Check out this <PRFM> from Forbes: Not real good news about Ilia Lekach and family! I think I'll do some more digging - this is fun!
Moby.
Link: forbes.com
TEXT:
Here are a few Nasdaq companies with, should we say, incestuous relationships.
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
WHILE THE Lekachs flounder, little Gary Farn Ltd. of Milford, Conn. shows the right way to move perfume.
Gary Farn runs it from a modest office near home, whence he launches and distributes high-end designer fragrances such as Gianfranco Ferre, Jil Sander and Cabotine de Grès. He competes with such giants as Estée Lauder and Calvin Klein.
What's Farn's formula? Low costs and personal involvement. In 1992, for instance, he readied the launch of Cabotine, a classic French fragrance, by test-marketing it on the Metro North train to New York City and on plane trips. Farn, an affable 62-year-old with no sense of smell, would hold up the green bottle and spray for the ladies to sample. He got a good reaction.
Farn launched Cabotine at Saks Fifth Avenue's 50 stores. He followed up by advertising in its catalog, which reaches over 1 million customers. Total cost: $125,000. Compare this with the millions spent by firms like Estée Lauder to launch a new perfume.
As sales of Cabotine went up, Farn increased the number of stores carrying it to 500. It took five years. "Don't try to be in 2,000 doors [stores]," says Farn, who spends the bulk of his marketing money on 200 department and specialty stores. He sells to high-end outlets, such as Neiman Marcus and Bloomingdale's. Image is everything.
Farn's getting recognition. Last year Benckiser, which owns Lancaster and Coty, turned to Farn when it decided to give up the Jil Sander fragrance. The company had lost about $40 million launching duds, and its Jil Sander fragrance, named for the elegant German designer, was languishing even though it was displayed in 900 stores. "People didn't know who Jil Sander was at Famous-Barr in St. Louis," says Farn.
Farn now buys the fragrance from Benckiser, which gave him exclusive distribution rights in the U.S. for five years. He pays no royalties. He's purely a marketer. Farn cut back the number of stores carrying the Jil Sander scent to 85, limiting distribution to tony stores like Barney's in New York City, where the clientele knows and buys Sander's clothes.
Before starting his company 20 years ago, Farn worked at Coty. Last year his business generated $20 million in sales. Every week he gets calls from companies asking him to be their distributor. But Farn wants to keep it small. "We'll do it slowly, by choosing the right brands," he says.
His daughter, Alison, 33, joined him in 1992 and is now senior vice president. A former sportswear senior account executive at Liz Claiborne, she'd worked summers for her dad while in high school. At Bloomingdale's, she held her own with Dad's small brands against the Elizabeth Ardens and the Lancômes. "These brands need tender loving care," she says. "We TLC them."
—Z.M.
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