CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL

BEAUTY

Comment Future forward Inside

6 Retail insights Travel retail

8 Tech bytes Netwatch

12 TrendingCompanies to watch

13 DataAround the world

14 Interview Shiseido Travel Retail president & ceo Philippe Lesné

18 Zoom in onM&A

22 In case you missed it

INSIGHT

New online selling platforms are attracting major groups’ attention. Over the past few months, German retail group Douglas has taken a stake in Niche Beauty, an

e-commerce site specializing in luxury cosmetics, while Henkel has invested in Purish, an e-commerce site targeting generation Y and Z, and youtiful, a social-selling platform, where the community decides through online voting which products will be added to the portfolio, recommended and distributed. These are all efforts to cultivate direct-to-consumer businesses, gain more data and deeper insights into how consumers shop. More acquisitions or investments of this type are likely—especially when it comes to online retail models focused on a specific category (clean beauty, CBD beauty), based on a precise mission or purpose (an environmental issue, for example), and those offering unique services or with a strong community approach. Distribution shifts continue. BW Confidential has been covering key shifts in the industry for 10 years. Indeed, this

month BW Confidential celebrates its 10th anniversary. To mark the occasion, we have launched a new publication: The Beauty World Guide, a comprehensive guide covering consumer, retail and tech trends in almost 30 major beauty markets worldwide.We have also published a special report on how the industry will look in the next 10 years in our October-December print magazine. And to fete this milestone, we will hold The Beauty Party at the TFWA World Exhibition in Cannes, which we hope will be a convivial occasion to meet up with old industry friends. I would like to take the opportunity of our 10th anniversary to thank all our partners for

their support over the years, our readers and the BW Confidential team both at our Paris base and around the world, who work tirelessly to bring you all news, comment and analysis of the market. Here’s to the next 10.

#195The leading publication on the international beauty industry

Subscribe

Follow us on:

Oonagh PhillipsEditor in Chiefophillips@bwconfidential.com

1www.bwconfidential.com - Beauty Insight - September 24-October 21, 2019 #195

SPECIAL PRINT EDITION BW Confidential Beauty Insight SPECIAL PRINT EDITION

C

M

Y

CM

MY

CY

CMY

K

C

M

Y

CM

MY

CY

CMY

K

Retail insights• Chinese tech and retail group Alibaba opened its first European brick-and-mortar store in Madrid, as part of its strategy to go beyond Asian markets and compete with Amazon. The AliExpress store at the intu Xanadú shopping center is designed like a showroom, encouraging customers to test and browse products before purchasing them online. It features more than 1,000 products from some 60 brands.

• Korean beauty start-up Villa de Mûrir opened a concept store in Seoul, South Korea whose design offers differentiated, interactive beauty experiences aimed at millennials. Retailing a curated selection of products from a range of beauty brands as well as Villa de Mûrir’s own products, the concept store’s dominant color is bubble-gum pink. In addition to an upstairs beauty treatment zone, product browsing area and café, the store boasts a dedicated production studio designed for selfies and YouTube beauty content creators.

• Tech company Apple and British fashion brand Burberry have co-developed a chat app designed to foster more personalized, interactive shopping experiences, and which will allow in-store associates to send customers private messages. Now in a pilot phase, the R Message app is currently available to select customers by invitation. Launching initially at Burberry’s flagship store in Manchester, UK, it will later roll out worldwide.

Travel retailNPD Travel Retail on the positive influence of travel-retail exclusives on beauty

The chart (right) highlights the importance of travel-retail exclusives (TREX)—and their influence on driving high rates of conversion—and how, for certain nationalities, it is a key consideration when they enter the beauty category. The global average has risen from

68% in wave 1 (October 2018) for beauty category visitors who would be more likely to purchase if TREX were available, to 69.1% in wave 4 (July 2019). Indian visitors to the beauty category are the most enamored of the prospect of a travel-

retail exclusive. In fact, 88% of Indian beauty visitors in wave 4 (July 2019) say TREX would positively influence their category interaction and encourage purchase. When we look at the top-three reasons why nationalities are positively influenced by

TREX, we see a consistency of “the TREX price offers good value for money”, “owning products that are not available elsewhere” and “guaranteed authenticity of the product”.

The NPD Travel Retail ‘Nationality Tracker’ is a trackable shopper insight product in duty free to understand the behaviors of 25 leading nationalities. Since August 2019, the product has 90,000 respondents across four waves (22,500 collected quarterly). NPD Travel Retail will be exhibiting at the Innovation Lab at the TFWA World Exhibition in Cannes.

