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The Innovators

On the Nose

When Fabrice Penot pitched Le Labo--a fragrance company built on perfumes and no hype--investors laughed. Now with stores around the globe and millions in annual sales, Penot is the one who's smiling.
On the Nose
Image credit: Photography by David Johnson
Fabrice Penot

The Innovators


WE CELEBRATE AND ENCOURAGE INNOVATION.

Innovators push the boundaries of the known world. They're change agents who are relentless in making things happen and bringing ideas to execution.

There's no false modesty about it--Fabrice Penot wanted to start a revolution with Le Labo , the fragrance company he co-founded in 2006.

How could he not? For starters, he didn't want the small, boutique brand to do any advertising--a major no-no in an industry where Britney Spears makes dozens of in-store appearances to hawk her latest as-seen-on-TV potion.

Then Penot insisted on limiting distribution to his own stores and a handful of exclusive perfume counters, another crazy idea compared with the saturation strategy of fragrance industry giants such as Armani, where Penot worked before hatching his plan.

On top of that, he refused to keep stock on the shelf, instead making each store a kind of chic lab experience: a cool, minimalist space where ingredients are blended together on the spot, poured into plain glass bottles, wrapped in a brown paper package and custom labeled like a science project, with the date, scent and name of the buyer.

"No one believed in the idea," Penot says, echoing the downer vibes so often sent to startups.

And that led to perhaps the most absurd thing of all about Le Labo: Penot and his partner Eddie Roschi went ahead and started the business with almost no outside funding.

Today, just four years later--and a spectacularly lousy four years for luxury products like Penot's--Le Labo has grown into a $4.5 million a year fragrance brand with four stand-alone boutiques worldwide (and four more planned by the end of this year), plus 12 counters inside the world's most exclusive retail enclaves, including Barneys New York and Colette in Paris. Kirsten Dunst is one of many celebrity fans. And Le Labo is a darling of the fashion world, written about in high-end publications including W--enough to make a publicist plotz. If only they had one.

"We don't spend money on marketing," says Penot, again the contrarian to mainstream fragrance companies, where the bulk of the budget goes toward splashy campaigns. "We only spend money on perfume."

"Ridiculous!"
You can see why, when Penot and Roschi set out to finagle a round of financing--which Penot thought would be a cakewalk, given his deep industry connections--Le Labo was not an easy sell. In fact, big beauty's execs were the biggest naysayers of them all.

"They told us, 'OK--this is ridiculous,'" Penot says of his initial meeting with the brass from a major beauty company. Penot and Roschi's four-bottles-a-day sales goal for the first store drew the biggest laughs of all: A bottle of Le Labo--a name that the execs deemed "unpronounceable"--carries a $200 price tag, about double what the major brands charge. "They said, 'Just send us a résumé. We're gonna find you a job.'"

That was the last thing they wanted. Penot had been busy creating big-budget blockbusters during a six-year stint as a perfume developer at Armani Fragrances, and Le Labo was his chance to make the indie label of his dreams. (Just for the record, it's pronounced luh LA'-bo and means "the lab" in French.) Roschi, his best friend and fellow Armani Fragrances alum, was also becoming disillusioned with the corporate life and the commoditization of perfume. But more importantly, Penot also believed that there was a individualistic void in the mass-produced fragrance market, which, according to research group NPD, accounts for $25 billion to $30 billion in sales each year.

Though they needed cash, after that "ridiculous" experience--and many others like it--Penot and Roschi agreed: No loans for them.

"We knew we wouldn't sleep well," Penot says, "and when I'm exhausted, I'm an asshole."

So Penot moved out of his fancy downtown Manhattan digs and shacked up with Roschi in a one-bedroom, sixth-floor walk-up, where he spent the next 18 months sleeping on the sofa. Each kicked in about $100,000, and in the end, four close friends contributed roughly $30,000 (one of them used his work bonus; another, Penot later found out, sold his car). The money allowed Penot to hire top perfumers and buy expensive, pure ingredients, but it was still a far cry from the millions he had hoped to score from formal investors.

