What Does The Acquisition Of Smaller Beauty Brands By The Heavyweights In The Beauty Industry Signify?

The last year has seen a flurry of acquisitions by the two global beauty leaders, L’Oreal and Estee Lauder. L’Oreal spent almost $1.2 billion to buy U.S. based prestige beauty company, I.T. Cosmetics, announced the decision to buy luxury perfume brand, Atelier Cologne, and decided to acquire three active cosmetics brands — CeraVe, AcneFree, and Ambi from Valeant for $1.3 billion. Estee Lauder bought Becca Cosmetics for $200 million  and Too-Faced for $1.45 billion. The company recently invested in the ‘disruptive’ and quirky skincare company, Deciem. According to rumors, it might also be planning on acquiring Korean skincare brand, Drunken Elephant in the near future. In this article we explore some of the reasons that might be propelling beauty companies to increasingly shop for the smaller and innovative brands.

Changing Consumer Preference

With the ubiquitous presence of the digital media, consumers no longer have to depend on the established big houses to get good products. Along with the decline in footfalls in the brick and retail stores, the consumers can buy a wide variety of independent brands with innovative product lineups, delivered to them right at their doorsteps.

Influence Of Social Media 

Not only do social media influencers help the millennials decide which beauty product to pick up, but there are several tutorials, discussion threads, and message boards where users from across the world are exchanging beauty tips and sharing information about the beauty products that they like or dislike. Today’s well informed consumers know exactly what they want and the newer brands with unique selling points like catering to diverse skin tones, using all organic ingredients, or providing some unique benefit to the users’ skins, are a massive hit with these users.

Keeping The Brand’s Authenticity Intact

Estee Lauder especially has the trait of letting the acquired brands’ founders manage the brand, thereby maintaining the authenticity of the brand. Also, Estee Lauder’s resources make it possible for the founders to bring forth more innovative products and geographically expand the brand’s presence which, in turn, helps Estee Lauder further. For example, its recent investment in Deciem which its founder calls a company with a “disruptive mindset.” The brand will continue with its core values, such as no animal testing and keeping its price at the prevailing levels, even after Estee Lauder invested in the same.

Giving Up On In-House Brands

While buying up new brands that connect with millennials, have strong social media influencers backing them, and have a multi strong channel presence, seem to be in vogue among the beauty giants, there is also another trend driving these big companies. They are slowly giving up on some of their in-house or older brands. While Estee Lauder discontinued its in-house Estee Edit brand, a brand meant for millennials, just one year after launching it, L’Oreal seemed to have finally found a buyer in Brazil-based Natura for its The Body Shop brand and is preparing to complete the sell-off soon. This implies that a lot of hitherto established and well known brands from these big companies are not doing so well. Hence, acquiring or investing in these new emerging beauty brands seems the best way to move forward and gain market share.

Editor’s Note: We care deeply about your inputs, and want to ensure our content is increasingly more useful to you. Please let us know what/why you liked or disliked in this article, and importantly, alternative analyses you want to see. Drop us a line at content@trefis.com

Notes:

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)

Get Trefis Technology