The influence of TREX on your purchase decision: “I would be more likely to purchase” (Beauty Category Visitors)

Source: NPD Travel Retail

www.bwconfidential.com - Beauty Insight - September 24-October 21, 2019 #1956

erm

anno

scer

vino

.com

| in

fo@

mav

ive.

com

TFWA CANNES RED VILLAGE M30 THE NEW FRAGRANCE FOR WOMAN

San Francisco-based Tribe Dynamics shares exclusive data about beauty trends and brands making waves on social media

Tatti Lashes boasts 100% month-over-month growth in community size While it did not rank among July’s Top 10 brands for the UK, Tatti Lashes’ $3.9m earned media value (EMV) represented a significant 35% month-over-month growth. Even more impressive, the brand doubled its community size month-over-month, scoring shout-outs from 100 unique ambassadors. Tatti Lashes’ highest

earner was content aggregator Peaches & Cream (@peachesog on Facebook), which drove $597.0k EMV across eight high-impact giveaway posts. The brand also benefited from high-profile influencers, such as Jamie Grant (@jamiegenevieve), who generated $127.7k EMV via a post and video tutorial of her bridal make-up look.

Tribe Dynamics is a San Francisco-based software company that helps beauty, fashion and lifestyle brands drive and measure digital earned media at scale. For more stories and rankings of top brands and products in international beauty, check out Tribe Dynamics’ July Tribe Top 10 report for the UK here.

Tech bytes

• US-based tech company Seek is partnering with retailers including Overstock and Walmart to bring augmented-reality (AR) features to e-commerce sites, without requiring consumers to download a dedicated app. Customers can use the AR shopping tool to view 3D-renderings of products on their mobile phones before making a purchase.

• China-based microblogging platform Weibo has started public testing for a visual-based social concept that is meant to rival Instagram and local competitor Xiaohongshu. Called Luzhou in Chinese (Oasis), it combines social-media functionalities with those of a web forum. The platform allows users to upload content and connect with those who share similar interests.

• Electronics manufacturer Philips is partnering with Chinese company JD.com to improve Artificial Intelligence (AI) features in retail settings. One aim is to use natural language processing to better understand pre- and post-shopping behavior. JD.com claims its AI and machine-learning system can parse the nuances of that behavior, offering insight into improving customer experiences and optimizing product strategy. It draws on customer reviews and feedback, interactions with product pages and ads.

• Brazilian retailer Lojas Americanas has launched checkout-free automated convenience stores that rely on QR-enabled entry and exits. Customers download an app to generate a QR code for store access, scan-free purchases and automatic receipts. Stores boast smart shelf sensors and overhead cameras for security.

Netwatch

www.bwconfidential.com - Beauty Insight - September 24-October 21, 2019 #1958

THE BEAUTY PARTY

in partnership with

To celebrate its 10th anniversaryBW Confidential the leading publication on the international beauty industry

will host

MONDAY SEPTEMBER 30 - 6.30pm

Hotel Majestic Cannes

by invitation only

During the Tax Free World Exhibition Cannes

• 10 years of news • 10 years of analysis • 10 years of beauty expertise

For more information please contact: beautyparty@bwconfidential.com

MOROCCANOIL .COM

CARE-INFUSED COLOR DEPOSITING MASKS

Seven curated shades designed to refresh, enhance or playwith your color…without commitment.

MOROCCANOIL .COM

CARE-INFUSED COLOR DEPOSITING MASKS

Seven curated shades designed to refresh, enhance or playwith your color…without commitment.

Trending

Companies to watch

Better Not Younger. This direct-to-consumer haircare brand is designed specifically for women over 45. Based in Miami, the company says it rejects the concept of anti-aging in favor of celebrating and enhancing mature women’s beauty. The brand launched in March with a line of 12 products, including skus for gray and silver haircare. It is slated to retail on Sephora.com from October.

Vanity Wagon. Calling itself India’s first clean beauty store, Vanity Wagon is an online marketplace for organic or natural-based cosmetics and personal care. Founded in 2018, the company sells more than 30 local and international brands, including skincare, haircare and men’s products. It also offers a monthly organic beauty subscription box highlighting key brands.

Espressoh. This Italian digital-native make-up brand with a coffee theme puts the focus on classic, easy-to-use beauty products. Founded by Chiara Cascella last December, the brand has over 10,000 Instagram followers. In addition to selling online, it is available at high-end department stores in Milan and London. The nine-sku line-up is cruelty-free and features products formulated with caffeine or arabica coffee oil.

The pro-age beauty movement is maturing as more companies meet

consumer demand for products that celebrate aging. Rather than promoting “youthfulness”, brands such as Look Fabulous Forever and

Pause Well-Aging are designed to complement aging skin or hair.

Nearly 15,000 Instagram posts now carry the hashtag #proage, with

wellness and health an increasing focus.

Witch hazel is showing up as a key ingredient in many natural-based beauty brands, said to offer pore-cleansing, moisturizing and toning benefits. Both mass and prestige

brands are placing the folk-remedy ingredient front and center in toners, concealers and other products. Some pair witch hazel with hyaluronic acid

or other fruit acids for exfoliation.

