By Anuja Bharat Mistry

Nov 7 (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 ( 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 ( 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 ( ELF ) - 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 ( 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.

BIG BEAUTY BETS

"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.