Unilever has announced its agreement to sell its Elida Beauty unit to Yellow Wood Partners LLC, a private investment firm based in Boston. Apart from Elida Beauty, Unilever also sold its shaving business, Dollar Shave Club, in October. Streamlining business has become a unified strategy among global beauty giants in recent years. L’Oréal sold its organic cosmetics brand, Sanaflor, and subsequently ceased production of its high-end spa brand, Decléo. Coty sold its hair care brand, Wella, while Natura sold Aesop and The Body Shop within a year. In the current macroeconomic environment, concerns about inflation and supply chain issues, coupled with a broader cost-cutting reform, have led these beauty giants to cease unrestrained expansion.
Divesting over 20 brands in a one transaction
Unilever initially planned to sell Elida Beauty in 2021 as part of its ongoing strategy to divest non-core brands. However, following the failed attempt to acquire GlaxoSmithKline’s consumer healthcare division and the involvement of activist investor Nelson Peltz on the company’s board, Unilever paused the sale in 2022. Unilever stated that managing Elida as a standalone unit within its overall operations could generate more value.
However, with the arrival of the new CEO, Hein Schumacher, Unilever’s corporate strategy shifted towards trimming its product portfolio and focusing on core brands. Hence, this consumer goods giant stated that now is the optimal time to sell Elida Beauty.
In 2021, Elida Beauty was established, encompassing various beauty and personal care brands such as Q-tips, Tigi, Caress, Timotei, Impulse, Monsavon, among others (Fissan, Williams, Noxzema, Brylcreem, V05, Lever 2000, Badedas, Matey). By 2022, it evolved into a formal Global Business Unit within Unilever Personal Care, expanding to include additional brands like Alberto Balsam, Brut, Pond’s (specifically for North America and Europe), and St. Ives (specifically for North America and Europe). However, the sale excludes the Pond’s and St. Ives brands marketed outside of North America and Europe, which will remain part of Unilever’s Beauty & Wellbeing brand portfolio.
Furthermore, in October, Unilever divested Dollar Shave Club to Nexus Capital Management LP, a private equity firm based in the United States. Alongside its razors, Dollar Shave Club provides various male grooming items, including its recent venture into electric trimmers.
Fabian Garcia, President of Unilever Personal Care, said: “This marks another step towards the optimization of our Personal Care portfolio. Our priority is to step up the growth of our Power Brands by investing behind key strategic focus areas such as driving unmissable brand superiority and scaling multi-year innovations. Elida Beauty’s portfolio comprises iconic and classic beauty and personal care brands. I am sure under the new ownership they will continue to prosper and serve consumers across North America and Europe.”
During the third-quarter results presentation in October, Hein Schumacher expressed his goal to simplify and streamline Unilever’s business, emphasizing a focus on the top 30 “power brands.” These brands, outpacing the company’s average growth, account for over 70 percent of the turnover.
The sale of Elida Beauty marks Hein Schumacher’s first significant action since assuming the role of CEO at Unilever. His primary focus has been on streamlining business while navigating inflationary challenges.
For Unilever, the confidence in streamlining business stems from the strong performance of several major brands within its beauty segment. In 2022, the global turnover of Unilever’s beauty segment boasted five brands with sales exceeding €1 billion: Axe, Dove, Lux, Rexona, and Sunsilk. Other renowned brands include TRESemmé, Signal, Lifebuoy, Vaseline, and Clear. The collective sales of these billion-euro brands represent 53% of Unilever’s overall turnover, underscoring the validity of Unilever’s streamlined business strategy.
Streamlining business is the key factor in performance growth
The fast-moving consumer goods (FMCG) industry, particularly the cosmetics sector, has historically relied on expansion and acquisitions as primary growth strategies. However, in recent years, the conventional model for creating value in the fast-moving consumer goods market has become disconnected from meeting the new demands of millennials and the characteristics of sales in the digital era. Additionally, local brands in emerging markets have risen, posing challenges to the performance of traditional consumer goods giants. Consequently, these industry leaders are no longer relying on large-scale acquisitions as a means of growth but are instead focusing on streamlining business and concentrating resources on developing their most recognized and popular core brands.
Apart from Unilever, another consumer goods giant, Procter & Gamble (P&G), has seen growth through a strategy of business streamlining. Since 2013, P&G’s overall revenue has shown a declining trend, with a Compound Annual Growth Rate (CAGR) of -2.0% between the fiscal years 2007 and 2017. Notably, in the three fiscal years from 2011 to 2013, P&G’s net sales exceeded $80 billion each year. However, in the eight consecutive fiscal years following 2013, the net sales remained below $80 billion.
To address the challenging situation of stagnant revenue growth, this 180-year-old consumer goods giant initiated a series of slimming-down plans by gradually divesting some of its brands. The aim was to reshape the company’s image and development strategy, focusing resources on those core brands that have higher market recognition and popularity.