#Glassskin has made a come-back on social media. While the K-Beauty inspired make-up look—a smoother, more reflective version of dewy skin—has been on influencers’ radars since at least 2017, new products are bringing it back to the fore. Beauty brand Tarte recently launched a skin gloss glass

highlighter that can be applied directly with the fingers.

www.bwconfidential.com - Beauty Insight - September 24-October 21, 2019 #19512

Data

Around the world • Worries about a recession in Europe continue. The European Central Bank (ECB) just announced a cut in a key interest rate, and the ECB’s bank’s president Mario Draghi said the risk of recession is ‘low, but rising’. This follows grim news from countries in the region: Germany’s output shrank in the second quarter and Italy’s economy is stagnating. Meanwhile, in the UK, talk over a recession also continues to intensify in light of continued uncertainty over Brexit. At the same time, economists are fretting over a slowdown in China and India—although in the beauty industry, most companies say growth continues apace and that they have so far noticed no softness, especially in China.

The UK & make-up

• Value sales for high-end foundation products with added benefits such as SPF rose by 114% in the UK between January and July 2019, according to market-research company The NPD Group.

• During the period, foundations formulated with an SPF from 35 to 50 saw an increase of 73% in value sales compared to the same period of 2018, representing 6% of sales in the overall UK foundation market. A year earlier, they represented 3% of category sales. Foundations with an SPF of 50 rose 114%, while SPF 40 foundations grew 30% and those with SPF 35 grew 67%.

• Formulas offering hydration and skin balancing benefits also proved popular. Foundation with moisturizing features logged sales of £30m ($36.2m), representing 26% of total category sales. Those claiming balancing benefits reached £17m ($20.5m) and comprised 14% of category sales. Meanwhile, sales of CC cream grew 331% year over year, representing 2% of overall sales. The trend can also be seen in other make-up categories, with sales of lip color with skincare benefits up 245% in the first six months of 2019.

Nothing is more attractivethan a relaxed face

Sin título-1 1 28/08/2019 12:11:35

How is your travel-retail business performing? Shiseido Travel Retail achieved a 25% increase in sales in the second quarter this year, bringing the combined sales growth for the first half of 2019 to +17%—more than double the growth of Shiseido Group. These results have been led by our prestige brands, particularly Shiseido and Nars, but also Japanese brands Anessa and IPSA. We also made investments in marketing, R&D and people, all of which contributed to our momentum. China and South Korea remain our top-performing markets. In Singapore, our growth was bolstered by the launch of the Shiseido Forest Valley at Jewel Changi Airport, which has helped us to establish a deeper connection between the brand and consumers.

How do you see the impact of recent events in Hong Kong? Hong Kong is an important travel-retail location, so the situation will have an inevitable effect on our industry. Travel retail has weathered storms like this before, and we hope that we will ride through this one again and emerge resilient.

How do you see the impact of the crackdown on daigou? We don’t imagine that the crackdown will have a significant impact on travel retail. The crackdown is more internal to China, with the aim of tightening the tax gap to iron out illegitimate sellers and, in turn, increase legitimate online retailers. It is a bit of a ‘wait and see’, but the laws have been in effect [since the beginning of the year], and our business is still performing well.

Do you see potential risks for travel retail given the Chinese government’s increased support for direct cross-border e-commerce in China?There are risks, but there are also opportunities. We have measures in place to guard against such scenarios. We have invested heavily in marketing that focuses on our core brands and strengthened the capabilities of our organization, and we remain positive. Travel retail remains attractive in terms of what it can offer to travelers. For example,

travel retail has the scale, retail excellence and tools that enable us to launch exclusive activations like the Shiseido Ultimune Red Vibe Street campaign and the Nars Lip Gallery, which give consumers experiences that go beyond the traditional retail journey. Also, the establishment of the China Business Innovation & Investment Representative

Office in Shanghai in early 2019 by Shiseido has helped expand our capabilities in understanding the Chinese consumer better. This gives us flexibility to respond to consumption trends of Chinese consumers inside and outside China, as well as new business opportunities in cosmetics and other new business fields. We also see positives in direct cross-border e-commerce. Part of Shiseido Group’s new

three-year plan is to accelerate our digitalization and e-commerce capabilities, with the aim of increasing the e-commerce sales ratio worldwide from 8% in 2017 to 15% [40% in China] in 2020. This involves working with mainstream online shopping sites to drive this strategy, which will also make consumer data collection and customer management more centralized. These data sets will help us understand our consumers better.

Interview Shiseido Travel Retail president & ceo Philippe Lesné

Comment

www.bwconfidential.com - Beauty Insight - September 24-October 21, 2019 #195

Shiseido’s Philippe Lesné tells BW Confidential about his views on Asia, online and the opportunities and risks ahead for travel retail

14

”Shiseido Travel Retail president & ceo Philippe Lesné

Shiseido Group [aims to] increase the e-commerce sales ratio worldwide from 8% in 2017 to 15% in 2020

“Is there a danger of becoming too dependent on Chinese travelers? From Shiseido’s perspective, yes, the Chinese traveler is a huge contributor to sales, and we have a great understanding of their needs and wants, but we also are well aware that this is not our only market. We have a global strategy and we are building our brands across the world.

