President Trump’s proclamation of tariffs as high as 50% on goods imported from the likes of China and Vietnam has already sent waves of panic into the fashion and beauty industries. That includes the fragrance industry, whose products are made up of raw fragrance ingredients and packaging sourced from around the world.
“The average fragrance house may have hundreds or thousands of ingredients that are regularly restocked, that go into tens of thousands or hundreds of thousands of customer SKUs, and these ingredients can cross multiple borders before arriving in consumers’ hands,” said Alex Wiltschko, CEO and founder of fragrance research company Osmo.
While it remains to be seen which ingredients or materials will be most impacted, fragrance brands and manufacturers may need to reformulate their products as the tariffs introduce new costs. Wiltschko believes artificial intelligence can help mitigate some of those concerns. Osmo established the fragrance house Generation by Osmo in March, with the goal of producing fragrances powered by what Wiltschko calls olfactory intelligence.
Glossy spoke with Wiltschko about the potential impacts of tariffs on the fragrance industry, the ways AI can mitigate supply chain concerns and the opportunity to bring manufacturing jobs to the U.S.
There’s still a lot of uncertainty about how tariffs will play out and if consumers will pay for potential price increases. Looking at the breakdown of the new tariffs, how do you see those initially impacting the fragrance industry?
“Fragrance design and manufacturing, at its root, has a complex logistics and supply chain that is brought to life into beautiful products by the careful design of perfumers. But the supply chain that underpins the actual creation of these products is global. So, undeniably, tariffs are going to require an examination of the entire industry, value and supply chain.
There are some fragrance formulations that will inevitably be more impacted than others. And so, the name of the game here is, ‘Do you know if your formula is more or less impacted? Can you move your fragrance to a formulation that is the most compatible with the current economic world and has the least tariff impact and the least cost to the ultimate consumer?’
That process of changing a fragrance formula — to not change what it smells like, but change other properties, like safety or economics — that’s called reformulation, and it’s really hard to do. We have fully automated that. We spent an enormous amount of time applying artificial intelligence to what is a relatively mechanical process of changing one ingredient for another, reducing some amounts and increasing others, and not ever touching what it smells like but changing other properties, including price, supply chain variability and environmental impact.”
Customers are very sensitive to reformulation. When it comes to changing formulations due to tariffs or sustainability concerns, do you think that should be communicated to customers?
“It’s a brand-level decision about how to communicate sometimes necessary changes in a product to the customer. There’s an implicit contract a brand develops with its consumers, and they have to honor that contract.
The other thing is that some fragrances are these living things, and if there’s a great deal of, say, natural ingredients in a fragrance, they can change like wine. You’re collaborating with the natural variability of nature, and I don’t think that’s something to shy away from. I think it’s something to celebrate. We automate that process using olfactory intelligence and reformulation. So if the desire is to keep a very stable product across vintage variations of, say, bergamot harvested in Sicily, we can help with that.”
One of the biggest fears with tariffs, or even with raw materials becoming more expensive due to climate change, is that customers are going to pay the price of higher costs. How much do fragrance manufacturers like Generation determine those prices?
“There are different contracts for different customers, and in some cases, there’s a much longer-term relationship, and sometimes there are spot prices. As our update on what it costs us to serve a business changes, ultimately, what we charge is going to have to change. We do our best to bring technology in to keep it under control. And so there are certain things that we have under our control and certain things that we don’t. As the price of one ingredient spikes, our OI systems are able to reduce our usage of that ingredient to achieve a desired customer endpoint.
We are as flexible and as adaptive as I believe is scientifically possible. And then there’s the base reality of the cost of the inputs and, frankly, the customer desire. So there are customer desires that allow us to use our full technology to adapt the price and still produce your fantastic product. And then sometimes there are specific desires, which say, ‘No, this ingredient is a part of my story.’ Well, if the ingredient price changes, we’ll be transparent about that, but it’s simply the reality.”
Artificial intelligence is still a very scary term to a lot of people, due to fears that it’s replacing humans and using up a lot of resources. What are the trade-offs with using AI in fragrance?
“The way that we train and deploy our OI models is, frankly, not that energy hungry. We build incredibly efficient models. We don’t require data centers the size of Manhattan to train our models. We do this in the cloud, of course, but we’re not taking up gigawatts of energy in order to build our models here.
So it’s very different from the story you might hear for text-based models, which take huge amounts of energy to train. The situation where we’re energy efficient will continue into the very far future.
And the other part is, there is a change that’s happening. The perfumers that we have in this company are practicing their creative expression in a new way. So if what you want is for the world not to change, I can’t offer you that. But if what you want is to express your creative vision faster, better and more precisely, you should absolutely reach for the best tools.”
The big goal of these tariffs is to bring more manufacturing jobs to the U.S. Could we see more fragrance jobs or fragrance manufacturing happen in the U.S. because of these tariffs?
“I don’t know what will happen, but I’ll tell you what we are doing. We are building a factory, and it’s in the U.S, and we are hiring more staff for that factory in the U.S. We’ve got people growing in New Jersey and New York.
It’s a changing, uncertain world that is moving faster than ever. And fragrance shouldn’t be the slowest part of it. It should be the most fun and most beautiful and fastest and easiest part of it. We’re maniacally focused on speed, on accessibility and on quality, and we’re not compromising on any of those.”