Since 2012, P&G has divested numerous brands, including the hair care brand Wella, the cosmetics line CoverGirl, and licensed fragrance lines for Dolce&Gabbana and Gucci, among others. By August 2017, P&G had reduced its portfolio from over 200 brands to 65.
Following these streamlining efforts, P&G’s net sales began to recover gradually. In the fiscal year 2017, its net sales reached $65 billion, surpassing $70 billion in 2020, totaling $70.95 billion. By the fiscal year 2022, P&G’s net sales had reached $80.19 billion, marking its return to the $80 billion level for the first time since the fiscal year 2014.
Apart from P&G, Coty’s net revenues growth has also benefited from its business streamlining efforts.
In 2015, Coty made a significant acquisition by purchasing 43 brands from Procter & Gamble’s perfume, hair care, and cosmetics divisions for a hefty sum of $12.5 billion, marking one of the largest acquisitions in the beauty industry in nearly 20 years.
Although Coty’s net revenues reached a record high of $7.65 billion in 2017, the company faced a substantial loss of nearly $400 million that year, in stark contrast to its $179 million profit in 2016. From 2017 onwards, Coty experienced six consecutive years of declining net revenues, with a staggering loss of $3.77 billion in 2019.
Upon the arrival of the new CEO, Sue Y. Nabi, in 2020, Coty commenced a restructuring of its business and streamlined some of its brands. In the 2020 fiscal year report, Coty indicated a portfolio of over 75 brands, with 53 listed as the main brands. By the 2021 fiscal year report, the primary brands had been reduced to 39, following Coty’s plan to sell its shares in Wella by 2025 as part of the brand streamlining strategy, according to Coty’s Chief Financial Officer, Laurent Mercier.
Following the business streamlining initiatives, Coty’s downward trend slowed in the fiscal year 2021. Coty’s net revenues for FY21 were $4.63 billion, marking a modest decline of only 1.86% compared to 2020, the smallest decrease over the past five years. Additionally, the loss narrowed from $1 billion in 2020 to $205 million in 2021. The fiscal year 2022 saw Coty achieving its first net revenues growth in six years, reaching $5.304 billion, a 14.57% increase from 2021. Moreover, Coty turned to profit in FY22, marking $268 million in profit, the first profit recorded in six years.
This year’s most notable divestitures come from Natura, the Brazilian beauty giant, which sold off two major brands, Aesop and The Body Shop, within the past year. Reports suggest that Natura is also considering selling Avon. Natura has been seeking asset divestitures to address financial issues stemming from increased debt and supply chain challenges post-pandemic.
Greater focus on core product lines, increasing business concentration
Over the past decade, the beauty industry has been in a constant state of change and innovation. Traditional beauty giants, facing challenges from emerging brands, shifts in consumer behavior, and digital trends, have begun reevaluating their business structures. Divestitures are often seen as a strategic realignment, aiding in increased focus and flexibility for better adaptation to market changes.
On one hand, these beauty giants may grapple with complexities arising from diversified operations and dispersed resources. Shedding certain business areas enables them to concentrate more on core product lines or strategic directions, enhancing operational efficiency and business concentration. On the other hand, divestitures can inject capital, directed towards reinforcing core business areas through research, marketing, or acquiring emerging brands.
Some beauty companies may opt to divest low-growth or non-aligned brands or segments to refocus on high-growth, high-profit core brands, thus improving overall performance. Others might divest segments to align with evolving consumer demands, such as a shift towards sustainability, natural ingredients, or digital experiences, aligning better with current market trends.
A notable case is Coty, whose resources were dispersed following the acquisition of multiple Procter & Gamble brands, leading to inefficient capital operations and unclear strategies, impacting performance. However, after streamlining business, Coty refocused on perfumes, turning around its performance to profit in the 2022 fiscal year.
Additionally, inflationary pressures leading to increased capital costs have been a significant driver for beauty giants to opt for divestitures in recent years.
The balance sheet strain faced by Brazilian beauty giant Natura has been a significant factor driving its continuous divestiture strategy. The acquisition of Avon burdened Natura with substantial debts, leading it to focus primarily on its domestic Brazilian and South American markets.
Overall, as market demands and consumer preferences continue to evolve, companies are constantly reassessing their product portfolios and business structures to ensure alignment with market trends. Divesting non-core brands or businesses allows companies to concentrate more on their core competencies, accelerate innovation, and better meet consumer needs.
The proactive pursuit of divestitures by beauty industry giants represents a flexible response to market changes and a prudent adjustment of corporate strategies. This isn’t merely about adapting to current challenges but also about sustaining growth and retaining competitiveness. In an ever-evolving market, strategic adjustments and innovation are key to ensuring long-term success for businesses.
