For the global beauty industry, the year ahead promises the continued rise of indie brands and perpetuation of competitive and reactive acquisition sprees from major players. Barring financial market disturbance, trends for 2017 are expected to simply be an evolution of those from 2016 — where the big players enveloped smaller, growing companies in hopes of benefitting from their expansion and innovation.
L’Oréal paying a 6.1 times multiple to buy It Cosmetics for $1.2 billion and Estée Lauder paying a 5.5 times multiple to purchase Too Faced for $1.45 billion are prime examples of corporations’ thirst for burgeoning brands. And while acquisitions are expected to roll in throughout the new year, the focus is expected to diversify away from makeup, highlighted by deals like Unilever’s planned purchase of hair-care brand Living Proof.
Makeup (and selfies) will still be in vogue— but as the youngsters driving growth realize their makeup-heavy routines have taken a toll on their pores, the skin-care category could show signs of life. And the mass market might just one-up prestige — NPD Global beauty industry analyst Karen Grant divulged to WWD that mass skin-care was on track to surpass prestige skin-care in sales gains for the year.
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“The momentum around mass right now, especially in facial — which is its biggest category — is huge,” said Grant. The key is shifting focus away from antiaging and towards overall skin health. “It’s a question of evolving the offering and the messaging,” said Grant. “It’s not so mono-focused [on antiaging]. The consumer is not just looking for one option.”
In 2016, the mass skin-care category quietly gained traction as the pressure of competition galvanized legacy brands to churn out prestige-inspired innovation, such as the Pure Clay Masks from L’Oréal Paris, Garnier SkinActive Micellar Water and Neutrogena’s Light Therapy Acne Mask. The newness will continue in 2017 as legacy brands unleash more upscale-leaning product innovations. Inspired by the success of SK-II in the U.S., Olay is releasing its Regenerist and Luminous Miracle Boost Concentrates, and Garnier is launching a line of sheet masks. Ingredients at mass will become more sophisticated, as L’Oréal Paris launches a clay range for hair and Garnier utilizes hyaluronic acid.
In prestige, this could be the year that Victoria Beckham’s limited-edition color collection for Estée Lauder becomes permanent. On the ingredient front, Korea remains to beauty what Silicon Valley is to the tech world, producing goods with higher concentrations of star ingredients. The beauty retail specialty stores — including Sephora, Ulta Beauty, Bluemercury, Cos Bar and Space NK — will continue to grab market share from mass-market chains and department stores. Specialized beauty “bars” operating on the DryBar model will proliferate, becoming more and more part of customers’ daily routines and expanding to major U.S. cities beyond New York and Los Angeles.
Behind much of the beauty boom is a younger consumer who is simply using more products. That anticipated continued growth means that the sector giants, and even the private equity firms that can swoop in ahead of the major players, are going to keep pouring their dollars into beauty companies. For the bigger participants that means acquisitions of brands that don’t overlap too heavily with anything they already own, while digesting the myriad of businesses they added over the past couple of years. For the PE shops, it means beating the strategic players and investing with hopes that in three years, conditions will have remained the same or improved and they can sell off at a five-times-plus multiple. Prices for companies will remain high in 2017.
Social media will continue to propel indie brands into hot takeover targets. Hundreds of thousands, or even millions, of followers are liking, commenting and sharing their favorite products and making previously unknown brands into household names.
“For 2017, we’re going to see more indie brands hit the market and get funded,” said Martin Okner, managing director at SHM Corporate Navigators. Venture capitalists already displayed their interest in the beauty category in 2016 with investments in Glossier, Memebox and Goddess Garden.
“More brands that have a multicultural angle to them will hit the market and achieve success through social influencers,” Okner added.
Those beauty influencers are indeed kingmakers, proving that social media sells product. Upending the traditional notions of advertising, this group is responsible for a shift in marketing dollars from some of the leading global brands. That, and they are becoming brands in and of themselves, with some names launching their beauty lines and products at retail. Influencers proved they can sell — and surely momentum in this space will only yield bigger deals for this group going forward.