This year's CosmoProf Las Vegas trade
show marked the ninth year of attendance for B. Riley's Beauty and Personal
Care team. While overall booth count was between 20-25% lower than last year,
attendance was strong and everyone was bullish on the sector's current
performance and momentum looking ahead to the next 18 to 24 months. A recent industry
survey1 showed that of consumers already looking to cut their
budgets, approximately 70% stated they would not be decreasing their beauty
spend - the lipstick factor in full effect!
B. Riley's team met with many
brands, private equity firms, and industry participants to discuss the trends
driving today's beauty and personal care categories. Some of our key takeaways:
The nail category is innovating and monetizing on
social media trends
·
Personalization
drives continued growth
o
The nail
category continues to emerge as a leading avenue for self-expression. Brands
have successfully harnessed the power of influencer marketing to push colorful
and unique stickers and paint kits to their customers. Consumers show off their
personalized nails through social media, further fueling the marketing engine. Many
brands are successfully championing this strategy by collaborating with
influencers on custom designs.
·
Subscription models
present an opportunity
o
The nail segment
is ripe for growth in subscriptions. Several brands have built robust models
around this concept, becoming household names in the last few years. For
example, ManiMe and Olive & June, both offering monthly nail art
subscriptions, established themselves as early leaders during the pandemic.
Both brands increased revenues by over 10x between 2019 and 2021 and have
continued to grow rapidly ever since.
o
While consumers have responded well to early movers,
further proving the model, opportunity remains for existing brands with a
premium lean. Today's options for nail care subscriptions largely feature
bright, eye-catching designs and market to a younger demographic, commonly
targeted via TikTok. Despite promising results from early adopters, the
category remains largely untouched by brands with more legacy audiences and historically
higher price points.
·
Wider category
adoption by men in the U.S.
o
In recent
years, the male customer has emerged as a meaningful contributor to growth [in
the nail category]. While this trend has been in motion internationally, men
are now paying increased attention to nail hygiene in the U.S. According to
StyleSage, LookFantastic reported a greater than 4X increase in searches for
"male manicures,'' and over 3,300% rise in searches for "easy male
nail art." Brands are responding in droves by launching collaborations
with major male celebrities including Machine Gun Kelly, Harry Styles, and
Tyler the Creator. This trend is evidence of the greater push toward
gender-neutral beauty.
Growing interest in body care
·
Consumers are
pushing for cleaner body care options
o
Two-thirds of
consumers recently surveyed seek brands using clean ingredients1.
While the face and skin care segments have been focused on clean formulas for
years, many of the most common body care categories have yet to go through the
same focus and evolution. Brands are tapping into this trend by upgrading and
changing existing products' formulations, and remarketing them as natural, safe
/ non-toxic, or organic. One of the most targeted categories as of late has
been sunscreen. Brands have successfully combined clean formulas with unique
packaging, scents, and function.
·
Emergence of
intimate skin care
o
Increased
consumer knowledge and dialogue is driving demand for products intended for the
bikini area. This increased awareness is driving demand for specialized
products and formulations. The women's intimate care products category
currently accounts for just 17% of the global skin care market but is expected
to grow at an average rate of 4.1% to $38 billion through 20302.
o
Investors have taken a liking to the category,
targeting companies with proprietary formulas and sticky customer bases. For
example, Gridkor, an asset manager based in Pennsylvania, recently acquired The
Perfect V, an intimate skin care brand offering products designed to maintain
the proper pH balance. Gridkor intends to explore licensing opportunities for
the brand's VV Cream and Vanicure lines.
PE and strategic groups are increasingly interested
in fragrance
· Recent M&A activity in the
space
o
DSM / Firmenich Merger: In May 2023, DSM, a Dutch health and nutrition specialist,
merged with Firmenich, a Swiss flavors and fragrance group. Following the
merger, Firmenich's perfumery and ingredients business will expand further into
beauty through the addition of DSM's personal care and aroma business. The
newly formed group is seeking to provide fragrances that make customers feel
hygienic and physically / mentally well.
o
Puig acquisition of Byredo: Puig, a house of luxury brands
in the fragrances, makeup, and skincare categories, acquired Byredo, a creator
of high-end fragrances, makeup, and body care products, for $1 billion (est.
