To say the beauty industry is undergoing seismic disruption as a result of the changing cultural ideals of beauty, transparency, and diversity would be an understatement. The Beauty Economy special report by Raconteur, published in The Times, features a comprehensive look into the beauty industry at a time of rapid change. Stirling Murray, Managing Director of The Red Tree, a leading UK international beauty brand consultancy, shared his insight regarding emerging beauty brands and the link to M&A activity.
What for you is the most significant overarching trend in the beauty industry at present?
More new independent brands are emerging than ever before, particularly in the skincare category. They are being launched by entrepreneurial idealists, many of them women and many from the west coast of the United States.
The founders of these brands believe that we should pay just as much attention to what we put on our skin as to what we eat. They develop natural and organic products that they themselves want to use. They are their own brand’s consumer, with an intimate sense of what others like them would want. And they disrupt the once accepted way of doing business by placing their consumer, their community, at the centre of everything they do. Once they gain momentum, they become an attractive proposition for investment and acquisition, fuelling the frenetic mergers-and-acquisitions frenzy we’ve seen in the last three years.
Why are there so many independent brands entering the market right now?
There has never been a better time to launch a brand, primarily because it is easier to get your product noticed than ever before.
Marketing campaigns on social media are cost effective. Facebook, for example, is a perfect platform for brand owners to demonstrate what the product does and how it should be used. These brand owners will sell their product through their own website even if retailers don’t stock it.
Why aren’t large corporates so successful at creating these brands?
Being consumers themselves, brand owners can respond quickly to changing tastes. They are agile, nimble, and creative, always filling gaps in the market. They have a driving passion that large corporates, immersed in process and cold-headed decision-making, find difficult to replicate.
Multinational companies crave the speed and inventiveness that the independent brands offer
Their strength of belief and clarity of vision make them extremely persistent. They are utterly determined to create something that makes a difference.
What happens to the independent brands after their launch?
They tend to go through a similar cycle. If the product gains traction in the marketplace, the founder will often seek external seed or first-stage investment to scale up the business. A mid-tier company or private equity firm might then purchase the brand to build the business further and resell it. The final stage would be a sale to a large corporate ideally placed to achieve full scalability and rapid growth through its global distribution networks.
What should owners do to make their brand attractive to buyers?
They must build their brand with an early focus on selling it, seeing it through the eyes of a would-be investor. The right management team is crucial. There is a large pool of former brand owners who have sold their business and are keen to help others do the same.
The potential for global growth must be clearly presented. Most importantly perhaps, the founder must have an unswerving focus on the brand’s values, establishing and preserving the authenticity of the brand, with no dilution. Everything the brand founder says and does must be consistent with this goal.
How have large corporates responded to these independent brands?
Multinational companies crave the speed and inventiveness that the independent brands offer, making them highly attractive targets for acquisition and investment. Look at Native deodorants, founded less than three years ago and newly acquired by P&G. Another example is Too Faced, purchased by Estée Lauder for more than $1 billion.
Investment continues to flow into the sector. Milk Makeup, the award-winning cosmetics line, received its first tranche of investment in 2017. Mented Cosmetics, a make-up line for women of color, was handed $1 million of investment only months after launch. Many more new brands are arousing curiosity and interest.
Download the full Raconteur The Beauty Economy report.
As seen in The Beauty Economy report by Raconteur published in The Times and republished with permission.
Photo: Red Tree