This is cross-posted from the Investing for Beginners site at About.com, a division of The New York Times. I wanted to point it out to the readers here and tell you to head over there and check it out because I had been writing so much about Creed perfume, cologne, and fragrance products the past few days and the Creed business itself. Many of you read my About site anyway, but I just wanted to make sure you didn’t miss it.
For the past few days, I’ve been adding to my collection of Creed fragrances, including a new bottle of the Creed Bois du Portugal and Creed Original Vetiver. It has been more than four years since I wrote about the franchise value of the Creed brand and the occasion gave me the chance to look at the business side of the firm one more time as part of my work on the new investor’s guides to limited liability companies and limited partnerships.
I believe that the House of Creed is probably one of the best examples of the perfect family investment in the world. Let me explain the reasons.
The Business Model of the Creed Fragrance Company
Creed is privately owned and sells its perfumes and fragrance products, which are considered to have the highest quality ingredients in the world, through a handful of boutiques and luxury retail stores such as Neiman Marcus, Bergdorf Goodman, Barney’s, and, in some locations, Saks. All Creed fragrances are made by hand by Olivier Creed himself and a team of 35 employees in France. The firm has no development schedules, and only releases products when it believes they are ready, sometimes going as long as five years before bringing anything new to market.
Creed fragrances are sold at the best department stores in the world and a handful of Creed boutiques in Paris, New York, and Dubai.
In 1999, Olivier Creed said in an interview with Forbes magazine that the House of Creed, which he owns in its entirety, generated annual sales of $40,000,000 wholesale volume with profit margins of 12%, which is double the industry average (as Creed opens more of its own retail boutiques, selling directly to the public, those numbers may be higher). Now, presuming that sales have increased just barely above inflation in the 11 years since, at 5% growth, revenue would be roughly $68,000,000 in 2010 (this is entirely conjecture given that I could find no more recent data).
If margins remain constant, that would mean that the shares of Creed owned by the master perfumer would generate roughly $8,160,000 in annual profit. The best part is that those earnings are not confined to a single currency but are originating in euros, British pounds sterling, United States dollars, Canadian dollars, Australian dollars, Japanese yen, and a host of other currencies, providing him with a wide range of protection from any one economy.
How Creed Is the Perfect Business
Going on its seventh generation of being handed down from father to son since its founding in 1760, the House of Creed is the perfect model of what a family business should be. It has durable competitive advantages, it is highly profitable, it provides a stream of earnings for the family to build assets and other investments, and it is in an industry about which the family members are passionate. Furthermore, it brings respectability and pedigree, which are extremely important to some people.
Not only are the shares of the Creed fragrance company itself worth hundreds of millions of dollars, but the family could continue to build up outside investments by putting a portion of the annual profits in conservative bonds or real estate holdings. Eventually, the income generated by the perfumes and colognes would be exceeded by the family’s passive income from other investments.
I cannot overstate how much respect I have for Creed’s products and the Creed business model itself. I adore it in the way most people do the 1927 Yankees lineup. It combines all of the best parts of business and wealth creation with a one-of-a-kind product of the highest quality.
Related posts:
- The House of Amouage – Fragrances for Royalty, Executives, and Stars
- Creed Spring Flower Review
- The Creed Fragrance Counter Is One of My Favorite Places in the World
- In Response to Question from You Fellow Creed Fragrance Collectors
- I Just Set a Terrible Example … I Gave In and Bought Another Bottle of Creed