What changes are you seeing in how the Chinese are buying? In terms of traveling habits, we’re seeing that Chinese travelers are increasingly favoring cruises. This channel is growing in importance, especially when it comes to the onboard luxury, prestige shopping offer. Chinese travelers are increasingly seeking inspiration online before purchasing offline. Popular Chinese travel apps such as Little Red Book and Mafengwo will become more influential in swaying the Chinese traveler’s opinion when it comes to purchasing, highlighting the importance of the online-to-offline experience.

How have your digital strategies evolved and how do you see increased competition from the likes of Alibaba? We are constantly looking at new digital platforms and technologies that we can incorporate into our campaigns. We have worked with popular Chinese travel platforms such as Little Red Book, Dazhong Dianping and Mafengwo, to connect with our consumers at every possible touchpoint. [A good example] is Shiseido Forest Valley in Jewel Changi Airport, an interactive installation that uses digital technology to allow visitors to explore the Japanese sense of beauty through sight, touch, scent and sound. Retailers increasingly have an online presence, whether that’s through a store

or their own social-media channels. The next step in that online development is to ensure a more seamless shopping experience for travelers. For example, better systems that maintain optimal inventory levels at each point of sale, and the option to pick up purchases before flying.We see companies like Alibaba as a friendly source of competition. Shiseido

recently signed a joint business plan with Alibaba, which sees the group’s innovation capabilities combined with Alibaba’s big data and consumer insights, so that areas such as product development, brand marketing, e-commerce and CRM can be strengthened. n n n

s Shiseido unveiled the Shiseido Forest Valley interactive installation in Jewel Changi Airport earlier this year

15www.bwconfidential.com - Beauty Insight - September 24-October 21, 2019 #195

Comment

Interview Shiseido Travel Retail president & ceo Philippe Lesné

n n n How is your travel-retail business performing beyond Asia?Shiseido Travel Retail is performing well around the globe. We have become the fifth largest P&C travel-retail player globally. Our success in Asia Pacific is largely driven by skincare, with make-up seeing dynamic growth; fragrance is also making gains, especially in the Americas and EMEA regions, driven by Dolce&Gabbana. The inaugural Clé de Peau Beauté counters in EMEA in Dubai and Istanbul are a major milestone for the brand. We have further expansions for our other prestige beauty brands in these regions.

You launched Elixir in travel retail. What are your ambitions for this brand?We see a lot of potential for Elixir—we are already very happy with the results. Up until now, we have been very focused on our prestige portfolio. Elixir brings a more affordable option, allowing us to address another category of travelers. We will continue the brand’s expansion in Asia Pacific, specifically in China and Korea. We will also increase the presence of brands such as IPSA and Laura Mercier in the channel.

How will fragrance evolve for Shiseido and in the channel in general?For Shiseido, we are looking at creating more memorable shopping experiences for our consumers in fragrance; we want to be on par with what we have accomplished for our make-up and skincare brands. In terms of overall fragrance trends, gifting still remains the key purchasing motivator. Personalization is also growing in demand and we are catering to this through our activations. The most recent being our Narciso Rodriguez Pure Musc animation at Dubai Duty Free in March this year, which not only offered personalized engraving and gift wrapping services, but also featured a ‘smoke machine’ that is essentially a fragrance vaporizer. It dispenses the scent into an open Pure Musc bottle from which consumers can smell the fragrance—presenting a novel way of experiencing the scent compared to the usual fragrance testing strips.Asia is still a developing market for fragrances. We are seeing a movement towards

niche and premium fragrances in Asia and the Middle East. There is also a growing demand for fragrances among Chinese consumers, where our Serge Lutens brand is gaining popularity and Issey Miyake and Narciso Rodriguez are performing well, as consumers prefer more high-end fragrances.

How do you see the ‘Flight Shame’ trend? Long-term air forecasts remain very positive, driven largely by Asia, but the recent warning by IATA suggests that we need to monitor this trend closely. While air travel will likely continue to be the most practical and efficient way to travel, in the long term the ‘flight shaming’ trend could open up opportunities to develop other travel-retail channels such as ferries and railway stations. Nevertheless, all stakeholders in air travel have a responsibility to keep developing sustainable solutions. n

”Shiseido Travel Retail president & ceo Philippe Lesné

The next step in online development is to ensure a more seamless shopping experience for travelers

“

s Shiseido has made major investments in pop-ups and events in travel retail, such the Ultimune Red Vibe Street campaign at Singapore Changi

www.bwconfidential.com - Beauty Insight - September 24-October 21, 2019 #19516

Please complete this form and return it:

• by post: BW Confidential - 17 rue Louis Rouquier - 92300 Levallois-Perret - France• by email: subscribe@bwconfidential.com• online: www.bwconfidential.com

Order formThe Beauty World Guide

• Number of copies at €55 each: l_l_l Total amount: € l_l_l_l_lor • Number of copies at US$75 each: l_l_l Total amount: US$ l_l_l_l_l

Payment method

r CB, Visa, Mastercard/Eurocard l_l_l_l_l l_l_l_l_l l_l_l_l_l l_l_l_l_l Expiration date: l_l_l_l_l Security code l_l_l_l

r American Express l_l_l_l_l_l l_l_l_l_l_l_l l_l_l_l_l Expiration date: l_l_l_l_l Security code l_l_l_l_l

r Please bill me (issues will be delivered upon reception of payment)

Signature & date:

Contact information

Company:..............................................................................................