"Fortunately, nobody trusted us," Penot says with a chuckle. "We realized that the energy we were spending in trying to convince people to invest could have been spent in creation and trying to do things cheaply. Because if someone had given us $2 million to create Le Labo, we would have spent it."

The duo learned an early lesson in doing things on the cheap when it came time to build their first store, in the hip Nolita neighborhood of Manhattan. Unable to afford the $200,000 quoted by architects, Penot instead hired a general contractor to handle the permits and he and Roschi did most of the construction themselves. They actually started without a visual idea of what the store would look like, confident that their taste level would allow the store to "design itself." Plainly put, Penot and Roschi knew what they wanted their brand to look like and trusted themselves to make it happen however they could.

The result is a light-filled space with raw wood floors, an almost pharmaceutical perfume counter and austere surfaces interrupted by quiet bursts of sensuality--a silver, swag-patterned wall or soft glass lanterns.

In February, Le Labo opened its fourth store, in London. Like the others--in L.A., Tokyo and Manhattan--it was built without an architect, even though the pair can now afford one.

To generate cash flow while developing their business, Penot and Roschi again relied on industry connections. Only this time, they began consulting for fragrance brands. They still consult today and have created scents for stylish clients such as the Gramercy Park Hotel in New York, which sells a fragrance called Cade 26 that includes smoky notes inspired by the lobby fireplace.

That initial cash flow and lack of debt allowed the brand to build from profit, not fear, from Day One. And even today, Penot keeps his company "too small to fail." Save for its retail stores, Le Labo has no corporate offices. Instead, the four employees work remotely from laptops while about 20 others man the stores.

"We keep the costs of operations so low that it allows us to move the boat very quickly if the current is moving," Penot says.

Le Labo's expansion strategy, naturally, is as unorthodox as the rest of the business. "We open new stores only when the cash is in the bank. We only spend money when we have it." Penot says. Sounds like every American's "duh" moment over the last decade.

Pure Creativity
"The world doesn't need rational or reasonable products--the world is full of reasonable products and reasonable businesses," Penot says of what he considers the secret to his business' success. "It was just a business model with your own point of sale with an expensive price and an environment and aesthetic that wasn't meeting all the landmarks of the usual perfume business model. It was not reasonable for anyone. And that's why it makes sense."

And, of course, the scents had to be mind-blowing too. Rose 31, the brand's bestseller, is a spicy floral that accomplishes another feat: It is a rose perfume that is worn by men as well as women. By blending the sweet rose with the "dirty" scent of synthetic ambergris, Le Labo created "a completely contemporary perfume," The New York Times perfume critic Chandler Burr wrote. "Elegant yet something you smell between the sheets."

Indeed, Penot's philosophy of perfumery is to develop something that deeply affects the wearer. "When it brings the feeling of being special, and a certain idea of elegance and an extra confidence," he says, "the magic happens."

Perhaps Penot's least rational move was opening a store in Tokyo in 2008, despite a slight snag: The Japanese aren't big fans of perfume. But he calls that notion a self-fulfilling prophecy. "We realized that when you take the time to teach them that perfume can be an art and it's not only products in a bottle, they connect with that. Now a lot of perfume brands are opening doors over there, just because they realize there is a market."

Their creative approach is apparent, too, in the way Le Labo regularly develops limited-edition scents, exclusive to the cities where they are sold. So far, they have captured the floral-musky edge of Los Angeles, the peppery-Asian side of London, New York's smoky underbelly and even a clean, vanilla distillation of Dallas. The perfumes cost as much as twice that of the other products in the 12-scent lineup, which run $50 to $200. The exclusive city scents only add to the cachet that Penot initially set out to capture. And capture it he did.

"We had a lot of luck," he says of the immense buzz surrounding the brand. Part of that luck again falls to connections--the fragrance industry vets knew Le Labo deserved quiet mention. After W magazine's full-page spread a mere three months after the launch, The New York Times came calling. Then Barneys.

"In our business plan we wanted to go to Barneys two years after we opened," Penot says. "They came to us after four months."

And in case you're wondering, the Nolita store met the four-bottle-a-day goal. In fact, it exceeded it--by 66.

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This article was originally published in the May 2010 print edition of Entrepreneur with the headline: On the Nose.

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