The global strategies behind L'Oréal and Coty's latest mega deals, half of SEPHORA's shelf space dedicated to LVMH and own brand products, beauty drives airless packaging boom, and Gen Z-ers prefer stores to online shopping reveals international study.
Analysis: the global strategies behind L'Oreal and Coty's latest mega deals
Remember when Valeant went on a shopping spree, buying up a slew of skincare brands including Australia's Invisible Zinc? How times have changed. The Canadian pharmaceutical giant has been involved in controversies over high drug prices and other corporate problems and is now $US30 billion in debt.
The beleaguered company was forced to sell off $US2.1 billion in assets in an effort to make a dent on its liabilities. The sale of three skincare brands to L'Oréal for $US1.3 billion and Dendreon Pharmaceuticals to the Sapphire Group for $US820 million recouped much needed funds.
The combined annual sales of the CeraVe, AcneFree and Ambi brands of $US168 million is petty cash for a multinational the size of L'Oréal. So why did the world's biggest beauty company value the trio at 7.7 times their sales? To boost its already considerable dermocosmetic and expert-backed skincare business and to gain an increased share in the buoyant US market.
L'Oréal's Active Cosmetics Division, the new home of the three brands, is its fastest growing division, thanks to the powerhouse performances of La Roche-Posay, Vichy and SkinCeuticals. The global dermocosmetic market has reached sales of $US16 billion a year and is growing fast in all major regions.
The three Valeant brands will nearly double the sales of L'Oréal's Active Cosmetics Division in the US, notably CeraVe which has enjoyed a 20 per cent growth rate over the past two years. AcneFree has also built up a strong market for its full range of acne treatments while Ambi targets multicultural consumers. All of the brands appeal to women of all ages looking for active skincare products and professionally recommended solutions to widespread concerns at reasonable prices. Their distribution channels – drugstores, mass and beauty retailers and select online outlets – were also a major sweetener for L'Oréal.
Coty has been on one of the most hyped buying expeditions of the decade over the past couple of years, becoming the world's third largest beauty company through last year's acquisition of more than 40 P&G brands. But several of the brands in the expanded portfolio aren't bullet performers and Coty's sales in the US dipped 7.5 per cent last year. An accusation that can't be leveled at Younique, an exploding star of the global beauty scene whose sales have grown from $US24 million in 2013 to $US400 million in 2016.
Coty's payment of $US600 million for a 60 per cent stake in Younique is a restrained valuation in contrast to several recent cosmetic industry deals. But the move isn't just about the money. Younique will allow greater access to ecommerce, which will help to boost Coty's bottom line in developed and developing markets where retail networks are limited outside major cities, particularly China and Brazil. The fast-growing brand also gives Coty entree into the equally fast-growing natural cosmetics market and it's also a hot favourite with millennials and Gen Z-ers.
Half of SEPHORA's shelf space dedicated to LVMH and own brand products
SEPHORA's media open days suggest that the world's largest beauty chain is groaning with brands. In one way that's true, reveals the Wall Street Journal (WSJ). But on closer inspection 50 per cent of the shelf space in the beauty retailer's 2300 global store network is devoted to its bestselling SEPHORA Collection and 15 brands owned by parent company LVMH, including Marc Jacobs, Givenchy, Benefit, Guerlain, Dior, Kat Von D, Ole Henriksen and more.
The 185 other brands stocked by the beauty giant, which also operates concept stores in US retailer JC Penney, aren't being given a lot of room says the WSJ. We aren't talking about small brands feeling squeeze. Major multinationals such as L'Oréal and Estée Lauder face the same challenge. In fact, say analysts, the SEPHORA strategy is a major reason why so many brands such as Estée Lauder, M.A.C, NYX Cosmetics and L'Oréal Paris are opening standalone stores.
SEPHORA's private label brand is growing by geometric progression. Re-branded in late 2016, the SEPHORA Collection now boasts 700 SKUs and rising and is the largest assortment stocked by the beauty retailer. Utilising continuous research, social media, trainers, in-store makeup artists, and global merchant data, the ongoing goal of the SEPHORA Collection is to provide prestige quality, on-trend products for all skin types and ethnicities at a reasonable price.
Beauty drives airless packaging boom
The cosmetics industry, notably skincare, is driving the growth of the global airless packaging market. Not only do airless pumps allow consumers to use 95 per cent of the product, they also hinder oxygen spoilage which reduces the efficacy and performance of active ingredients. The shift to more premium packaging by masstige brands from major players such as L'Oréal, Nivea and Olay is another key accelerator fast-tracking the global airless packaging market, says Transparency Market Research (TMR).
The report predicts that the global airless packaging market will grow from $US4.13 billion in 2016 to $US6.34 billion by the end of 2024. It's a boon for retailers and distributors, too. The compact nature of airless packaging saves space and the amount of packaging material used. According to a TMR analyst: "The zero waste advantage presented by airless packaging alone is expected to revolutionise several industry verticals, especially the cosmetics industry."
Gen Z-ers prefer stores to online shopping reveals international study
For all the ballyhoo about millennials, Gen Z is the first truly digital native generation. A new international study commissioned by IBM and the National Retail Federation in the US, surveyed more than 15,000 consumers aged 13 to 21 in 16 different countries. One of the key takeaways was that 67 per cent of Gen Z-ers shop in stores most of the time and a further 31 per cent regularly visit bricks-and-mortar outlets.
The other bombshell result was that although 74 per cent of Gen Z-ers surveyed confessed to spending a big chunk of their free time online, only 17 per cent said they allocated time to "shop and browse". The most popular uses of online time in this up-and-coming age group are: texting and chatting, playing games, watching Netflix or similar streaming services and studying. Because of their age, younger consumers are less likely to have credit cards or are anxious about overusing them. Given that they have grown up in a digital world, less than 30 per cent of Gen Z-ers said they felt comfortable about supplying personal payment details online.
Brand loyalty is a thing of the past for nearly all generations – more so for Gen Z – says the large-scale study. Even though they prefer shopping in stores, Gen Z-ers said they craved more fun, enjoyable experiences. A desire that explains why fashion brands such as Zara and H&M, SEPHORA and pop-ups attract younger buyers in droves.
Snippets from the wires
- No wonder skincare brands are hot buyout targets. According to Allied Market Research, the global skincare products market will reach $US179 billion over the next five years.
- Some names are so obvious, it's amazing no one has thought of them before. Emily Weiss, the whizzkid behind Glossier, has just trademarked the term – Boysturizer.
- The Dove Beauty Bar is celebrating its 60th anniversary this year. The Unilever brand is releasing a limited-edition of its global bestseller, beloved by superstars like Beyoncé and ordinary women alike.
- Macy's is Estée Lauder's largest customer, accounting for 9 per cent of global net sales and 22 per cent of sales in the Americas. The giant US retailer has announced 100 store closures. On the bright side for Lauder, Macy's is planning to open 50 new Bluemercury stores over the next two years.