First name:............................................................................................

Last name:............................................................................................

Job title:................................................................................................

Address:................................................................................................

Postal code:...........................................................................................

City:......................................................................................................

Country:................................................................................................

Email (required):....................................................................................

VAT number (required for European Union):....................................................

#

BI19

5 - O

ffer v

alid

unt

il Fe

brua

ry 2

9, 2

020

www.bwconfidential.com Collector’s Guide - 2019-2020

The leading publication on the international beauty industry

BEAUTY WORLD GUIDE

Covering almost 30 markets around the world The Beauty World Guide includes:

- The latest country data - Retailer listings by market - Consumption habits - Strategy analysis - Distribution insights - Tech trends - Product trends

NEW

BW Confidential launches The Beauty World Guide

All you need to know about the global industry market by market in onecomplete, easy-to-access publication

A unique and comprehensive guideon major beauty markets worldwide

Zoom in on: M&A

It has been an eventful year so far for beauty mergers and acquisitions, with no signs of

a slowdown in appetite for the category both from strategic and private-equity players. “The second quarter had 33 transactions, which was up 18% over both the previous quarter and the comparable quarter last year, and marked the largest number of transactions in any quarter since we started [covering beauty care M&A] back in 2014,” comments Steve Davis, managing director and head of the beauty and personal care practice at Intrepid Investment Bankers.Although much has been made of the lack of large assets available on the

market for strategic players, the year has seen its fair share of these deals. Competition for larger assets is said to be strong. “There were five strategic transactions [in the second quarter] with enterprise values north of $500m, which is rare,” says Davis.The larger acquisitions of recent months include L’Oréal’s plan to buy Clarins’

fragrance business, a deal sources suggest could be worth upwards of one billion euros, Colgate-Palmolive’s plan to purchase Filorga for €1.5bn, Natura’s purchase of Avon Products for $3.7bn to create what it described as the world’s fourth-largest pure player in beauty and L’Occitane’s purchase of Elemis for $900m. While several major strategic players were rumored to be interested in the Nestlé Skin Health business, meanwhile, that company eventually went to a consortium led by Swedish private-equity firm EQT and a wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA).In the coming months, Revlon is expected to go on the block either as a

whole or in part, while clean beauty brand Drunk Elephant is cited as one of the hottest assets among the larger indies up for sale. “It looks like we’re finally coming to a place where there really aren’t that many companies of the right size for traditional acquisitions,” says Kelly Kovack, founder and ceo of consultancy BeautyMatter. “As a pool, it’s finally really dwindling.”

Skincare appealSuch deals will mean concentration among the larger players as they seek to maintain their dominance. Recent deals also illustrate the market shift towards growth categories, especially skincare. “With many of the large strategics having already purchased their color brand and the vertical overall slowing

Big dealsM&A in beauty continues apace. BW Confidential analyzes the deals made so far this year and what is set to come in the sector

www.bwconfidential.com - Beauty Insight - September 24-October 21, 2019 #19518

down, valuation multiples have plateaued and deals [are] taking longer to close,” says M&A firm Ohana & Co managing partner Ariel Ohana. “Instead, other categories are back in the spotlight, starting with skincare. Colgate’s acquisition of Filorga is a good example of this pendulum movement, as well as a good illustration that strategics are again looking at Europe and Asia.”“We’ll probably see some more acquisitions in skincare just because the

category’s really hot, but it’s cyclical,” agrees Kovack. “Color cosmetics was really hot, everyone binged on acquisitions to be competitive, then everyone was sort of full and moved onto the next category. Right now there’s still an appetite for skincare brands, but I would assume at some point that desire will be quenched as well and they’ll be moving onto the next category. I think we’re going to see people going outside their traditional parameters of skincare, color, hair and looking for adjacencies in wellness, in service concepts, in marketplaces —that’s where we’re going to see some interesting acquisitions.” There are already signs of this shift—German perfumery retailer Douglas, for

example, has been snapping up smaller players to boost its online credentials, and Henkel’s acquisition of eSalon, which offers personalized at-home hair color, is another example of how service concepts are entering the scope of major beauty players. Direct-to-consumer capabilities are an ongoing area of focus across categories, meanwhile.In line with the growth of skincare, natural and wellness brands are

