Why there will be more international beauty buyouts, L'Oréal to incubate beauty start-ups, growth back on track at Elizabeth Arden, and the big five multinationals to strengthen their grip on the global skincare market.
Why there will be more international beauty buyouts
Every week seems to bring news of another major acquisition in the global cosmetics industry. Giants such as L'Oréal, Unilever and Johnson & Johnson have indulged in corporate shopping sprees over the past few months. But plenty of money came from elsewhere in the first half of 2016 as the beauty and personal care sector recorded 45 deals with a total value of US$7.41 billion.
The acquisition calendar was dominated by Coty's acquisition of 43 brands from Procter & Gamble in 2015. But every other deal was much smaller. There were 50 buyouts in the first six months of last year for a total value of US$3.38 billion – less than half the tally for the same period in 2016.
There are two major reasons why beauty has become such a hot investment category. Firstly, private equity firms and strategic investors are flush with significant amounts of capital. Secondly, many of the longstanding cash cow brands of the leading beauty and personal care companies have reached saturation point and are experiencing low growth rates. To boost overall growth, the big players have been buying smaller, more dynamic companies and brands to offer more products in different categories, create new opportunities and markets, and balance global sales.
Europe has become a drag on L'Oréal's bottom line, for example, so the French multinational has been acquiring US brands such as NYX Professional Makeup and IT Cosmetics because the North American beauty market is growing strongly. The US personal care and beauty sector recorded 18 acquisition deals in the first half of the year with a total of US$5 billion. A huge contrast to the same period in 2015 which witnessed only 11 deals worth US$55 million.
The first part of this year was relatively slow. But major agreements such as Revlon's buyout of Elizabeth Arden and Johnson & Johnson's acquisition of Vogue International lit up the second quarter. Analysts expect the scramble for key brands and the capacity of private equity firms and the multinationals to negotiate bigger deals will continue to the end of the year and well into 2017.
L'Oréal to incubate beauty start-ups
Setting up your own business has been a universal dream since ancient Egyptian times. Things were much easier back then, though. Today, 90 per cent of startups fail, in spite of the regular feel-good stories in the media about 20-something entrepreneurs strking it rich. They are the exception - not the rule.
Instead of continuing to buy small companies with potential for growth for millions of dollars, L'Oréal has decided to get in on the ground floor. The multinational has invested in Founders Factory, a global digital accelerator based in London, to identify world class beauty startups and entrepreneurs. The goal is to support five early stage startups and co-create two new companies from scratch each year.
According to Lubomira Rochet, Chief Digital Officer at L'Oréal: "This strategic investment will give L'Oréal direct access to a powerful global ecosystem of exciting startups and innovative technologies at their earliest stage, allowing us to invest in and nurture innovative business models based on digital platforms to better serve consumers' aspirations".
The startups will have to cede partial control, of course. But L'Oréal's huge expertise in beauty and marketing offers a much better chance of success than going it alone.
Growth back on track at Elizabeth Arden
Fourth quarter sales have buoyed Elizabeth Arden's results as the household name company prepares to enter the Revlon fold. Sales of celebrity fragrances continued to slide - down 5 per cent - but Arden's own brand net sales jumped 14 per cent across skincare, cosmetics and fragrances to US$192.7 million for the period.
Revenues from the and fragrance licenses continued to climb - rising by 5 per cent - to help the company's full year sales to hold steady at US$946.7 million. A decrease of only 0.4 per cent over the previous fiscal year.
Strong e-commerce and social media upgrades contributed strongly to the Q4 uplift - an increase of 9.8 per cent over the same period last year. Elizabeth Arden reported strong growth in all international regions except South America, with the biggest upticks in Europe, Asia/Pacific and the greater China markets.
The big five multinationals to strengthen their grip on the global skincare market
Most talk of anti-ageing skincare focuses on Baby Boomers and Gen Xers – but the oldest cohort of Millennials is now approaching 35, says Transparency Market Research (TMR). The researcher predicts that the worldwide skincare market will reach US$200 billion by 2024, with anti-ageing products accounting for US$44 billion. One of the major reasons behind the surging sales is that younger women over the age of 30 have been contributing significantly to the demand for anti-ageing creams and lotions.
The big multinationals are in the box seat, says TMR. The median age in Australia will rise to 40-plus over the next few years, and will be even higher in in more populous and equally wealthy countries such as Germany, Italy and the US. The number of people aged 60-plus in China already exceeds the entire population of the US.
Five multinationals will account for 45 per cent of the global anti-ageing market through to 2024, says TMR. No prizes for guessing the names of L'Oreal, Unilever, Procter & Gamble, Beiersdorf (makers of //Eucerin) and .
Snippets from the wires
- Macy's, the iconic US department store chain, has announced it will shutter 100 under-performing stores. A full list of locations has not been released, but the move follows the closure of 40 low-traffic stores in 2015.
- A strong yen and an over-ambitious acquisition program have dented 's results. The Japanese giant has cut its full year sales forecast to 848.5 billion yen ($AUD10.946 billion). There are also fears that the flood of Asian tourists to Japan over the past 18 months - most of whom buy cosmetics - may have peaked.
- P&G, one of the world's biggest advertisers, spent billions of ad dollars on Facebook last year. The multinational has announced it will scale back the number of ads on the social media platform because of a lack of response.
- Remember the alphabet craze? Hardly a day went by a few years ago without someone asking where would it end - DD, EE or FF creams. Sales of BB creams are doing very nicely, says Euromonitor International. In the US alone, sales rose from US$7 million in 2011 to US$220 million last year.
Image: Instagram.com/itcosmetics
