and customers and being disappointed by the results, which leads them to blame supposed “bad products.”

Ashleigh Barker Director and Head of Beauty and Personal Care, Lincoln International

I do believe fragrance will continue its growth trajectory through next year despite the broader pullback in consumer spending that has impacted beauty as a whole. The fragrance sector saw significant growth during and after the pandemic as consumers began using scent not only for personal enjoyment, but as a form of self-expression and wellness.

Fragrance is still viewed this way today, coupled with rise of several clean fragrance brands, which Sephora and Ulta have both backed and the fact that consumers have increasingly shifted from investing in a single signature scent to purchasing multiple fragrances, often layering them for a truly customized experience.

The ongoing evolution of how consumers view fragrance as a more personal, mood-oriented experience rather than a static product leads me to believe it will continue attracting significant investment, particularly in the prestige and masstige segments.

Strategic buyers and private equity firms are likely to focus on brands that can offer a combination of authenticity, niche appeal and scalability, while also offering high-quality products. However, the masstige fragrance category presents a strategic sweet spot for investors looking to capture both upwardly mobile consumers seeking affordable luxury and more cost-conscious shoppers seeking quality at a lower price.

CHALLENGES

Scale and distribution: A primary challenge for emerging fragrance brands is scaling. While there is tremendous demand, it requires significant investment to win in the face of growing competition. For brands, demonstrating their ability to harness both digital and physical distribution to succeed will be a critical proof point.

Saturation and competitive pressures: The prestige fragrance category is highly competitive, and while it’s growing, distinguishing a new fragrance brand in a crowded market can be difficult. Innovation, effective storytelling and strong brand positioning will be key to standing out.

Economic sensitivity: Discretionary spending is becoming more selective. While fragrance offers an affordable indulgence compared to a designer handbag, the broader economic environment could pose risks, especially for ultra-luxury fragrance brands.

OPPORTUNITIES

Growth of masstige: Brands that can deliver quality and luxury at a more accessible price point are likely to capture the attention of a wider consumer base, particularly those looking for indulgence without the high-end price tag.

Product category expansion: Taking a cue from the Sol de Janeiro and Glossier playbooks, there are several examples of skin, body and haircare brands expanding into the category and doing it well. Similarly, there’s a natural extension of personal fragrance brands expanding into body or haircare.

High margins support growth: The fragrance category consistently delivers high profit margins driven by premium pricing and generally lower input costs. As brands demonstrate the necessary proof points needed to succeed, their financial profiles will position them well for investment or acquisition.

Alex Wolf COO, AF Ventures

According to Nielsen, gen Z's spending power is expected to reach $12 trillion by 2030, opening up a largely untapped growth opportunity for the next decade. Although generations Z and A (or their purchasing parents) are known for price sensitivity and prioritizing value over brand loyalty, their psychographics suggest that loyalty increases with authenticity and value alignment.

As noted in Ulta's October Investor Day, their fragrance category growth has benefited from the scaling purchasing power of gen Z and gen A (both men and women) offering retailers the ability to sell into a highly attractive new audience of consumers in an evolving category in beauty. Generations Z and A’s perception of self and prioritization of self-care translates to consumption of diverse fragrance choices (notes, projection, and sillage) and uses (application to clothing, hair, skin or layering).

Younger consumers are more likely to experiment: shifting purchasing to different formats such as smaller, more affordable options like mini bottles, discovery sets and lower cost, lower concentration options like body sprays and hair/body mists. These form factors serve as entry points for new users, offering an option for aspirational buyers while encouraging frequent repurchasing without cannibalizing premium sales.

The growing popularity of fragrance brands with inclusive, playful and approachable positioning relies heavily on visual storytelling to speak to and reach media-first consumers who prioritize brand ethos. Through newer forms of marketing, brands are able to build community allowing them a “voice” and participatory role in validating and building up young brands. This sense of validation and community can often be central to what has evolved to be a generation of self-identified “influencers” who are able to impact brand choices.

Authentic fragrance brands with dedicated communities will be as attractive for M&A as other beauty categories as buyers position themselves to take advantage of the brand equity garnered by these nimble and authentic brands in high margin categories. Acquiring companies will be the most effective way for incumbents to authentically fill gaps in their portfolios as well as learn to work with the new and evolving customer base of gen Z (and eventually gen A) as they age into more prestige/luxury products within their family of brands.

If you have a question you’d like Beauty Independent to ask investors and investment bankers, please send it to editor@beautyindependent.com.