looking more attractive. “After being a small trend, natural beauty became mainstream in 2019,” says Ohana. “Now ‘clean’ or ‘natural’ brands are hot properties.” Observers cite CBD as potentially the next area ripe for investment as the biggest buzz category in beauty at the moment, especially in the US. Acquisitions in this space have begun over the past few months, for example with Canopy Growth’s acquisition of This Works and Cronos’ purchase of Lord Jones. While the jury is still out on the long-term potential of cannabis in beauty, with the major strategic players watching and waiting to see how the category develops and legislative issues remaining, the market is nevertheless moving fast. “There are going to be leaders in the category that will surface over the next six to 12 months,” says Kovack. “Brands are evaluating whether they should be in the CBD space,” notes Davis.With the growth of the wellness movement—and increasing crossover with

beauty—new strategic acquirers are emerging. One example is Hong Kong-based wellness group Health and Happiness Group’s investment vehicle NewH2, which recently bought into US-based Proven Skincare and Bod Australia, which specializes in CBD and hemp-based health and skincare. Alongside newer companies that combine investment muscle with a platform-based approach to beauty—companies like The Hut Group, for example, which again added to its portfolio this year with haircare brand Christophe Robin, and now Morphe, which with its new backing from General Atlantic looks likely to develop a similar approach—competition for smaller assets looks set to continue.

Hot properties, high pricesMultiples, especially for the hottest indie brands, remain high, observers say. “If you look at valuations over the past couple of years, it’s been pretty steady at a very high level,” says Davis. “An increasing number of private-equity n n n

”Intrepid Investment Bankers managing director and head of the beauty and personal care practice Steve Davis

There were five strategic transactions [in the second quarter] with enterprise values north of $500m, which is rare

“

19www.bwconfidential.com - Beauty Insight - September 24-October 21, 2019 #195

Zoom in on: M&A

”Ohana & Co managing partner Ariel Ohana

Other categories [than make-up] are back in the spotlight, starting with skincare. Colgate’s acquisition of Filorga is a good example of this pendulum movement, as well as a good illustration that strategics are again looking at Europe and Asia

“s There have been a string of major deals this year, including Natura’s purchase of Avon, Colgate Palmolive’s acquisition of Filorga and L’Oréal’s announcement that it would take over Mugler and Azzaro from Clarins

n n n [players] coming into the space, the low cost of capital and strategic buyers […] moving their criteria in terms of interest in smaller indie brands—all of that has driven valuations up to a very high level.”Beyond the bigger deals, investment continues to happen ever earlier in

a brand’s life cycle, and this is being fueled not only by private equity, but by beauty players’ growing interest in incubating and fostering the next big brand or segment—especially when it comes to tech capabilities and digital concepts—through their own investment vehicles, competing with venture capital. “On the buyer side, everybody is looking into how they can get involved earlier,” says Davis. Such deals this year include Unilever Ventures’ investment in Australian skincare brand Dr Roebuck’s, while Henkel Ventures bought into two digital beauty start-ups, Purish and youtiful. “There’s a lot of seed investment happening,” says Kovack. “There are so many brands that die on the vine, not because they’re not viable concepts, [but] because they run out of money. They’re of a scale where a business doing a million dollars is just not big enough [for traditional acquirors], but it doesn’t mean they don’t have that hundred million dollars’ potential.” Looking ahead, such investments look set to continue to be a way for beauty players to investigate trends and gain access to technology with less risk than with a traditional acquisition.The appetite for beauty M&A is expected to remain strong in the months

ahead. “We expect another year of over 100 beauty-care transactions,” says Davis. Smaller assets and growing categories like naturals and wellness—beyond a few specific exceptions—are likely to be the areas of focus of much of the activity to come. n