10x revenue). Leading up to the sale, Byredo garnered significant interest from
several parties, including L'Oreal.
o
Growth investment in
Juliette has a Gun: In May 2023, Cathay Capital Private Equity and
Weinberg Capital Partners, two French-based private equity funds, lead a growth
investment in Juliette Has a Gun, a fast-growing perfume maker targeting young
women.
o
Advent majority
investment in various brands: Last month, Advent
International, a private equity firm out of Boston, acquired a majority stake
in the Sprecher Berrier Group of Companies and French brands Parfums de Marly
and Initio Parfums Privés. The deal was reported to be over $700 million in
enterprise value.
· Mass retailers making significant
investment into the fragrance category
o
Seemingly
recognizing the momentum in fragrance, Target has capitalized on the category.
In March of this year, Target partnered with Maesa to create three new
exclusive fragrance lines with a focus on providing affordable luxury to the
consumer. The partnership amassed over 10 million views on TikTok within months
of its launch, and sales exceeded original forecasts by 450%.
o
Other mass
retailers, including Walmart and Ulta, are following suit by evaluating
strategic opportunities in the fragrance category. Like Target, Walmart is
leveraging TikTok to hold engaging shopping events centered around
collaborations with engaging brands. Walmart has collaborated with Space NK and
Garnier, among others. Further, Ulta is also working with Target to expand
their in-store selection of fragrance brands. This past year they added Coach,
Clinique, and Kate Spade New York, among others and are evaluating additional
fragrances.
·
Prestige segment
leading focus
o
Since 2019, the prestige fragrance category has
increased by over 50% in sales dollars and by over 20% in unit sales1.
o
Desirable margins and sustained demand from
high-income consumers continue to attract new entrants and outside capital to
the category.
o
Higher income consumers are driving outsized
performance. On a unit-sold basis, the prestige fragrance category grew 11% YoY
while the mass market segment experienced a YoY decrease1. Since
2019, the average unit price for prestige fragrances has increased $15 to just
under $721.
·
Hispanic and Black
consumers driving accelerated growth
o
A recent study
stated that over 85% of Hispanic and Black consumers wear perfume and other
fragrance products, compared to 78% of the total U.S. population3.
In the first quarter of 2023, Hispanic shopper spend by dollar value increased
at 4x the rate that non-Hispanic consumers increased spending1. In
turn, competition for Hispanic consumers' attention continues to climb. As
such, brands are increasingly reliant on influencer marketing and alternative
advertising channels to tap the rapidly growing demographic.
Outlook
for M&A
·
While the first
half of 2023 remained mixed in terms of deal activity in the space, there have
been signs of strengthening. Large
acquirers and private equity groups remained active, targeting highly-branded
acquisitions with strong gross margins and customer loyalty.
o
In January 2023,
P&G Beauty acquired Mielle Organics, a leader in the textured haircare
category. The global conglomerate Unilever sold Suave North America to Yellow
Wood Partners in February. Further, Aesop, an Australian personal care company,
was acquired in April by L'Oréal for $2.5 billion.
· Deal volume for the second half of 2023 is expected to remain
lower than the historical average. While volume is expected to remain low,
industry participants expect valuations to remain stable, reflecting the
competitiveness of the industry
o
Following
similar year-to-date trends, larger players are expected to make meaningful
additions to their platforms at market-leading multiples. Brands with strong
consumer recognition, scalability and potential in complementary categories, as
well as companies with proven margins, continue to emerge as highly coveted
targets. L'Oréal, P&G, Unilever, Coty, and Estee Lauder all inked deals in
the first half of the year and are expected to evaluate deals throughout the
rest of the year.
·
The nail, body
care, and fragrance categories will continue to garner increased interest from
both private equity and strategic buyers. Category leaders are leveraging
product innovation with effective marketing strategies to create a loyal
customer base. With several traditional categories showing signs of
consolidation and maturity, competition for these high-growth assets is
expected to rise and remain strong through year-end.
·
Despite
lingering fears of a recession, investors and companies continue to search for
the next trend driving growth in the beauty industry. B. Riley remains
optimistic that the U.S. consumer will continue to show signs of resiliency and
appetite for beauty and M&A will increase. Participants remain eager to
evaluate acquisition opportunities and strategic options.
Sources: 1Circana
Prestige Beauty Report, 2 Future Market Insights, 3 NPD Group