As demand for staples slows, household-goods companies acquire
startup beauty brands
By Sharon Terlep and Jaewon Kang
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 22, 2019).
Facing stagnant sales of household mainstays from diapers to
detergent, the world's biggest consumer-products companies are
trying to crack the lucrative market for influencer-pitched,
millennial-approved skin-care products.
Household-goods makers such as Procter & Gamble Co.,
Colgate-Palmolive Co. and Unilever PLC have begun snapping up
skin-care startups selling pricey creams, serums and lotions --
long the domain of beauty companies -- while relying on Instagram
and Sephora, a U.S. beauty chain, to drive sales instead of
drugstores and shopping malls.
Colgate said on July 11 it would pay $1.7 billion for Filorga, a
luxury French skin-care line. Last year, P&G bought two
high-end skin-care companies, First Aid Beauty and Snowberry, for
several hundred million dollars.
In the past two years, consumer-products companies acquired
nearly a dozen skin-care brands, far more activity than in previous
years, according to Dealogic.
Drunk Elephant LLC, a skin-care startup that touts limited
ingredients, is considering a sale and has drawn interest mostly
from consumer-products companies, said people familiar with the
Makers of household goods are striking such deals partly because
they are being squeezed by both demographic and competitive
pressures. Americans are having fewer babies and households are
shrinking, denting demand for staples. Consumer-products companies
haven't returned to prerecession sales growth, and analysts don't
expect sales gains to accelerate in the near term.
Consumers, meanwhile, are increasingly gravitating to smaller,
niche and online-only brands that are stealing share from big names
such as Gillette razors and Colgate toothpaste.
In contrast, skin-care products represent a lucrative and
fast-growing global market, attractive to more millennials and men
while still holding appeal for aging baby boomers. Sales are
growing in overseas markets as well, particularly in Asia, where
the expanding middle classes are willing to spend big on better
Mainstream offerings have grown well beyond basic cleansers,
night creams and face masks, to include a range of serums and
products from facial oils to charcoal acne treatments. P&G's
First Aid Beauty's products include a $26 detox eye roller and a
$32 jelly mask. Colgate's Physician Care Alliance Skin charges $100
for a 1-ounce tube of "antioxidant corrective."
Skin care is a $135 billion global industry, more than cosmetics
and fragrances combined, according to Euromonitor. Sales of
skin-care products have grown more than 30% since 2013.
All that adds up to bidding wars for trendy names, bankers and
consultants say, with deep-pocketed consumer companies driving up
"We see a race right now for these brands," said Gary Stibel,
chief executive of New England Consulting Group. "Our clients are
looking to acquire and they are prepared to pay more than we think
they should pay for beauty startups."
Skin-care product makers tend to be a better fit for big
consumer companies than makeup or fragrance brands, Mr. Stibel
said, because they are more reliant on efficacy and less
style-driven. While the brands strategically make sense, companies
are overpaying in a rush to drive sales growth, he said.
P&G's recent activity comes a few years after the company
sold most of its beauty business to Coty Inc. in a $12 billion
deal. The unloaded brands -- mass-market names such as Cover Girl
and Clairol -- have proven costly for Coty, which has struggled
since the acquisition.
One of the beauty brands P&G kept, SK-II, a high-end
Japanese skin-care line popular in Asia, has been boosting sales.
Another, drugstore perennial Olay, has received a makeover as
P&G works to restore the brand to growth.
P&G historically has focused on skin-care products with
broad appeal, such as Olay, a mainstay of drugstores, grocery
stores and big-box retailers. The company sees rising demand among
younger women who, in addition to investing in skin-care as early
as their 20s, are building regimens involving an array of products.
A woman in her 20s or 30s who buys skin-care products on average
uses six products daily and spends about $260 a year, a company
Whereas brands and dermatologists once had to persuade people to
consider skin-care regimens, "now women are more educated about
skin-care and are proactive about investing in their skin at a
younger age," the spokeswoman said.
Brands in demand play to niche markets, from products with
all-natural ingredients to lines with a medical pedigree. They are
mostly companies founded in the past decade or so, often by
entrepreneurs who found their audience on social media, and existed
only online before moving into retailers.
Unilever has been a prolific buyer of beauty brands over the
years, having purchased names such as Hourglass, Kate Somerville
and Dermalogica. In June, the company agreed to pay about $500
million for Japanese beauty-inspired skin-care company Tatcha,
people familiar with the matter said. The price tag equates to a
multiple of nearly five times its projected revenue for 2019, the
Unilever, which looked at Tatcha during its previous
capital-raise process in 2017, approached the business earlier this
year and pre-empted a broader auction, the people said. Bidders in
sunscreen brand Sun Bum's auction, too, were mostly other
companies, including consumer conglomerates, the people said. S.C.
Johnson & Son Inc. struck a deal in June to buy the brand.
"These businesses are trying to sustain their growth profile,"
said Rich Gersten, a partner at private-equity firm Tengram Capital
Partners who specializes in backing beauty brands. "And one of the
main ways to do that is through M&A."
Write to Sharon Terlep at firstname.lastname@example.org and Jaewon Kang
(END) Dow Jones Newswires
July 22, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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