www.bwconfidential.com - Beauty Insight - September 24-October 21, 2019 #19520

Major beauty and retail M&A of 2019 so far

• Alibaba/Kaola The Chinese tech group agreed to buy the import e-commerce platform for around $2bn to strengthen its position on China’s fledgling import e-commerce market.• Le Tote/Lord & Taylor Fashion subscription service Le Tote agreed to buy ailing department-store business Lord & Taylor from Canada’s Hudson’s Bay Company with the aim of creating “a new experience in the mid-market segment.”• Coty/Younique In the midst of a strategic turnaround, Coty sold its 60% stake in peer-to-peer beauty business Younique back to its founders, citing different business models and its need to focus on its core activities.• Morphe Holdings/General Atlantic The private-equity firm bought a majority stake in US beauty company Morphe, with the aim of creating a portfolio of direct-to-consumer beauty brands.• Douglas/Niche Beauty Europe’s leading perfumery retailer continues to ramp up its online credentials by acquiring 51% of the online seller of premium beauty products, Niche Beauty. • Henkel/eSalon Henkel is flexing its muscles in haircare thanks to its acquisition of 51% of personalized at-home hair color specialist eSalon in the US.• Givaudan/Drom Givaudan reinforced its leadership in the global fragrance market with the acquisition of competitor Drom in a deal that the firm said would have represented incremental sales of €110m in 2018 on a pro-forma basis.• Colgate-Palmolive/Filorga One of the biggest deals of the year so far, Colgate-Palmolive snapped up Laboratoires Filorga for €1.5bn, as it continues to grow its high-end skincare portfolio. • L’Oréal/Clarins Fragrance Group L’Oréal is aggressively ramping up its position in the global fragrance market with its planned acquisition of Mugler and Azzaro. • Unilever/Tatcha & Garancia Unilever continues to build out its premium beauty portfolio, buying US-based skincare brand Tatcha after the acquisition of French dermocosmetics brand Garancia in March.• Natura/Avon Products After months of rumors, Natura confirmed it would acquire Avon in an all-share deal valuing the firm at $3.7bn and creating what it said will be the world’s fourth-largest global pure player in beauty. The deal is also intended to help bolster Natura’s domestic position, as it has been losing market share at home for several years.• Canopy Growth/This Works Canadian cannabis and hemp-based product company Canopy Growth’s acquisition of UK-based This Works, which focuses on natural skincare and sleep solutions, is cited as a clever move as the CBD movement continues to gain traction in beauty.• Nestlé Skin Health/Consortium Nestlé is spinning off its non-strategic skin solutions business, which offers medical and OTC products, to a consortium led by Swedish private-equity firm EQT and a wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA). • Beiersdorf/Coppertone Beiersdorf bought suncare brand Coppertone from Bayer for $550m, bolstering its presence in the category, notably in the US, where Coppertone has a strong position.• Edgewell/Harry’s Edgewell’s $1.37bn acquisition of shaving and personal-care company Harry’s is expected to help the firm boost its digital and direct-to-consumer credentials.• LG Household & Healthcare/New Avon South Korea’s second-biggest market player is expanding its reach in the US with the acquisition of New Avon, Avon’s North American activity that was spun off three years ago, for $125m.• Gryphon/RoC San Francisco-based Gryphon Investors bought skincare brand RoC from Johnson & Johnson, its second investment in the beauty space, for an undisclosed sum.• San Francisco Equity Partners/Jane Iredale San Francisco Equity Partners added a majority stake in clean cosmetics company Jane Iredale to its portfolio.• L’Occitane/Elemis Its largest transaction since it went public, L’Occitane bought UK-based Elemis from Steiner Leisure for $900m.

21www.bwconfidential.com - Beauty Insight - September 24-October 21, 2019 #195

CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL

In case you missed it

Alibaba brings Perfect Corp’s YouCam virtual try-on to Taobao and Tmall

Alibaba to acquire e-commerce platform Kaola for $2bn

Marionnaud to exit Spain and Portugal

L’Oréal runs exclusive airport billboard campaign

Firmenich opens fine fragrance atelier in China

The Body Shop returns to activism with London concept store

Avon launches clean beauty brand Distillery

Tiffany & Co launches his and hers fragrance duo

Nars launches debut fragrance

Herborist launches first fragrance

L’Oréal invests in fund focused on Indian brands

Mavive signs fragrance license with Furla

YouTube launches dedicated fashion and beauty hub

Go to bwconfidential.com for full stories and daily news updatesSubscribe

The leading publication on the international beauty industry

www.bwconfidential.com N°40 October-December 2019

InterviewAS Watson Group group md Dominic Lai

Market watch: EuropeThe state of retail in Europe’s big five markets

Travel retail specialThe impact of digital on the channel’s business models

The leading publication on the international beauty industry

BW @ 10INVENTING THE FUTURE

Insight: FragranceData, digital & how to better sell scents

CONFIDENTIAL CONFIDENTIAL CONFIDENTIAL

BEAUTY

Comment Positioned for growth Inside 2 Retail insights Travel retail 3 Tech bytes Netwatch 4 Trending Companies to watch

6 Interview The Body Shop head of global travel retail Alexandru Mihaila

7 Zoom in on Estée Lauder Companies

10 In case you missed it

INSIGHT

There has been a string of negative geo-political and economic news in recent months. Analysts warn that a recession is looming, worries over the impact of the US-China

trade dispute continue to deepen, South Korea and Japan are busy with their own trade war, economic news from Germany is bleak, the prospect of a no-deal Brexit looks to be nearing a reality, US retail data is far from rosy, the political and economic crisis has taken a turn for the worse in Argentina, protests in Hong Kong are set to deal a blow to the economy in the region…and the list goes on. However, despite this cocktail of turmoil and tension, the beauty industry is showing

itself to be resistant. Estée Lauder Companies reported a 9% increase in sales in its fiscal fourth quarter ending June 30. It added that even factoring in the litany of geo-political and economic uncertainty, it still expects to report sales growth of between 7% and 8% for fiscal 2020—at the high end of its targets—and forecasts that the global prestige beauty industry will grow at a rate of 6% to 7% in the next fiscal year. L’Oréal may have seen its second-quarter sales come in slightly below analysts’ expectations, primarily due to a tough market in the US and the slowdown in make-up, but like-for-like sales still rose by 6.8%. And the group underlined that it reported its strongest first half like-for-like growth in more than a decade, with sales up 7.3% to €14.81bn. LVMH too, said sales at its perfumes and cosmetics division rose 10% on an organic basis for the second quarter of the year. The industry’s major players add that the China slowdown and trade battle with the

US has so far had no impact on their business and that the market there continues to see strong double-digit growth. Indeed, most say that China and Chinese travelers will continue to fuel the market, and that this growth is sustainable given an expanding middle class with higher disposable incomes. By extension this means that beauty’s other two key drivers—skincare and travel retail—are also likely to see continued growth. The market’s prospects could be a lot worse.

