Here’s Why Estee Lauder Decided To Acquire Too Faced–the U.S. Based Fast Growing Makeup Brand

by Trefis Team
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On November 14th, as Estee Lauder completed its acquisition of Becca Cosmetics, it also announced the decision to acquire yet another makeup brand, Too Faced. Known to be one of the fastest growing makeup brands in the specialty-multi and online channels, Too Faced is a big favorite among the American millennial beauty users. This is Estee Lauder’s second acquisition in the color cosmetics segment in a short span of time. Prior to Becca and Too Faced, Estee Lauder’s last acquisition in the cosmetics segment was in 2010 when it acquired Smashbox. Estee Lauder aims to expand its reach in the fast growing makeup segment through these acquisitions. Also, like Becca, Too Faced will increase its penetration among the millennials who are the most important target audience for beauty companies these days. Estee Lauder has reached an agreement to buy the entities that own the brand for around $1.45 billion and the takeover is expected to be completed by the end of this year. This is the highest the company is paying for an acquisition in recent times. Earlier in July, Estee Lauder’s biggest rival, L’Oreal agreed to buy IT Cosmetics for $1.2 billion. Below, we list a few reasons why Estee Lauder might be interested in acquiring Too Faced.
  • Makeup is an important growth driver for the company. Estee Lauder’s fiscal 2016 (year ends in June) results reflected that net sales of makeup reached close to $5 billion with a 9% year-on-year growth. In comparison, its skincare segment didn’t display any growth for the fiscal year 2016.
  • Earlier this month, Estee Lauder’s Q1 FY2017 earnings results revealed that one of the reasons for the company’s slow growth was its weak demand in the U.S. mid-tier department stores. This has increased the importance of adding brands that have a strong customer base in the alternative distribution channels. Too Faced derives almost 83% of its revenues from North America and is presently among the top 8 makeup brands in the specialty multi-channels in the U.S.
  • Too Faced’s growth story so far had been hugely impressive. It has displayed a CAGR of 60% over the last three years and its net sales are expected to be around $270 million in 2016 reflecting over 70% year-on-year growth.
  • Estee Lauder is aggressively targeting the millennial beauty users and Too faced will help in this endeavor.  Too Faced offers an innovative line of cosmetics products with unique packagings for eyes, lips, and face. Millennials tend to feel authentically connected to its products and hence it has a huge fandom among this segment with over 7 million Instagram followers.
  • Estee Lauder plans on expanding Too Faced’s reach through its own global presence. Estee Lauder’s management is confident about the massive growth potential of the brand. It plans on increasing Too Faced’s presence within and outside of the U.S. as well as through the travel retail channels.
  • According to our estimates, Estee Lauder currently enjoys around 12% share of the global makeup market which is expected to exceed 13% by the end of our forecast period. Smashbox and MAC are some of its best selling brands in this category, so far. Brands like Too Faced and Becca might help grow the company’s global makeup market share with their unique and diverse range of products, popularity among the younger beauty users, and a strong presence in the digital sales channels.

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1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
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