Inside beauty icon’s $16m ‘death spiral

Napoleon Perdis was one of Australia's greatest success stories, with a thriving beauty business and the lavish lifestyle and glamorous family to match.

But last year, the empire the popular, larger-than-life makeup artist to the stars founded in the 1990s almost came crashing down.

Last January, beauty junkies were stunned by the shock announcement the Napoleon Perdis Group had entered voluntary administration and was facing an uncertain future.

But in April it was revealed the iconic brand had been saved after being snapped up by Kuba investments, run by retail investor Livia Wang and former Witchery executive Henry Lee.

Speaking to news.com.au just months after the sale, Mr Lee said the company was "here to stay" and revealed a slew of bold new plans.

'DEATH SPIRAL'

When Napoleon Perdis appointed administrators, the brand owed more than $22 million to creditors including the ANZ bank, the Australian Taxation Office, Australian Pharmaceutical Industries and Myer - with $16 million in "accumulated losses" sitting in the US branch of the company.

But Mr Lee said that ironically, American sales had been strong and the brand had been a hit with shoppers at "premium retailers" like Neiman Marcus, Bergdoff Goodman and Ulta.

While Mr Lee wasn't with the business at the time, he suspects it made a "typical mistake" common among retailers that enter the US market - over-investing in infrastructure such as warehouses and stores too quickly before sales actually start pouring in.

Napoleon Perdis entered voluntary administration last January. Picture: AAP Image/Richard Waugh
Napoleon Perdis entered voluntary administration last January. Picture: AAP Image/Richard Waugh

"The irony is the top-line numbers were there and it was very well received but the numbers did not justify the infrastructure ahead of sales," Mr Lee said.

"It's a typical mistake a lot of Australian retailers make, thinking they should go in big and build 10 stores because the US is such a big market, but it just doesn't work like that."

He said the losses were propped up by the Australian arm "through a combination of debt and working capital" which put "enormous pressure" on the business and resulted in poor decisions which coincided with Australia's tough retail climate.

Several attempts were made to raise capital, but investors were scared off by the tanking retail sector, which meant a voluntary administration was necessary to recapitalise and restructure.

Mr Lee said the Australian business was still profitable but couldn't sustain the levels of debt, "a heavy corporate structure" that included dual offices in Europe and Australia and "wage and rent expenses" for its 80 stores.

"This had a resulting impact on cashflow, which affected stock levels and ultimately led to a further decline in sales," Mr Lee explained.

"This is a death spiral that has been played out by so many retail businesses of late."

Napoleon Perdis exited the US in 2014, but by then significant debts had already accumulated.

AUSSIE ICON
While the company was in trouble, it was also still hugely popular with consumers, with 100 global stores, 900 stockists and 25,000 trained makeup students at its peak.

Mr Lee said "the attraction to the brand was clear" and that it was an Australian icon along with its founder, Napoleon Perdis, whose parents were Greek immigrants who arrived in Australia in the 1950s.

"All great brands have a great story and Napoleon Perdis is no different. It doesn't get more Australian than a humble son of an immigrant overcoming adversity to become a celebrity makeup artist and open stores around the globe," he said.

"The founder and namesake was a pioneer, a leading authority in the beauty industry and his craft in makeup artistry meant that he was an insider for new trends and innovation.

Makeup king Napoleon Perdis pictured at the 25 year celebration of his business with daughters (from left) Alexia, Lianna, Athina and Angelene. Picture: Toby Zerna
Makeup king Napoleon Perdis pictured at the 25 year celebration of his business with daughters (from left) Alexia, Lianna, Athina and Angelene. Picture: Toby Zerna

"He invented new categories and released products before consumers even knew they needed them. Case in point, our best-selling product is our iconic primer, first introduced more than 15 years ago. To this day we continue to sell one primer every 90 seconds."

But he said he was still surprised by the "panic buying" that took place once news of the administration broke when the chain's future was still unclear, with some customers snapping up enough primers and foundations to last "several years".

SAVED FROM THE BRINK

This time last year, things were looking grim for the brand - but today it's a very different story.

Just 10 months after taking over, Kuba Investments now has a bold strategy in place to transform the beauty empire.

It will kick off with a partnership with Mercedes-Benz Fashion Week Australia, with Napoleon Perdis Cosmetics set to create the catwalk beauty looks, working alongside leading fashion designers on new makeup trends.

It is also resurrecting three "rock star foundations" that had been discontinued, including Advanced Mineral Makeup, Off Duty Tinted Moisturiser and China Doll Foundation, which account for 26 per cent of the brand's foundation sales.

There's also an "absolute focus" on expanding the existing product range, with four educational academies to be re-established and four new "flagship" stores slated to open next month.

Napoleon Perdis is also changing the way it communicates with shoppers, with transparency and authenticity a clear focus.

In 2020, it will continue to expand into New Zealand and Asia - and international sales are tipped to exceed domestic ones by the year's end.

And over the next three years, Kuba Investments has budgeted to invest more than $21 million in brand development and marketing alone to reconnect with "loyalists" and engage with new customers.

Henry Lee and Livia Wang's Kuba Investments has taken over the Napoleon Perdis brand. Picture: LinkedIn
Henry Lee and Livia Wang's Kuba Investments has taken over the Napoleon Perdis brand. Picture: LinkedIn

Mr Lee said the opportunity to grow the business on an international scale was "massive", with the global beauty market worth over $335 billion.

Just six months after acquiring the business, international sales already make up 24 per cent of total business, thanks largely to the "game-changer" of the company partnering up with Access Corporate Group (ACG).

ACG is owned by Kuba Investments co-founder Ms Wang, and has "considerable experience in representing brands in overseas markets".

"The opportunity to reset a large business, and make wholesale changes to right-size the business, does not come often," Mr Lee said.

"In the last six months, we have exited from unprofitable stores, renegotiated all our store leases, and relocated our European-based functions back to Australia.

"Rationalising the business has allowed management to focus on building the brand and core operations, without the distractions of buying sales and managing cashflows."

RETAIL APOCALYPSE
Mr Lee said the entire retail sector was struggling, with a range of conditions including the boom in online shopping, increased global competition, high rents, changing consumer habits and "complex wage structures" creating a "perfect storm" that had resulted in a string of recent collapses such as Jeanswest and Colette by Colette Hayman.

He said more high-profile shut downs were all but inevitable, and that almost all retailers were experiencing a drop in profits.

But he believes those that will survive will adapt to changing conditions by increasing their online offering, expanding overseas or opening more stores in Australia and instilling a "culture of cost containment" across the business.



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