Coty Inc. is now the third largest beauty company in the world.
This story first appeared in the October 4, 2016 issue of WWD. Subscribe Today.
The business closed the acquisition of 41 beauty brands from Procter & Gamble, adding fragrance licenses for Hugo Boss and Gucci, color cosmetics lines Cover Girl and Max Factor, and a slew of professional hair brands. New chief executive officer Camillo Pane, who stepped into his role Monday when the deal closed, is plotting growth through two areas he said he is “passionate” about — innovation and digital.
“Innovation, especially in beauty, can really change the course and the result in a certain way, because consumers are looking for better solutions, better products to feel better and to feel more confident and to really be able to express their beauty their way,” Pane said.
“Innovation…is at the core of what we believe will generate our success in the future,” he continued. “We are working on strengthening our pipeline … we have very interesting projects coming through the second part of the fiscal year and for the following years.”
Digitally, the goal is to connect more with the Coty consumer, Pane said, highlighting the group’s 2015 acquisition of digital marketing business Beamly, which has worked on several campaigns for Rimmel. “The [amount] of contact that we were able to have in such a small period of time to engage with our consumers has really been much higher than what we were able to do in the past,” he said. Rimmel’s Get the Look mobile app was also a success, he said. “For a month, it trended with a number of downloads as the second app in lifestyle in the U.K. — even ahead of Tinder,” Pane said.
Coty now has about $9 billion in revenues, the company said. In their most recent fiscal years, the Estée Lauder Cos. Inc. had $11.26 billion in net sales while L’Oréal posted more than $28 billion in sales. Coty’s shares were trading up slightly Monday morning, to $23.82.
To handle the influx of brands, Coty reorganized itself into three different segments: Coty Luxury, which houses prestige fragrance and skin care; Coty Consumer Beauty, which contains color cosmetics, retail hair coloring and styling products, plus mass-market fragrance and body care, and Coty Professional Beauty, which will serve hair and nail salon owners.
“We have a substantially better organization structure to service the business,” said chairman Bart Becht. “It’s much more focused because we have three divisions, each one which is focused on a single channel of distribution and few categories.”
Realigning its product portfolio includes shedding brands, according to Becht, who estimated that Coty will divest 6 percent to 8 percent of its business. “With the acquisition, we will have substantially too many brands in the portfolio so there will be some brands [that] will be divested within that portfolio….It will be in particular the bottom end of the fragrance portfolio — some of the smaller brands we’ll be looking at divesting out of the portfolio.”
Coty owns a range of fragrance licenses, from Marc Jacobs, Calvin Klein and Chloé to Beyoncé, Nautica, Jennifer Lopez, Playboy and Vespa.
Fashion-aligned fragrances present a special opportunity, according to Pane. “We have brands that also in the fashion world are truly having great momentum….I’m thinking about Gucci with the success they’re having in the fashion world with Alessandro Michele at the helm, I’m thinking about Raf Simons joining Calvin Klein, Marc Jacobs for Marc Jacobs and some of the other great brands like Bottega Veneta, Miu Miu,” he said, adding that partnering with strong fashion houses should spur growth.
For the other parts of the business, expansion is planned in several ways, including in connecting more deeply with the consumer.
“The level of expertise that we have both on category and channel…is going to really put us in the right place to generate growth,” Pane said. “The growth can come from accelerated innovation… it can come from expanding some of the brands through geographic footprint, and at the end of the day, growth will come also from engaging better with our consumers through the digital capabilities and the in-store programs that we will put in place.”
Coty has acquired fragrance licenses for Hugo Boss, Gucci, Lacoste, Bruno Banani, Escada, Mexx, James Bond, Gabriela Sabatini, Stella McCartney and Alexander McQueen, plus Wella Professionals (and sub-brands), Sebastian Professional, Clairol Professional, Sassoon Professional, Nioxin, SP, Koleston, Soft Color, Color Charm, Wellaton, Natural Instincts, Nice ‘n Easy, VS Salonist, VS ProSeries Color, Londa/Kadus, Miss Clairol, L’Image, Bellady, Blondor, Welloxon, Shockwave, New Wave, Design, Silvikrin, Wellaflex, Forte, Wella Styling, Wella Trend, Balsam Color, Max Factor and Cover Girl.
As part of the deal, Coty is assuming $1.9 billion in debt for the specialty beauty business. The company expects to generate $750 million in total cost savings through the deal, including synergies. Within two years, Coty expects to generate close to $1 billion in free cash flow from the purchase, and within four years, expects profit margins to expand to 19.6 percent.
Even with such a substantial acquisition, Coty isn’t ruling out future deals. “Acquisitions will be part of our growth strategy going forward, as it is for all beauty companies,” Becht said. “The key focus which we’re having at the moment is to make sure that we divest the 6 to 8 percent. Clearly if there are acquisition opportunities which are interesting to us [we’ll] look…but we’re not committing to any targets or any [timeframe].”