Beauty giant Coty announced it was doubling down on the Kardashian-Jenner family by making a $200 million investment in Kim Kardashian West’s four-year-old beauty brand, KKW Beauty. Coty will purchase a 20% stake, which values the total business at $1 billion and, according to Forbes, catapults Kim’s personal net worth to about $900 million. Forbes estimates that, post-transaction, Kim will own 72% of her namesake brand and her mother, Kris Jenner, will own 8%. The deal is expected to close in early 2021. Specific terms of the deal were not disclosed but, according to Marissa Lepor, an Associate at The Sage Group, a retail- and consumer-focused investment bank, “Minority investments from strategic buyers, especially public companies, are quite rare, so, it’s likely the deal includes a number of minority rights provisions that give Coty legal controls over operations and key business decisions.” It’s also likely that the agreement may provide a path for Coty to acquire a more significant stake over time based on KKW meeting certain performance hurdles. “This aligns incentives and encourages each party to remain engaged in continuing to grow the business,” says Lepor.
The market immediately rewarded Coty upon the announcement of the deal, sending shares surging more than 13% by the market close. The surge in share price added more than $400 million to the company’s market capitalization, creating an immediate “paper” return of more than 2x for shareholders. According to Ilya Seglin, a Managing Director at Threadstone Advisors, an investment advisory firm, the question of whether this value is “sustained longer term will depend, as it usually does, on execution. I suspect the early results from the partnership with Kylie Cosmetics have been encouraging (growth in digital, launching retail in Europe, etc.), so the assumption is that the same can be done with the KKW brand.”
June was a busy month in the Kardashian-West household: earlier this month it was revealed that Kim’s husband, Kanye West, had filed a trademark for a possible Yeezy beauty line and, just last week, Kanye inked a 10-year deal with mall-fashion retailer, Gap, to produce a new clothing line called Yeezy Gap. All of this comes on the heels of Coty’s deal to purchase a 51% stake in Kim’s half-sister Kylie Jenner’s beauty business in late 2019. For any other family, this many marquis projects happening at once would have them struggling to keep up but, for the world’s most socially influential family, it’s just another day in Calabasas.
BeautyMatter Analysis:
On the surface, critics of the deal might focus on the obvious “concentration risk” Coty is taking on by tying a second leg of their growth strategy to the Kardashian-Jenner family. In today’s age of extremely rapid influencer crash-and-burn for any controversy that might arise, coupled with the recent accusation of accounting anomalies at Kylie’s beauty brand, it would seem that those concerns are valid. The experts seem to agree, however, that when it comes to influencer-led businesses, the Kardashian-Jenner family is in a class entirely by itself. According to publicity expert Ronn Torossian, founder and CEO of 5W Public Relations, “investing in the Kardashian-Jenner family is like investing in any blue-chip company or brand. Over the last few years, they have shown to be class-A partners and as solid as it can get in terms of reputation, brand, and sales. From a branding perspective, partnering with this family is a gold mine. Their reach is huge, publicity constant and they have weathered storms and will weather more. This is a great investment for Coty.”
The Kardashian-Jenner family takes the concept of influencer branding to a level unrivaled by any other family in the world. Combined, the core members of the family reach about 750 million people daily on their Instagram channels alone. This is in addition to the reach of their TV show, Keeping Up With the Kardashians, currently filming its 19th season and one of the top-rated shows on the E! Network. Influencer branding expert, Kendra Bracken-Ferguson, founder of BrainTrust, says “Their reach is extremely powerful because they have coupled it with fandom, overexposure, and aspiration. The Kardashian-Jenner family’s success is not overnight or one-off good luck—it’s highly strategic, orchestrated, and long-term.”
The concept of building a business around celebrity influence is nothing new for Coty, so, if any company has the secret formula to spin celebrity into sales growth, they do. Andrew Shore, a Managing Director at investment bank Moelis & Company, notes, “Peter Harf, Coty’s Executive Chairman and former CEO, virtually created the celebrity/designer fragrance market. It worked brilliantly for Coty for many years. He’s essentially trying to recreate that success today, but with color cosmetics, which is very influencer-driven. It wouldn’t surprise me if he tried to do it with skincare at some point.”
It’s clear that Coty saw something beyond the tremendous influence of Kim Kardashian in valuing KKW at $1 billion. Financial results for the brand aren’t public but, according to data intelligence provided to BeautyMatter by Steven Shaw at FleishmanHillard, KKW has outperformed the cosmetics market. “In the last 12 months, KKW dollars and items have gone up 35% and 26%, respectively, versus the cosmetics market, in general, which increased 12% and 17%. During the holiday season in 2019, KKW saw dollar growth of 14%, year-over-year, versus 4% growth for the market, and, in Q1 2020, KKW saw 79% dollar growth, year-over-year.” Marissa Lepor at The Sage Group adds that “KKW and Kylie Cosmetics have somewhat complementary product offerings. KKW focuses on color cosmetics and fragrance and Kylie Cosmetics offers color and skincare. They also have different brand aesthetics, which further mitigates the potential for cannibalization between the two brands.”
So, what does the future look like for influencer-led brands in beauty and wellness? Kendra Bracken-Ferguson at Brain Trust thinks the power of influence will continue to grow more valuable and drive sales growth for the industry. “The future of celebrity branding is tied to combining community and commerce for an undeniable return. These brands have found the secret sauce of contextual commerce—the ability to seamlessly integrate a purchase experience in a native environment, which is really where the future of shopping is going.” In terms of where this influence will thrive for the foreseeable future, Bracken-Ferguson adds, “Instagram and Pinterest are still leading in terms of shopping discovery and, while TikTok is primarily for entertainment, they have added shopping features, so, that combined with their growth and reach of influencers, will lead a shift as commerce becomes more organically integrated into the platform.” Ilya Seglin at Threadstone Advisors adds, “I think the trend of influencer-driven brands is here to stay. We will see more of these brands get financial backing and more of them will be owned by the influencers, themselves, versus the older licensing model.”
However you slice and dice this deal, the experts and Coty shareholders agree, the investment in KKW Beauty is a smart, strategic coup that will drive long-term growth for the company.
And by the way, Kim, if you’re reading this, please feel free to share it!
Addendum:
Just a quick note for disclosure, prior to joining the BeautyMatter team, I spent six years as a member of the executive team at Paper Magazine. In the early days of my tenure at Paper, we were tasked with making this historically iconic publication relevant to a whole new generation of Millennial and Gen Z readers. Led by the brilliant creativity of Drew Elliott, now the Global Creative Director at Mac Cosmetics, we set out to “Break the Internet” with our November 2014 issue—and who better to help us do so than Kim Kardashian. While she was in Paris for Fashion Week, we paired Kim up with the brilliant, iconic French photographer Jean-Paul Goude, and the results took the world by storm. By some accounts, we had more than 1% of all the internet traffic in the world hit our website as soon as the photos were released (and yes, that definitely broke the internet—our servers, at least). Within a week, the images had been seen more than 4 billion times on every visual media platform known to man from New York to London to Shanghai and back. Kim was absolutely brilliant and the content she was a part of creating became a phenomenon. Importantly, she helped to cement Paper’s iconic status in the hearts and minds of a whole new generation. So, when someone places a bet on Kim, I’m always among the first to listen!
Photo: via KKWbeauty
