Alfin Fragrances, Inc
17 Pages Posted: 21 Oct 2008
Students act as outside analysts attempting to determine how Alfin will finance its expected growth based on sales of antiwrinkle cream.
ALFIN FRAGRANCES, INC.
Alfin Fragrances, Inc., a U.S.-based importer and marketer of high-priced French perfumes, was introducing a line of skin creams called Glycel in February 1986. Designed to reduce wrinkles, Glycel was considered a breakthrough by many in the industry, because it worked at the cell level and, according to its co-discoverer, Dr. Christian Barnard, could “make older skin behave and look like younger skin.” The product would be demonstrated and sold at the best department stores and Glycel was expected to yield sales of $ 30 million in fiscal 1987. Advance orders totaling $ 5 million had already been placed. Industry observers speculated on what Alfin's external-funds needs would be as a result of that growth and whether those needs should be financed with debt or equity.
In fiscal 1985, Alfin's corporate sales were only $ 21 million. As shown in Exhibit 1, however, the company's stock price had risen from $ 19 to $ 67.25 per share over the past three months in anticipation of Glycel's success.
The Cosmetics Industry
The cosmetics and toiletries industry was huge and consisted of at least 150 companies, some of the more important of which are listed in Exhibit 2. Sales of all toiletries and cosmetics were growing at an average annual real rate of only 2% to 3% a year. Thus, the industry was marked by strong competition for brand loyalty and product proliferation; in order to maintain and increase sales in a market rife with product introductions and new twists on old themes, companies relied heavily on advertising. As shown in Exhibit 3, nine toiletries and cosmetics firms or firms with cosmetics divisions were among the top 80 advertisers in the United States in 1985. Bandwagon or “me too” production by many companies of another firm's newly introduced products also made trademark infringement suits a common business practice.
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Keywords: financial policy, financing, growth, liability management
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Alfin Fragrances, Inc
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