COVID-19 changed the way we shop, brought the importance of health into focus, and had many reevaluating priorities. The real question remains as vaccination allows us to go back to life as we knew it, which new habits will stick and what impact it will have on where investors place their bets. While behavior and technology were forced upon consumers during the pandemic, it’s a safe assumption that anything they perceive as making their lives easier is here to stay. Livestreaming events, virtual online consultations, contactless payment systems, and stores as warehouses that deliver packages directly to consumers are all likely to become ingrained in our post-COVID world.
In the US, the world’s leading beauty market, pre-pandemic e-commerce accounted for 20% of beauty sales; by 2021, McKinsey estimates that penetration could rise to 35%. The online channel remains strong, but brick-and-mortar remains an important part of the industry’s path to recovery. NPD reported sales for the skincare, fragrance, and hair categories have all seen growth in the first quarter.
Most businesses suffered major losses in revenue and investment in 2020 and will take some time to come back to pre-COVID business levels, but consumers are fueled with optimism by lower case counts and widespread vaccinations, providing the promise of a return to normalcy.
Larissa Jensen, beauty industry advisor, The NPD Group sees green shoots and said, “Strong growth across most categories is being fueled by the anniversary of sales during a period of lockdown in March. This will accelerate over the next quarter before somewhat stabilizing over the latter half of the year. The positive news is that fragrance, skin care, and hair posted growth against 2019, a more accurate representation of industry sales. A reenergized consumer has emerged, fueled by the optimism of warming temperatures, lower case counts, and widespread vaccinations providing the promise of a return to normalcy,”
Dealmaking is moving full speed ahead, with investors looking beyond the pandemic with billions ready to be spent on innovative companies with eye on the future.
Resilience + Adaptability
As the unicorn thinking that produced strategies fueled growth at all costs and reaching profitability at scale has proven to be just that magical, COVID-19 accelerated the shift to a landscape where investors expect brands to focus on value and retention rather than just acquiring new customers. Digitally native brands that had the speed and adaptability to lean into their DTC roots were at a distinct advantage, as were fast-acting leaders that pivoted to digital across all aspects of the business. These brands proved they were resilient and able to successfully offset the impact of COVID-19, making attractive targets. We’re seeing investors valuing brands that are nimble and flexible and capable of adapting quickly to the changing social and economic landscape.
It may have never been easier to launch a beauty brand, but the truth is it’s also never been more difficult to succeed. The marketplace is crowded, and breaking through the noise to gain awareness and attracting customers online has become expensive. Another dynamic at play is founders looking for smart money from investors who understand marketing and who match their mission, values, and purpose. This is not a new approach for smart founders, but many took their eye off the ball as some competitors were raising mind-boggling amounts of money. The reality is that building a beauty or wellness brand takes time and success requires surrounding yourself with the right partners. Beauty and wellness remain an attractive category, and competition among investors is fierce for the best targets. If you’re a brand founder, choose your investment partners wisely.
Divestments + Shutdowns
While the beauty category has been more resilient than other sectors, there is a growing number of struggling brands whose challenges were exacerbated by a year filled with uncertainly. The dominos have started to fall, with strategics taking the lead reviewing portfolios and making the decisions to rebrand, sell, or shut down struggling assets. L’Oréal shuttered Clarisonic at the end of 2020. Estée Lauderannounced the closure of Becca and Rodin Olio Lusso and is said to be considering selling others. In February, Shiseido announced it was selling its personal care business, which includes its lower-priced haircare and skincare products, to private equity firm CVC Capital Partners for $1.5 billion, and said it as looking to exit noncore businesses by the end of this year. WWD recently reported Shiseidois said to be considering divesting some of its North American makeup assets and is considering selling Bare Minerals, Laura Mercier, and Buxom. Unilever is said to be working with Credit Suisse on a potential divestment of a portfolio of noncore beauty brands in the US and Europe with combined annual sales of around $600 million.
Strategics, SPACs, + Platforms
Beauty and wellness has been a hotbed for investment and M&A activity for years, but the pool of potential investors and strategic buyers has expanded while SPACs have given start-ups an alternative way to go public (at least for now). For brands looking to raise capital, the universe of potential investors has never been more diverse. It also creates a competitive environment with two beauty SPACs, Powered Brands and Waldencast Acquisition Corp, both with the vision of building platforms to compete with the incumbent strategics are working against the clock.
We’ve put in the time, heavy lifting, and due diligence on all the activity for Q1 2021 you. For a complete overview of all of the beauty and wellness deal activity long with unique insights and analysis, be sure to check out our Beauty Deals: Investment and M&A Transactions Q1 2021:
- 159-pages covering 104 deals across the beauty and wellness landscape
- Overview on the state of the industry
- SEO trend report from machine intelligence platform Spate
- Tribe Dynamics’ analysis of EMV on key deals
- Deal flow chart - who invested in what in Q1
- Recaps and details of 104 individual transactions
- Easy-to-reference charts including transactions by category with high-level details and financial players involved
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