By Anuja Bharat Mistry

(Reuters) -Fragrances have become a staple for Gen Z shoppers, the fastest-growing buyer category globally, and beauty heavyweights are here for the trend.

Once dismissed as a luxury indulgence, scents are now a go-to for young consumers seeking to express their style and boost their mood amid economic uncertainty. It is the new "lipstick effect", analysts said, referring to an economic theory that suggests consumers tend to buy small luxury items instead of expensive goods when the economy falters.

Cashing in on the hype are Estee Lauder ( EL ), L'Oréal, and Coty, owners of fragrance brands such as Le Labo, Tom Ford, Valentino, Yves Saint Laurent, Emporio Armani and Ambre Antique. These companies said in their earnings calls in the past few weeks that they would invest more in their perfume businesses that had become their main sales drivers.

Coty on Wednesday offered an upbeat quarterly forecast, banking on surging demand for its Calvin Klein and Hugo Boss fragrances. CFO Laurent Mercier said the company was going to expand the business.

"It's a fantastic way for the Gen Z to enter the category. So it's really matching really some great consumer needs," Mercier told Reuters.

About 38% of total spending on fragrances in the 26 weeks ending July stemmed from households with a Gen Z member, according to data firm Circana.

Jo Malone owner Estee Lauder ( EL ) also saw a bump from its fragrance business, which helped offset muted demand for makeup. Its fragrance business grew 14%, on a reported basis, in the quarter ended September.

In contrast, Elf Beauty - a company that has surged in popularity in the last few years with its cheap makeup and big-brand dupes - reported weaker-than-expected results, blaming tariffs and muted consumer spending. Shares of the company, which does not sell perfumes, fell more than a third on Thursday.

Big cosmetic companies are also boosting their fragrance portfolios through acquisitions, or ditching slowing business units to free up cash flow to invest in perfumes.

In October, L'Oréal made a $4.7 billion deal to buy cosmetic and fragrance brands from Kering, securing rare 50-year licenses including Gucci. Coty, on the other hand, is exploring the sale of brands such as CoverGirl and Rimmel to focus on fragrances, a category that now accounts for three quarters of its total sales.

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"Fragrance is having a cultural moment," Kendal Ascher, a senior Estee executive, told Reuters. "Rising disposable income and middle-class expansion in China, India and the Middle East are fueling sustained category growth." 

Estee this year opened around 40 new freestanding fragrance boutiques globally, including new flagships in SoHo, New York, while also opening a global Fragrance Atelier in Paris. Ascher said the company had invested in AI-enabled tools that translated how consumers talk about scent - matching words like "bright" or "happy" to fragrance families - and was creating TikTok videos based on that to draw in Gen Z shoppers.

In the past year, global sales growth for fragrances has outpaced those of makeup and skincare, Circana data showed. Prestige fragrance sales increased by 6% to $3.9 billion in the first half of 2025, while prestige makeup sales rose 1% and prestige skincare declined 1% during the same period.

"It is a product segment that gives consumers a taste of prestige, quality, or status (or personal indulgence) without the price tag of full-blown premium/luxury goods," said Michael Ashley Schulman, chief investment officer at Running Point.