By Faye Brookman and Molly Prior
with contributions from Susan Stone
 on April 17, 2015

All eyes are on Procter & Gamble Co.’s beauty business, as the industry waits to see what stays and what will go.

This story first appeared in the April 17, 2015 issue of WWD. Subscribe Today.

Financial sources and retailers are buzzing about which companies will make a play for the P&G brands hitting the market.

Sources frequently name Coty Inc., Henkel AG and Unilever as potential buyers for pieces of the P&G beauty portfolio.

On Thursday evening, Reuters reported that Revlon is keen on taking a hard look at P&G’s cosmetics brands, namely CoverGirl and Max Factor, both of which have dimmed in importance and shrunken in size. Revlon declined to comment.

Revlon president and chief executive officer Lorenzo Delpani is determined to restore Revlon to its past status as an icon. Perhaps he has the energy and ambition to do the same with CoverGirl.

Industry consultant Allan Mottus noted that retailers have trimmed CoverGirl’s display space in recent years. “CoverGirl is definitely on a downward slope. It’s up for sale, and without continuity, it is not going to survive. Beauty brands need constant, tender, loving care.”

Bernstein analyst Ali Dibadj also predicts that P&G may ultimately shed the brand, along with its cosmetics portfolio. “We also think cosmetics, including CoverGirl, may be another potential divestiture candidate, given its deterioration in sales that has significantly underperformed the market more recently,” he wrote in a recent research note.

He also believes P&G may divest larger segments of the business, such as salon professional, Braun, prestige fragrances, and potentially sell or discontinue some smaller brands. He named both Sally Beauty Holdings and Henkel as possible candidates for the salon business, and Unilever has a potential buyer for the Wella piece. He sees Coty as a prospective buyer of the fragrance portfolio and perhaps the high-end SK-II skin-care brand.

Should P&G opt to sell all these pieces of the business only Olay and its retail hair-care brands, such as Pantene and Head & Shoulders would be left, morphing P&G into a household products and personal-care company.

Retailers are making their own predictions about P&G strategy, with many saying they are anxious to have a new buyer reinvigorate the company’s venerable brands.

They also see CoverGirl as suffering from a lack of innovation. “CoverGirl has been having a tough run with new items. They just aren’t performing,” said one top chain source. “The new initiative, Ultra Smooth Foundation, is not performing at all.”

Another retailer noted that independent and small brands are “eating their lunch.”

An informal poll of consumers revealed CoverGirl has lost traction with traditional mass market shoppers. Only one in 30 mentioned that they look for CoverGirl when in the market for beauty.

According to data from IRI for the 52-week period ended Jan. 25, in all mass doors, CoverGirl beauty product sales declined in eight out of 15 cosmetics categories. Dollar volume also dropped in two out of three skin-care classifications. P&G’s hair products were off in five out of nine product areas.

Chain sources said the potential suitors have their own set of challenges. “Coty is in maintenance mode,” a mass retailer said. “If not for [Sally Hansen’s] Miracle Gel, there would be no action at all. Their fragrances are a disaster and they are mismanaging Philosophy and OPI.”

Meanwhile Revlon is attempting to regain prominence in the mass market. Despite its ever-changing management at the top, the brand has not lost its following with consumers. Revlon was the number two most sought-after brand in mass stores, according to the informal survey, behind L’Oréal. Its Almay division, however, continues to struggle, buyers said.

Meanwhile in Europe, P&G has reportedly been delivering documents to some potential bidders for Wella, its Darmstadt, Germany-based hair-care business, as well as some cosmetic brands and its fragrance portfolio, according to a report by Reuters. Düsseldorf-based Henkel AG was in the running for Wella in 2003, purchasing a 6.86 percent stake in the firm through a subsidiary before P&G gained a controlling stake two weeks later. Wire reports suggest Henkel, whose hair-care brands include Schwarzkopf, Syoss and Taft, may also be interested in P&G’s other hair-care brands, including Clairol and Pantene. Revlon and Coty have been named as possible bidders for P&G’s cosmetics and fragrance businesses.

A spokeswoman for Henkel said on Thursday the company does not comment on market speculation. But the company has an evident eye toward expansion. Last June, Henkel acquired a trio of U.S. hair firms — SexyHair, Alterna and Kenra — in cash sale of $282.3 million, to strengthen its North American presence and add to its hair professional unit. An estimated 60 percent of Wella’s $2.8 billion in sales come from hair salons, according to an April 8 note by analyst Jeff Stent of Exane BNP Paribas; Stent also stated that this pro sector had little synergy with the rest of P&G’s mostly consumer business. Stent and other Exane analysts also suggested last year that antitrust complications were potentially problematic if Henkel did take over Wella.

At the company’s annual general meeting on Monday, Henkel ceo Kasper Rorsted said, “Acquisitions are part of our strategy. This is also a reflection of our financial strength. Based on this, we intend to continue investing in the growth of our businesses.”