It was an unusually hectic stretch in the beauty industry, with multiple multi-billion-dollar transactions floated, and some of the industry’s biggest and buzziest brands reporting financial results. If there’s one throughline that applies to all of these companies — and plenty in the fashion industry besides — it’s that brands that don’t keep their foot on the gas will quickly find themselves left behind.
This Week’s Winners
Puig bet big on prestige beauty, and was richly rewarded with its shares opening 4.1 percent up in its initial public offering on Friday, securing a $15 billion valuation. The family-owned company is a century old, but its current form was built on a rapid-fire series of acquisitions — five in the last five years, including Byredo, Charlotte Tilbury and Dr. Barbara Sturm (it also owns fashion labels Paco Rabanne, Dries Van Noten and Carolina Herrera). Each of these brands already had a strong following when it was brought into the portfolio, with Puig providing the resources needed to scale.
Also this week, Sky News reported that Manzanita Capital has hired bankers to explore a sale of Space NK, the premium British beauty retailer, seeking a valuation as high as $500 million. The upmarket chain is the go-to retailer known as a launchpad for popular international brands to make their British debut, cornering the role Sephora plays in the US, of carrying top-performing labels like Rare Beauty and Summer Fridays. It’s a lucrative niche: earnings have continued to rise steadily post-pandemic, generated with a relatively small network of 76 stores, in the UK. A combination of a generous loyalty programme, well-trained staff and its reputation as a tastemaker make it a continually attractive shopping destination.
Everyone Else
Not so long ago, Olaplex would have been on the list of red-hot brands with soaring sales. But its innovative approach to hair care as a pioneer in bond-building has since amassed plenty of competition from brands like K18 and Epres. Without exciting new offerings to keep ahead of rivals, sales have collapsed. On Thursday, the company reported a 13.1 percent decline in first-quarter sales compared with a year earlier. This counted as progress: a year ago, the drop was nearly 40 percent.
Meanwhile, L’Occitane chairman and majority shareholder Reinold Geiger put in a bid to take the group private, a move that would allow him to address the lagging performance of “dusty” flagship brand L’Occitane en Provence away from the prying eyes of investors (the company has done a better job with cult sensation Sol de Janeiro, which last reported 199 percent sales growth and an expectation to reach $1 billion in the past fiscal year).
And then there was The Estée Lauder Companies. The world’s second-biggest beauty conglomerate after L’Oréal reported a rare increase in sales (it had seen declines in five of the last six quarters). But it also warned that annual net sales would decrease by 1 to 2 percent, sending its stock tumbling.
Lauder has its share of hot brands, including fragrance lines Jo Malone London and Le Labo, and affordable skincare label The Ordinary. But most of the company’s sales come from stalwarts like La Mer and Clinique, and the portfolio includes brands like Smashbox that are a long way from their days as the most in-demand beauty start-ups. Most of these older brands have struggled over the course of the pandemic, though La Mer and Estée Lauder returned to growth in the most recent quarter.
Estée Lauder and L’Occitane made the same mistake of counting on the largest and fastest-growing emerging market — China — to boost these brands’ performance rather than trying to freshen their appeal with a new generation of consumers. Years later, they are still working to recover from that mistake.
Course Correction
All three of these companies have learned the hard way that staying relevant in an industry of fast-moving trends and an endless supply of buzzy start-ups requires constant innovation. There are no untapped markets where customers will automatically buy products just because they recognise the name on the box.
ELC is putting this learning into action with some promising, albeit preliminary, results. La Mer has embarked on youth-driven campaigns with Gen-Z influencers emphasising that the brand’s reformulated hero Soft Cream was “not your mom’s La Mer.” Following success with Clinique entering Amazon, ELC is planning on moving more brands into the channel as it looks beyond the department store beauty counter for distribution.
In China, too, brands have learned the importance of keeping up with its fast-moving trend cycle. ELC’s earnings report noted that a return to growth in China was driven not just by hero products, but new product innovations such as La Mer’s Moisturising Fresh Cream and Estée Lauder’s Ultimate Diamond Transformative Brilliance Soft Creme Moisturizer. L’Occitane previously announced a €100 million ($106 million) investment into marketing to revive its core properties, like L’Occitane en Provence and Elemis.
But the China market is no longer low-hanging fruit for growth, even without the pandemic restrictions that disrupted beauty spending. Successful navigation of beauty’s hype cycle will remain key in every geography this year as conglomerates need to keep momentum going on fast-growing acquisitions while continuing to invest in keeping their classic brands fresh.
