Cutting ties?
It’s no secret that several strategics are assessing their portfolios at a pace not seen before as demand for foreign beauty products fails to bounce back in Asia and signs of a slowdown in the U.S. emerge.
Most talked about is the Estée Lauder Cos. tapping consultancy Evercore to review its portfolio and speculation continues that its hair offering (Bumble and bumble and Aveda) or California brands (Smashbox, Glamglow and Too Faced) could be targets. (The company insists no divestitures are planned.)
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L’Oréal USA, meanwhile, made headlines in March when it sold Carol’s Daughter to an unnamed independent beauty entrepreneur. And at Unilever, the fate of Ren Clean Skincare, which has hung in the balance for a while, looks likely to be decided soon in the form of the brand potentially being shuttered. Most recently, Coty Inc. sold its 20 percent stake in Skkn by Kim to Skims, Kim Kardashian’s lifestyle brand, following years of speculation over the future of that partnership.
Other players looking to downsize include Shiseido, which said it is assessing exit and downsizing options for certain operations as it focuses on its core brands. Natura & Co., which already sold off The Body Shop and Aēsop to simplify operations and reduce debt, is also exploring options for Avon’s international business.
They’re not the only ones.
“Every single strategic company right now is looking at a reframe, a reboot, a restructuring of the portfolio, a restructuring based on the geographies, a restructuring based on the channel dynamics,” said one industry source. “There’s a lot of stranded assets.”
According to Ashleigh Barker, a director at Lincoln International’s consumer group, while there are several brands that have a great reason to exist and to be on the shelf, in uncertain times the decision to keep a brand ultimately comes down to driving shareholder value.
“We did have a very active and heavy acquisition period where several strategics were scooping up brands left and right. As the beauty market has changed and evolved and become even more crowded, it does become a lot more difficult for these brands that used to be stars to maintain that momentum,” she said.
“The fact of the matter is retail has become more challenging. A lot of these brands have lost shelf space,” she continued. “If you know the cost of marketing, particularly digital customer acquisition, is becoming more expensive, you also bring other supply chain issues into the fold. All of these variables ultimately culminate into whether or not this is a loss-driving brand that’s going to bring down our bottom line. For several of these public entities, they really need to think about their shareholders and how they can continue to drive value.”
All this begs the question of when and how a strategic decides to keep an underperforming asset versus shuttering the brand or selling it. The answer, it turns out, is that it is very personal to each organization and often dependent on market dynamics.
When Lauder shuttered the Australian makeup brand Becca in 2021, sources told WWD that there were potential buyers in the midst, but still executives closed it. Instead, some of its most iconic products like Shimmering Skin Perfector Pressed Highlighter were moved to other Lauder brands like Smashbox.
Sources believe in cases like this, closures are more likely than divestitures, as “you do not want to sell a brand to a competitor and then have the competitor do better than you with that brand.”
It could be different, though, at Lauder in 2025 as it is now helmed by an executive team that did not make the original decisions on brands, meaning that selling isn’t an admission of failure on their behalf.
Another factor in favor of shuttering a brand is that if a brand becomes so small, it’s often easier to pull the plug than sell.
Nevertheless, Lincoln believes that in general, selling is the best option versus shuttering a brand.
“That would always be most desirable. A brand that wasn’t a core focus for one owner’s portfolio could be optimal and attractive for another,” she said. “So while there could be some elements of ego that come into it, if a brand has all of the attributes and the demand from consumers to continue to be in the market, it would behoove that existing owner to explore that sale, so I don’t think that they would shutter a brand just for the sake of not wanting to see another owner be more successful with it.”
When there are no buyers, however, a strategic might decide to hold onto an asset to either try to breathe life back into it or wait for the M&A market to improve or both.
In the current muted market, there have been several examples of strategics quietly shopping their assets and then holding on to them given the lack of demand or inadequate offers. Think Unilever and Kate Somerville.
“If the target buyer universe is private equity (rather than a strategic to strategic sale), then the market environment is a big factor,” said an industry source. “When private equity can’t exit current investments (where we are today), they are less likely to bid on more assets for the portfolio. This universe of buyers tends to be more reactive to real-time market dynamics, rather than taking a longer term perspective.”
No wonder, said another source, that so many strategics are hoping that the current logjam in M&A breaks soon.