Mar 16, 2020: Elisabeth King reports on this week’s business news

Henkel and KKR proceed to second round of bidding for Coty Professional Division; Ulta Beauty exceeds full year 2019 expectations; beauty brands rank highly on world's most innovative companies list; and world's most powerful beauty executive to retire.

Henkel and KKR proceed to second round of bidding for Coty Professional Division

The bidding process for Coty's Professional business has entered the serious stage. Major private equity firms and investor consortiums such as Bain Capital, Clayton Dubilier & Rice, Advent International, Cinven and the Abu Dhabi Investment Authority have either not been chosen to advance following the first round of bidding or have dropped out of contention. The two major stayers to enter the second round of negotiations are Henkel, the German multinational and owner of Schwarzkopf, and KKR & Co, the US-based global investment titan.

The entire division, which includes household name brands such as Wella and Clairol, is expected to attract a price tag of US$8 billion. But depending on the outcome of the second round, Unilever and Brazil's Boticario Group are rumoured to be interested in buying ghd, the cult hair appliance brand, and Coty's Brazilian business in a piecemeal sell-off. Coty's shares jumped 5.7 per cent on this latest development and Henkel's preferred shares rose 3.5 per cent. A deal is expected to be finalised within the next three months.

Ulta Beauty exceeds full year 2019 expectations

The largest specialist beauty chain in the US posted 8.5 per cent growth in net sales in Q4 to US$2.305 billion. A result that pushed full year 2019 sales to double-digit growth of 10.1 per cent to US$7.398 billion. The shadow of the coronavirus outbreak loomed large going forward, but Ulta Beauty is confident that virtual try-ons and the roll-out of click-and-collect services across its entire network will make up the slack as customers shy away from on-counter testers and in-store visits in the short term.

The company's Q4 performance defied a downturn in makeup sales in the US and were bolstered by an increased number of overall transactions and a jump in average ticket sales over the three month period. Gross profit as a percentage of net sales also spiked 10 bonus points to 35 per cent - by contrast to 34.9 percent over the same period in 2018 - fuelled by investments in salon services. Net income rose 3.7 per cent in the final quarter to US$222.7 million - up from US$214.7 million in 2018.

For the full year 2019, Ulta Beauty opened 86 more stores, expanding its network to 1254 stores across the US. The company expects to open 75 new stores and refresh or re-launch 15 more through 2020. Sales for the full year 2020 are expected to increase by 7 to 8 per cent. CEO Mary Dillon attributed Ulta Beauty's on-going success to enhanced omni-channel capabilities, merchandise exclusives and cross-category marketing events.

Beauty brands rank highly on world's most innovative companies list

Fast Company bills itself as the world's leading progressive business media brand. The prestigious magazine publishes an annual list of the World's Most Innovative Companies and does a thorough job across a wide range of industries. The 2020 rankings showcase 434 companies and businesses across 39 countries.

The eagerly anticipated effort features a beauty category and the number one slot for the third year in a row went to Beautycounter, the US-based direct seller. Launched in 2013, the company is a leader in the clean beauty sector and uses its trademarked The Never List to bypass the use of more than 1800 ingredients considered harmful or doubtful. The global clean beauty market is expected to reach US$22 billion by 2024 and Fast Company's citation for Beautycounter reads - For pushing its mission of transparency beyond non-toxic ingredients, into mitigating the human toll of the supply chain, starting with mica.

Other top-ranked beauty and personal brands and retailers include Target, the US company , for clearing out 4000 products from its personal care aisles. L'Oréal was praised for investing in inclusion. Unilever received the nod for its efforts in chewable toothpaste tablets, packageless shampoo bars and refillable cosmetics. Sephora made the cut for "embracing experiences".

World's most powerful beauty executive to retire

As CEO and Chairman of L'Oréal, the world's largest beauty company, Jean-Paul Agon can confidently lay claim to the title of most powerful and influential executive in the global beauty industry. Since he took on the role of CEO in 2006 and became chairman in 2011, the French multinational has enjoyed record-breaking results year-on-year. 2019 delivered the best sales growth in a decade - up 8 per cent to 29.87 billion euros (US$33.2 billion).

Agon firmly believes that the beauty market remains very dynamic and credits L'Oréal's "universal presence" for its continuing success. The multinational has had only five chairpersons since it was founded over 100 years ago and has a firm rule that its CEO must retire at the age of 65. Agon, who joined L'Oréal in 1978, reaches that milestone birthday next year and has announced he will retire in the European summer of 2021. The multinational has a tradition of promoting from within and Deputy CEO, Nicholas Hieronimus, is the forerunner to be Agon's successor. But, in a major change, the roles of CEO and Chairman could be separated again, as in the past.

Snippets from the Wires

  • Paul Zahra was General Manager - Cosmetics for David Jones from 1999 to 2003. During that time he negotiated the exclusive launches of Giorgio Armani Beauty, Jo Malone, Sisley and Ella Baché in the department store. Zahra rose through the ranks to become CEO and Managing Director for four years from 2010 to 2014. Since leaving David Jones, he has forged a successful career path as a strategic advisor to leading companies and is a non-executive director of Aesthetics Australia, the parent company of Laser Clinics. Zahra has been appointed the CEO of the Australian Retailers Association, the country's largest retail industry association with 7500 members.
  • Sun protection products are one of the fastest-growing areas of personal care. According to Fact.MR, more than one billion sun protection products were sold worldwide in 2018, generating revenues of US$12.99 billion. L'Oréal has plenty of skin in the game from the iconic Ambre Solaire brand to La Roche-Posay's ground-breaking Anthelios lineup. The company has gained three new patents for sun protection products with higher SPFs, whitening benefits and skincare properties which reduce the appearance of wrinkles, pores, scars and pigmentation marks.
  • With all the publicity surrounding BNPL (buy-now-pay-later) services such as Afterpay and Zip Pay, they still account for only 8 per cent of e-commerce transactions in Australia, reveals Worldpay, the global fintech firm. But the stat hides the reality that nearly two million Australians used a BNPL product in 2019, a figure estimated to double to four million by 2023. Prestige beauty brands, in particular, have benefited from BNPL services because of their popularity with Millennial and Gen Z consumers.