HERE IS A GREAT FORBES ARTICLE! A MUST READ ABOUT PRFM AND THE FAMILY STRUGGLES FROM June 1997! READ IT - IT ALREADY TALKED ABOUT FAMILY STRUGGLES OVER A YEAR AGO.. this has been brewing for a long time it seems!
forbes.com
Smells perfumes can't mask
By Zina Moukheiber
Tender loving care AT PERFUMANIA IN New York a customer asks for a whiff
of the Romeo Gigli perfume. The saleswoman obliges, but urges the customer to
sample 360 Degrees for women by Perry Ellis. "It's similar; sure you don't want
to try it?" she says, spraying the scent on a strip of paper.
Why the aggressive sales pitch for Perry Ellis? It's a house brand at
Nasdaq-listed Perfumania, which sells luxury perfumes at a discount. The house
brand is made by Fort Lauderdale, Fla.-based Parlux Fragrances, also
Nasdaq-listed.
There's an incestuous relationship between the two companies. Ilia Lekach, a
48-year-old with a Caesar haircut, runs Parlux, owning a big chunk of it with his
younger brother, Zalman. Ilia Lekach owns 37% of Perfumania, which is run by
their brother-in-law, Simon Falic, 36.
Parlux depends on Perfumania for one-third of its revenues. Perfumania carries
Parlux-made fragrances in its 269 stores nationwide, and also sells them to
wholesalers and mass merchandisers. The rest of Parlux's revenues come from
sales overseas and to department stores.
The arrangement has enabled Parlux to cash in on dying brands. As giant
cosmetics' goods companies, such as Sanofi and Benckiser, get rid of their
slower-selling perfumes, Lekach picks them up for Parlux. Thus he acquired the
dwindling Perry Ellis and Fred Hayman franchises. While they are too small to
support much advertising, they can be milked through Perfumania, Lekach's
essentially captive distribution system.
From a marketing point of view the arrangement makes sense. Revlon has a
similar arrangement. It owns Prestige Fragrance & Cosmetics, a chain of 195
stores through which it sells surplus merchandise—nail enamels and lipstick,
plus cosmetics from Coty and Maybelline. In April it bought the Cosmetic Center,
a retailer of discount perfume and cosmetics, which competes with Perfumania.
The relationship between Perfumania and Parlux is familial rather than corporate.
But it is not always smooth. Consider the current hassle over the Perry Ellis
brand. "Perfumania would call in here and say: 'I'm gonna need 200,000 pieces
next year of Perry Ellis.' And we manufactured it. Either they didn't really need it,
or they didn't forecast properly, or customers went bankrupt," says Zalman
Lekach, 30, president of Parlux.
Zalman is complaining about the Perry Ellis stuff even though Parlux has booked
the sales. Receivables, due from Perfumania, have been accumulating at Parlux
for one year, and now amount to $23 million—25% of sales. That's almost double
what other companies owe Parlux.
Perry Ellis is shaping up into a major problem for Parlux. Last summer Parlux
spent $7 million—more than it earned—to introduce Perry Ellis America at
places like Saks Fifth Avenue. It got pummeled by Estée Lauder's launch of
Tommy—hot designer Tommy Hilfiger's new fragrance.
Parlux's year ends in March and its fourth-quarter results have yet to be
announced, but while sales shot up 52%, to $91 million in the latest 12 months,
net income fell 18%, to $6 million. Right now Parlux is bleeding cash. The stock
price has gone down from a high of 12 1/2 last June to a recent 3 1/8.
Who's this cast of characters? Ilia Lekach emigrated in 1956 from Russia to
Chile, where he distributed watches. In 1970 he came to the U.S., where he
started peddling designer-name perfumes to the gray market. Thus was born
Perfumania in 1988. Later Ilia would buy a stake in Parlux, then a small supplier
to Perfumania.
Last year he and his older brother, Rachmil, bought a 25% stake in a
moneylosing Florida company called L. Luria & Son. This former catalog
showroom has 28 stores selling kitchen appliances and jewelry at low prices.
Apparently the Lekachs hope to use Luria to move perfume. Already boxes of
discounted Parlux fragrances, such as Vicky Tiel and Todd Oldham, are stacked
up on tables at the entrance of Luria's shabby store in Fort Lauderdale. "Luria
should help Parlux get a little more distribution," says Ilia Lekach.
Pity the minority shareholders. Tender loving care |
