“Artists, Experts, Absolute Legends,” trumpet signs all over Sephora, with close-up shots of Mario Dedivanovic, Gucci Westman, Patrick Ta, Mary Philips and Danessa Myricks, among others, and their signature products.
In recent years, these social media savvy makeup artists, in addition to other start-ups in color cosmetics like Selena Gomez’s Rare Beauty and Merit, have made waves in the prestige color category, taking market share from heritage brands by connecting with consumers in new ways, especially among a younger audience.
But while such brands have brought buzz and excitement to the category, the hype has yet to pay off, with the prestige makeup category largely still waiting for its wider M&A moment at a time when the industry has witnessed a significant thawing of acquisitions after a lengthy standstill.
Thus far, this year’s deals include E.l.f. Beauty snapping up Rhode, L’Oréal acquiring Medik8 and Color Wow, Unilever’s purchase of Dr. Squatch, TSG Consumer’s successful play for Phlur and even Ulta Beauty getting in on the action, with its purchase of Space NK.
Interestingly, though, the slew of color cosmetics brands lingering on the market for many months are still yet to find acquirers. These include Makeup By Mario, Merit, Kosas and Rare, who have been in market since 2024. Glossier, too, is said to have been considering its options.
WWD reached out to all brands for an update, but they did not provide a comment by press time.
Despite strong performances at retail, industry consensus is that it’s going to be tough going for makeup brands hoping to transact this year.
“Every single color deal has died,” one source said.
Another industry source added: “Some people call them simmering, but I think they’re pretty much pulled unless someone proactively has an inbound on them.”
This begs the question why.
Part of the reason is the performance of the color category overall.
According to Circana, while still the largest prestige segment, the prestige makeup category in the U.S is slowing, edging up just 1 percent in dollar amount while units remained flat in the first half of the year, versus 6 percent growth for both hair and fragrance.
Larissa Jensen, Circana’s global beauty industry adviser, said: “It’s been positive in terms of the performance there, but overall, slowing down more dramatically. A big piece of it is just because it’s become harder to anniversary those numbers.”
On a company basis, the Estée Lauder Cos. said makeup net sales decreased 12 percent in its fourth quarter on the back of lower net sales from Estée Lauder, declines across all geographic regions from MAC and lower net sales in North America. At Coty Inc., prestige net revenue decreased 5 percent, pulled down by makeup and skin care.
It wasn’t all doom and gloom, though, for makeup in the most recent earnings period. Ulta Beauty reported that the category delivered midsingle-digit comp growth, driven by positive performances from both mass and prestige, with CEO Kecia Steelman noting that it’s been a while that both subcategories have increased. In particular, it highlighted new launches from Hourglass and MAC.
And in what L’Oréal described as “a temporarily less dynamic makeup market,” in its luxe division, momentum continued to be driven by the couture brands like Yves Saint Laurent, Prada and Valentino.
Still, it’s clear that a lot of brands are feeling the pinch. Ami Cole, the Black-owned makeup brand sold at Sephora, recently announced that it was shuttering, while Addiction Tokyo, owned by the Japanese giant Kosé, is pulling out of the U.S. after only two years.
Most recently, Youthforia, the makeup brand founded in 2021 by Fiona Co Chan and backed by Mark Cuban, announced it was closing. It previously became the subject of widespread controversy shortly after launching 10 additional shades of its $48 Date Night Serum Foundation, the darkest of which many consumers felt resembled black face paint, but since then had made strides to become more inclusive.
“The category is challenged so who wants to run into the storm of the overall category?” said one source, on why makeup lacks buyer appeal, adding that the segment’s dynamics make it a harder sell to investors.
“I always think of color as more like a fashion business. You always need to innovate and stay relevant, and you always need to have newness. It’s a very sku intensive category. So when you think about, it’s hard to underwrite.”
“There’s some really beautiful brands in the cosmetics space that have been considering a transaction,” said Marissa Lepor, managing director and head of beauty and personal care at The Sage Group. “The biggest complication in color cosmetics, and why investors tend to have more hesitancy about it, is it ends up requiring a lot of skus and the working capital dynamic in terms of the cash needed to purchase inventory, fill a gondola and provide newness is quite demanding for a business.
“That’s why that it’s a harder category for M&A, at least in recent years, versus skin care, hair care and fragrances,” she continued. “That said, people are still using those products, and customers seem to be fairly loyal, at least on a product basis.”
Sources also pointed to the fact that color cosmetics is just not at the top — or even in the middle — of strategics’ shopping lists currently. They’re mainly interested in derm-backed skin care, tech, hair and fragrance.
Ashleigh Barker, a director at Lincoln International’s consumer group, said: “The opportunities that seem to be driving the most buzz and activity tend to center around these categories that have higher replenishment rates, stronger points of differentiation. When you think about formulation and efficacy specifically, it’s hard to have true efficacy with a cosmetics product.”
Out of the brands that have been considering their options, many industry insiders believe Makeup by Mario will eventually transact. Since it launched in 2020, the company has resonated strongly with consumers and revenue is on track to be between $150 million and $200 million in 2024, according to industry sources.
While sources close to Rare insisted that a process is yet to formally begin, the understanding among industry sources is that with net sales of $400 million last year, the brand is too big for many traditional players to acquire, with some speculating that the price could reach $2 billion.
The almost five-year-old brand has been a breakout success in the celebrity brand world with a strategy that leverages founder Selena Gomez’s transparency around her struggles with mental health and focuses on a message of healthy self-esteem.
While sources expect something to happen eventually, it is looking more likely that could come the form of an initial public offering or an investment from an unexpected player.
Still, there is nervousness around brands, who are so closely to one person and one retailer — Sephora.
“The slowdown in Sephora North America has weakened some of the numbers,” said one source of the category in general.
Then there are those yet to formally come to market like Westman Atelier, which has long been rumored to be considering taking the plunge and some believe that will happen this year.
Industry watchers have long speculated that it could be a good fit at The Estée Lauder Cos., but with the beauty giant struggling it is hard to say when the new chief executive officer Stephane de La Faverie will want to make his M&A splash.
“There is a hope that Westman Atelier might open the market,” one source told WWD.
In order to secure a transaction, Lepor believes its comes down to proving brand loyalty over product loyalty.
“The challenge for each brand individually, is to get customers to be as brand loyal as they can, versus product loyal,” she said. “In general, it seems that customers tend to showcase stronger loyalty and higher lifetime revenue with skin care brands, because they’re a bit more routine oriented. For makeup brands, focusing more on the routine and how products are efficacious and are part of your daily makeup regimen can help enhance the customer dynamics to be more similar to that of a skin care brand or a hair care brand.”
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