No matter how much cachet brands have with consumers today, failing to evolve both in messaging and innovation can turn a hairline fracture into a full-on break. Puig and Space NK should take heed.
THE NEWS IN BRIEF
FASHION, BUSINESS AND THE ECONOMY
LVMH considering options for Marc Jacobs amid buyer interest, say sources. The review is in the early stages and LVMH hasn’t made a final decision on how to respond to the interest. LVMH has restructured Marc Jacobs in recent years, which led to a simplification of its product offering.
Tapestry-Capri deal to face September hearing. The preliminary injunction hearing on the US Federal Trade Commission’s bid to block Tapestry’s takeover of Capri will likely last a week and a half, the judge said. Tapestry shares rose 2.3 percent and Capri shares gained 0.8 percent following the news.
Pandora surges as lab-grown diamonds lift sales. The Danish company said organic sales are projected to rise 8-10 percent this year. The shares advanced as much as 6.6 percent in Copenhagen, and are up more than 80 percent in the past 12 months.
Vinted moves into profit after 61 percent sales rise. The Lithuania-based group said growth had been spurred by entering new markets and expansion into luxury fashion. Sales rose to €596 million ($637 million) last year — making it about a third of the size of Asos.
Next sales rise as inflation pressures ease. The British fashion and homewares company said full price sales climbed 5.7 percent in the first quarter, which was slightly ahead of an expected 5 percent rise. The company stuck with its outlook — that it will generate £960 million ($1.2 billion) of pretax profit with group sales rising 6 percent this fiscal year.
Mulberry’s full-year sales fall 4 percent. The British brand’s share price, which has fallen by almost 60 percent this year, declined by a further 4.5 percent. Mulberry blamed the luxury spending slowdown and a lack of VAT-free shopping for the declines.
Sneaker brand On to launch new line with FKA Twigs. The British musician will collaborate with the Swiss company on a collection of training apparel and footwear, and will serve as the face of the first collection to be released in August. Twigs is On’s first non-professional athlete ambassador since it launched in 2010.
THE BUSINESS OF BEAUTY
Shein wants to sell skincare, toothpaste and toys, too. The company is moving into other categories and has given brands and retailers access to its platform in nine European countries so far. The strategy is part of Shein’s plan to build credibility and better compete with Amazon ahead of a planned stock market listing later this year.
Bella Hadid launches fragrance line Orebella. The model launched three perfumes which will be available directly to consumers. The brand will then be available on Ulta Beauty’s e-commerce site from May 10, and subsequently in all Ulta Beauty stores from May 12.
Celebrity makeup artist Quinn Murphy launches beauty line. The label, Spatch, will debut on May 4 with a nine-piece collection of skin-perfecting products designed for professional and consumer use. It will initially be available only in the US and Canada, but Murphy hopes to offer international shipping and add more products.
PEOPLE
Sandra Stangl is exiting Banana Republic. Stangl joined the business in 2020 and sought to revive the struggling mall brand. Despite a brief uptick in sales, up 24 percent between 2021 and 2022, the brand’s growth has stalled.
Peloton CEO to step down. Barry McCarthy announced plans to leave his post as the struggling fitness company embarks on a major restructuring that will reduce its global workforce by 15 percent. The shares fell as much as 16 percent upon the news.
Cascale appoints new CEO. Former Under Armour COO Colin Browne has been appointed to lead the industry organisation formerly known as the Sustainable Apparel Coalition. The move was positioned as a way to acknowledge its broadening scope as it aims to address industries beyond apparel.
Susanna Lau joins System magazine as digital editorial director. The move comes as System owner Mike Obenson aims to turn what began as a bi-annual print title into a global media brand with a stronger digital offering. Lau, known online as Susie Bubble, was part of the first wave of digital creators to shake up fashion media in the mid-2000s.
MEDIA AND TECHNOLOGY
Condé Nast Union threatens strike ahead of Met Gala. Union members have pledged “to walk off the job” if progress is not made on contract negotiations. They have also promised “a week of union actions” in a statement from the NewsGuild of New York, the union’s organising body.
TikTok Shop tops 500,000 US sellers after 2023 e-commerce launch. Worldwide, TikTok’s e-commerce platform had more than 15 million sellers in December, adding more than 6 million in the second half of the year. E-commerce is seen by TikTok as its next big potential revenue source as well as a way to keep users spending time and money on its app.
Compiled by Yola Mzizi.
