Here’s Why Estee Lauder Acquired Two Makeup Companies This Year

In October, Estee Lauder signed an agreement to acquire Becca Cosmetics for $200 million and in November it announced the decision to acquire yet another makeup brand, Too Faced, for $1.45 billion. Prior to buying these two makeup companies, Estee Lauder’s last acquisition in this segment dates back to 2010, when it had acquired Smashbox. So, what were the reasons behind the premium beauty leader’s sudden acquisition of two cosmetics companies after over five years?

• Makeup has become a major driver for Estee Lauder’s growth. In its last annual report, revenues from makeup reached around $4.7 billion, accounting for around 50% of the company’s total revenues. It was also the fastest growing segment for the company with a 9% year-on-year growth rate. Though its skincare revenues were also at $4.4 billion, yet the segment showed no growth over the previous year. This reflects how important it is for the company to keep growing its fastest growing segment, which is also its largest contributor.
• According to our estimates, Estee Lauder currently enjoys around a 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.

Targeting The Millennials

• Becca’s unique selling points are not the usual lipsticks or nail polishes, but its primers, foundations, blush, highlights, and concealers. The brand is known to  cater to diverse skin tones. Such products are highly desired by the Millennial beauty users.  Also, with the rise of social media and in particular Youtube tutorials, the market for such complexion related products has surged. Too Faced also offers an innovative line of cosmetics products with unique packagings for eyes, lips, and face.
• One of the most coveted clientele segments for beauty companies right now are the Millennials. They are one of the fastest growing consumers of beauty products and in order to connect with them a strong presence on the social media is an essential requirement. Both Too Faced and Becca have a strong presence on the social media platforms. Too Faced has around 7 million Instagram followers.

Building A Stronger Presence In The U.S. And Then Expanding Globally

• 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. Estee Lauder needed to diversify its distribution channels in the U.S. and taking the help of brands that already enjoy a strong presence in the alternative channels would be a major bonus for the company. 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.
• Founded in 2001, Becca’s 2016 revenues are expected to reach around $80 million. After the company collaborated with makeup star Jaclyn Hill and she featured its products on her Youtube tutorials, the company’s sales are said to have tripled since then.
• Estee Lauder plans on expanding Becca and Too Faced’s reach through its own global presence. The company’s management is confident about the growth potential of the brands.