It's not just beauty. Fragrance is ‘booming in the US,’ Coty CEO says.

Consumers are continuing to spend on little luxuries, and although the trend has been dubbed the 'lipstick effect,' fragrances are also proving resilient.

In the third quarter, multinational beauty company Coty (COTY) posted strong earnings that beat analysts' estimates, in part due to strong demand for prestige fragrances. Its prestige fragrance division experienced mid-teens growth that accelerated from the previous quarter, Coty said in its earnings release.

"This category is booming in the US," Coty CEO Sue Nabi told Yahoo Finance Live (video above). "It's 60% above the pre-pandemic levels. And now, this fragrance index is globalizing. You can see it happening now in Europe and also in China. So this phenomenon behind fragrances is globalizing."

Fragrance wearers 'spray much more'

Nabi explained that there are three main drivers to the momentum in fragrances: More consumers are coming to the category, they're opting for more premium fragrances, and they're using fragrances more frequently.

According to Nabi, the strength in the space can be attributed to consumers who are "rediscovering" the category, such as "Gen Zs, men, [and the] Hispanic community in the US."

These consumers, Nabi continued, view fragrance not only as an "escapism" product and "a mood booster" but also as "a self-expression tool." And they're using more, too.

"And in fact, what consumers are doing, [they're] spraying more, especially Gen Z, who use fragrances not [only] on their skins, they use fragrances on their clothes and outfits," Nabi said. "So they spray much more, and it's shortening the lifespan of the usage of the product. So that's what explains, in fact, this boom, both in volume and in value behind this market."

Nabi also highlighted that consumers are increasingly purchasing the more premium eau de parfum over eau de toilette. Eau de parfum contains a higher concentration of oils, allowing it to last longer throughout the day.

Coty fragrances benefiting from this premiumization trend, according to Nabi, include Burberry's Hero and Her, Gucci Flora Gorgeous Jasmine and Gorgeous Gardenia, Boss Bottled Parfum, and Chloe Atelier des Fleurs.

"People like these little luxuries," Nabi said. "At the end of the day, even in an environment where people are constrained, ... what's happening is that this kind of little luxury is something people are not ready to give up on. So that's super, super important. And I believe that this category, and, moreover, the beauty category, is clearly one of the most resilient."

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