A SPREE FOR COSMAIR: L’OREAL DIVISION BUYS KIEHL’S AND MATRIX

Byline: Pete Born / Kerry Diamond / with contributions from Alev Aktar

NEW YORK — After 2 1/2 years of wooing, Cosmair Inc. has acquired one of the beauty industry’s most highly coveted prestige companies — Kiehl’s.
And WWD has learned that’s not the only news to come out of Cosmair: A deal has also been signed for Matrix Essentials.
The Monday morning announcement about Kiehl’s came as a surprise because Jami Morse Heidegger, its owner, had been adamant about keeping her family-run business independent. But the 149-year-old cult brand, with its heavy celebrity following, was a victim of its own success.
“We’ve had offers on the table for years, but we didn’t think it was necessary to sell the company,” said Heidegger. “The turning point was this Christmas. The staff almost had a nervous breakdown, and we had 3,000 back orders and hundreds of unreturned phone calls. Customers were getting angry with the out-of-stock situation.”
For a company that prides itself on customer service, she added, this was unacceptable. Heidegger made the decision in February, and contacted Philip Shearer, president of Cosmair’s Perfume and Beauty Group. He had been courting Heidegger and her husband, Klaus Heidegger, since 1997.
As startling as it was, the Kiehl’s deal was not the only acquisition announced on Monday. Guy Peyrelongue, Cosmair president and chief executive officer, said the company also bought Matrix, a key player in the salon hair care industry with sales of $342 million. (See accompanying story).
The Matrix purchase follows other Cosmair hair care acquisitions in recent years, but the Kiehl’s deal is the company’s first prestige market addition in several years. According to Cosmair, Kiehl’s has an estimated wholesale volume of $40 million.
While the terms of the acquisitions were not disclosed, industry sources speculate that Kiehl’s was purchased for roughly $80 million to $100 million.
Cosmair and its parent, the global giant L’Oreal, have sat out the LVMH-Estee Lauder-Pinault shopping spree, in which these major companies have been snapping up small, independent prestige market brands at an unprecedented rate. Instead, L’Oreal has focused on building its existing prestige brands — such as Ralph Lauren, Giorgio Armani, Lancome and Helena Rubinstein — while making acquisitions in the mass market.
“L’Oreal is concentrating on building its brands,” Peyrelongue said, “but making well-targeted acquisitions is also part of the strategy.”
For her part, Heidegger was attracted to Cosmair precisely because they hadn’t made multiple deals over the last few years. “I felt they would be able to give Kiehl’s the time and the attention that it needs,” she said.
As for Cosmair, Kiehl’s fits into its brand-building credo because it has an intense and influential following, despite not spending a penny on advertising. The Heidegger’s have built the brand through relentless sampling, rigorous sales training, generous charitable donations, celebrity endorsements and relationships with the press.
“This brand services a certain type of customer in a certain way,” said Shearer. “We don’t have a brand in this niche.” What he meant was a brand that is both high-priced and hip, or what Heidegger referred to as “a Barneys’ brand.” Shearer also liked that Kiehl’s has a substantial male following, a segment not addressed by most of Cosmair’s brands.
Kiehl’s draws much of its funky, homey image from its one store, an eccentrically decorated old-style establishment on Third Avenue at 13th Street in New York’s Greenwich Village. The brand is also distributed in nearly 350 specialty doors and a sprinkling of boutiques around the world.
The product assortment consists mostly of personal care products — shampoos, toners, shaving creams and moisturizers. The company also has a popular line of baby products and perfume essences. Prices range from $6.50 for a 4-oz. rosewater toner to $70 for a 4-oz. SPF 18 moisturizer.
But for all of its qualities, the brand is deficient in several areas. And this, said Shearer, is where Cosmair can help, particularly in developing global distribution and improving order fulfillment and product development. Shearer was quick to point out that L’Oreal is not looking to change what makes Kiehl’s special: “We plan to keep the message, but globalize it.”
Kiehl’s is the number-one resource at Fred Segal Essentials in Santa Monica, Ca., according to owner Robin Coe-Hutshing. “It’s a huge percentage of our business,” she said. “There’s not one stockkeeping unit that doesn’t sell, and it’s a huge line. By the time we get the order, our shelves are bare every month.
“From a retailer’s standpoint, if we could get our orders faster we could sell that much faster,” she said. “We could probably increase our business by 20 to 30 percent.” She explained that most vendors ship two to three weeks after an order is placed, but Kiehl’s takes between four and six weeks.
Cosmair has signed Jami Heidegger to a three-year contract, with an option to renew for an additional two years.
The Heideggers will serve as co-presidents for the first year, reporting to Shearer.
Clearly this was a hard decision for Jami Heidegger. Not only are she and her family members emotionally attached to the brand, but so are Kiehl’s 189 employees. In fact when the news was announced Monday morning at the Third Avenue location, several staffers broke into tears.