P&G Creates New Specialty Beauty Division
P&G is officially diving back into the high-end beauty pool.
The consumer products giant announced it has created a new division, Specialty Beauty, that will include brands that operate in specialty and/or prestige retail channels across brick-and-mortar and direct-to-consumer.
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That includes the three brands P&G snapped up in late 2021 for more than $1 billion — the skin care lines, Farmacy and Tula Skincare, and hair care business, Ouai, as well as First Aid Beauty, which it bought in 2018. Many of the brands that P&G has incubated in-house, including See Me Beauty, skin care targeting women over 50, and Keep It Anchored, a clinically proven hair care range supporting hair retention, will also be housed in the new division, and SK-II’s North American business will also be part of the organization.
Chris Heiert, who was senior vice president, North America skin care and brand franchise leader, has been named senior vice president of the Specialty Beauty division. He reports to Alex Keith, chief executive officer of P&G Beauty. The acquired brands will retain their current leadership structure, with their respective ceos reporting to Heiert.
“Thanks to our consistent growth, successful new brand creation and continued portfolio expansion through stand-out, it’s an exciting time to work for P&G Beauty,” Heiert said. “I’m absolutely privileged to be leading P&G Beauty’s expansion into the specialty retail channel, where I’ll enable our portfolio of acquired and incubated brands to connect with new consumers, new channels and new innovation. Our mutual focus as a carefully curated portfolio will be to meaningfully grow the Specialty beauty category, but it’s important to note these successful businesses will continue to operate independently with their current leadership and teams, each growing their businesses in the ways they know best.”
Of course, this isn’t the first time that P&G has waded into the prestige waters. By the early- to mid-Aughts, the company had amassed a large beauty portfolio that spanned categories and channels. It included everything from Cover Girl makeup in the mass channel to Hugo Boss and Dolce & Gabbana fragrances in prestige to Wella in the professional sector. But in the volatile environment following the 2008 economic crisis and amid a leadership vacuum, P&G’s beauty business declined. In 2015, it announced it was selling 41 brands to Coty Inc. in a $12.5 billion deal that closed the following year.
Since then, P&G retrenched, bringing experienced leaders including Patrice Louvet and Keith back to the business. Louvet left in 2017 to help Ralph Lauren, and Keith took the reins, ushering in an age of accelerated growth. Analysts are looking to the last four years as evidence that the foray into specialty beauty will be brighter this time around.
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“Alex has done a good job and she’s done what she said she would do,” said Mark Astrachan, managing director of beverages, household and personal products and hardlines retail at Stifel. “They’ve had a lot of success with SK-II, so perhaps they see this as a logical extension.
“Focusing on skin health makes sense,” he continued, “so I think investors are more than willing to let them do the deals in this space because of the competency and credibility they have built up.”
Astrachan noted that the beauty push makes sense, both in context of a category that continues to grow, but also in the scope of P&G’s overall business. “If they want to do M&A, there are two logical categories — beauty and health care,” he said. “They underindex in overall share in those categories — they have good representation, but they could use more.”
Courtesy of Sephora
Jefferies analyst Steph Wissink calls the move a “restart,” noting, “it feels a little bit like déjà vu because specialty beauty was a really critical strategy for them about 15 years ago. They built up and aligned the portfolio, and ultimately elected to exit with the sale to Coty.”
“Now we’re kind of restarting. It’s an interesting exercise in large multinational holding company conglomerates and the way in which they engage in and pull back from categories,” she continued.
Wissink suggested the decision may revolve around a few factors, including “organizational alignment around a common set of metrics,” as well as a portfolio approach to leveraging insights and distribution, plus organizing brands around common insights and innovations.
One key difference this go-around is that the brands will continue to run their own businesses — the acquired brands will report to Heiert in what P&G is calling a “partnership” versus “reporting line.”
It’s an approach that retailers and analysts applaud. “P&G understands the importance of building strong marketing strategies tailored to each brand’s unique point of difference,” said Artemis Patrick, executive vice president, global chief merchandising officer, Sephora. “We look forward to our continued partnership with the group.”
The strategy makes sense given the success of the brands that attracted P&G to them in the first place. At the time of acquisition, industry sources estimated Farmacy to have a net sales volume of $80 million with EBITDA of $15 million to $20 million; Ouai is believed to have been at $50 million in net sales with an EBITDA of $10 million, and Tula’s net sales are said to be $150 million with $30 million EBITDA. P&G reportedly valued the businesses at $300 million, $200 million to $250 million, and $750 million, respectively.
P&G executives declined to comment on those figures.
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