An introduction to the beauty and personal care industry

The global beauty and personal care industry is worth $420 billion. This market is expected to grow at around 3% per year and is expected to grow to $716.3 billion by 2025. At 3%, this "track" is growing slowly. But that's one of the reasons why the two giants are growing - the industry is gradually entering a phase of consolidation.

From a global perspective, the largest market is in the Asia-Pacific region. The region has also become a growth point for companies during the pandemic.

Sales channels are important for the beauty and personal care industry, and now everyone is going online. Estee Lauder, for example, gets 39% of its sales from traditional Department stores. But it now hopes to move online as quickly as possible - cutting 1,500-2,000 employees, closing some stand-alone stores, and investing $300 million in online savings.

International Department stores account for 22% of Estee Lauder's channel, North American Department stores account for 13%, Travel Retail accounts for 23%, and independent retail stores account for 9% (which is also what Estee Lauder wants to close, which can be divided into two categories, one is completely isolated, the other is completely isolated. There are standalone stores within merchandise), Specialty stores (11%) (such as Sferre), and their own website Brand.com (9%), which is where they need to work. Note that since Estee Lauder is the leader and will do some mergers and acquisitions, the group as a whole is expected to grow by about 6%. Estee Lauder's history of mergers and acquisitions have done very well, we will mention this later, first to form awareness of the industry.

Back to the channel, from the perspective of the whole United States, drug store and pharmacy are still the largest channels, which is why L 'Oreal bought Maybelline in the 1990s to focus on drug store and pharmacy. In the sales volume of Drug store, Pharmcy, Mass Merchandiser, including Travel Retail, 50% of them are skincare products, 30% are cosmetics, and 20% are perfume. So Curty, whose perfume accounts for 53% of revenue, is passive and has no advantage in pricing power. Even at Estee Lauder, perfume accounts for 12% of revenue but only 5% of operating profit. Here is a little bit more related to the story of L 'Oreal's entry into the American Mass Market.

In 1917, T.L. Williams saw his sister apply Vaseline on the eyelashes, inspired him to make Vaseline and charcoal mascara launched the first publicly sold mascara, combining his sister's name (Mabel) and Vaseline's English name. He named the company Maybeline. L 'Oreal bought Maybelline in 1995, mainly to enter the mass market in the United States. L 'Oreal sold $10 billion worldwide that year, and Maybelline sold customised mascara, nail polish, cosmetics, moisturisers and more, mainly through Walmart and Walgreens.

Before the acquisition of Maybelline, Lindsay Owen-Jones (head of L 'Oreal) had a conversation with Cosmair (head of L 'Oreal's North American distribution business, which was incorporated by L 'Oreal in 1994 and renamed L 'Oreal USA in 2000). Cosmair was concerned that Maybelline was losing its competitive edge, and indeed Maybelline was having a tough time. But Owen-Jones sees more than Maybelline's current problems. First, he saw a good opportunity to enter the American mass market. Before Lancome and L 'Oreal were high-end brands, so Maybelline was a complementary puzzle; Second, Maybelline does have $150 million in debt, but compared with L 'Oreal's sales of $10 billion that year, it is nothing. What's more, Maybelline's production costs are very low. Maybelline developed America's first mascara in the 1960s. It costs Maybelline 20 cents to produce a single mascara, while L 'Oreal costs 46 cents to produce similar mascara in Europe. Owen Jones wanted to acquire Maybelline's manufacturing site and process in Arkansas and move the entire process to all L 'Oreal's brand lines to achieve lower costs. Third, at that time, 93% of Maybelline's sales were confined to the United States, and through the acquisition, Owen Jones would not only gain access to many of Maybelline's retail channels in the United States, but also extend Maybelline's products around the world through L 'Oreal's global channels. Finally, as for Maybelline's products were not very popular at that time, L 'Oreal could Re-branding the old technique, "re-branding", which designed the products to be more fashionable and suitable for young people's taste, while maintaining the affordable price. In fact, L 'Oreal quickly introduced yellow and blue mascara, special makeup brushes to thicken eyelashes, lipsticks with moistening properties, and Express Finish nail polish to cater to girls who want to get ready to go. Through these initiatives, Maybelline sales doubled in just three years.

Just a word. Channels are always complementary to products. Good companies and management, as long as they have good products, are always able to adapt to new channel requirements. For example, Estee Lauder was determined not to do television advertising, because Ms. Estee Lauder (founder) felt that these audiences were very LOW, and they insisted on doing high-end cosmetics (Prestige Brands). So in the early 1980s, it was still the old way of sending letters mainly to the owners of Department Store Discount Cards. This high-end tradition does continue to this day, but Lady Estee Lauder's son Leonard is facing L 'Oreal. L 'Oreal was originally started by Mr. Ougen Xule by constantly experimenting with his own hair care products, which did not do cosmetics and skin care products at the beginning. By reshaping the Lancome brand, L 'Oreal entered the beauty market from care products and matched the corresponding strategy (also using female stars for advertising). Following the trend of technology through television advertising (and the classic line in the history of advertising: "Because I'm Worth It"), and low prices to compete for the market (low prices to take away the market of Estee Lauder, high-end and Chanel and other brands to attack Estee Lauder), Leonard still convinced his mother to quickly shift the advertising channel, into television advertising. Because of its own cream products are very good, a hit red, quickly open the market. The turn of the millennium saw the rise of Youtube and the rise of third-party beauty bloggers. Estee Lauder and L 'Oreal have been quick to sign up third-party beauty bloggers who have been praised for their "impartiality" and their ability to show how to use cosmetics through video ads. In addition, other social media such as Facebook are also important. Today, Estee Lauder's e-commerce purchases account for 22% of its revenue, making it one of the most adaptable cosmetics companies, higher than L 'Oreal's 16% and Curty's 13%. However, the scale effect is very important in this industry, because the marketing cost is high, SG&A can generally account for 40-50% of the revenue (of which advertising and promotion account for about 20% of the revenue), fortunately, the gross profit is 70% (COGS account for a small proportion), so the operating profit rate is basically 15-20%, ROIC can reach about 20%. Much higher than WACC (for example, Estee Lauder's WACC is 7%, and net debt /EBITDA is consistently below 1 times)