#194The leading publication on the international beauty industry

Subscribe

Follow us on:

Comment Retail insights & Travel retail

Tech bytes & Netwatch

Trending & Companies to watch

Interview Zoom in on In case you missed it

www.bwconfidential.com Collector’s Guide - 2019-2020

The leading publication on the international beauty industry

BEAUTY WORLD GUIDE

BW Confidential 17 rue Louis Rouquier, 92300 Levallois-Perret, France contact@bwconfidential.com Tel: +33 (0) 1 74 63 49 61 www.bwconfidential.com ISSN: 2104-3302 Publisher: Nicolas Grob ngrob@bwconfidential.com Editorial Director: Oonagh Phillips ophillips@bwconfidential.com Journalist & Copy Editor: Katie Nichol knichol@bwconfidential.com Journalist: Monica Defrances mdefrances@bwconfidential.com Contributors: Sophie Douez, Alex Wynne, Renata Ashcar, Mayu Saini, Corinne Blanché, Naomi Marcoulet, Tina Milton, Courtney Traub Subscriptions 1 year: Beauty Insight (20 issues) + Print Magazine (4 issues) + This Week in Beauty + Daily News + Beauty World Guide + Beauty & Travel Retail Special Edition: €549/US$769 subscribe@bwconfidential.com Advertising advertise@bwconfidential.com BW Confidential is published by Noon Media 513 746 297 RCS Nanterre Copyright © 2019. All rights reserved. Reproduction in whole or in part without permission is strictly prohibited.

The next issue of BW Confidential’s Beauty Insight out on October 22, 2019 • The latest retail and tech news • Interview • Travel retail data • Beauty trends • Social media insights

Plus an analysis of key market issues

Follow us on:

SS_EL_BCC_BWConfidential_n195.indd8-21-2019 7:11 PM Luke LoCastro / Luke LoCastro

1

JobClientMedia TypeLiveTrimBleedPubs

SS_EL_BCC_BWConfidential_n195SS - Estee LauderNone190 mm x 277 mm210 mm x 297 mm220 mm x 307 mmNone

Job info

None

Notes

Art DirectorCopywriterAccount MgrStudio ArtistProofreader

Angelo SemararoNoneJessie WhitmanLuke LoCastroNone

Approvals

FontsOptimaDisplay (Roman ), Optima (Regular), Helvetica Neue (Light)

ImagesSpringLogo_Neophytou.ai (23.53%), ESTEE_RIBBONS_R3_CMYK.tif (CMYK; 998 ppi; 30.06%), 2017_BreastCancerCampaign_Logo.eps (33.57%)

Inks Cyan, Magenta, Yellow, Black

Fonts & Images

Saved at Nonefrom Luke’s MacBook Pro by Printed At

SS_EL_BCC_BWConfidential_n195.indd8-21-2019 7:11 PM Luke LoCastro / Luke LoCastro

1

JobClient

LiveTrimBleed

Folded SizeGutterPanel Sizes

SS_EL_BCC_BWConfidential_n195SS - Estee Lauder

190 mm x 277 mm210 mm x 297 mm220 mm x 307 mm

NoneNoneNone

Job info

None

Notes

Art DirectorCopywriterAccount MgrStudio ArtistProofreader

Angelo SemararoNoneJessie WhitmanLuke LoCastroNone

Approvals

FontsOptimaDisplay (Roman ), Optima (Regular), Helvetica Neue (Light)

ImagesSpringLogo_Neophytou.ai (23.53%), ESTEE_RIBBONS_R3_CMYK.tif (CMYK; 998 ppi; 30.06%), 2017_BreastCancerCampaign_Logo.eps (33.57%)

Inks Cyan, Magenta, Yellow, Black

Fonts & Images

Saved at Nonefrom Luke’s MacBook Pro by Printed At

®

Hope for a cure unites us all.#TimeToEndBreastCancerELCompanies.com/BreastCancerCampaign

S:190 mmS:277 m

m

T:210 mmT:297 m

m

B:220 mmB:307 m

m

NAILACTANNourishing Cream for damaged nails

NAILACTANprovides the necessary nutrients to the mechanism of nail growth !

Composed of essential amino acids, lipids and kerato-balancing vitamins, NAILACTAN nourishes nail root and helps restore elasticity to the nail plate and strengthens nails.

TFWA 2019 - RIVIERA VILLAGE RG 16 www.mavala.com

Annonce Nailactan + Stand - 210x297mm BW Confidential.indd 1 19.07.19 08:35