Beauty & Wellness Briefing: Let’s talk about those Kylie Cosmetics and SKKN by Kim acquisition rumors

The Kim Kardashian news, first reported by WSJ, stated that a sale price had not been determined and that a final deal was not guaranteed. Coty acquired a 20% stake in the business for $200 million in 2021, valuing it at $1 billion. At the time, the brand was known as KKW, representing Kardashian’s initials while married to Kanye West. In 2021, the brand closed down to focus on a relaunch, arriving in June 2022 as SKKN by Kim. Kylie Cosmetics also went dormant in 2021 for several months before relaunching the same year with all-new products, upgraded formulas and packaging. WSJ sources did not cite a specific reason for Kardashian’s desire to repurchase the brand, and SKKN by Kim did not respond to a request to comment. Meanwhile, Bloomberg reported that Kylie Jenner was dissatisfied with Coty’s management of her brand. Kylie Cosmetics did not respond to a request for comment. Coty purchased 51% of the brand for $600 million, also in 2020, giving the brand a $1.2 billion valuation.

The honeymoon period for Kylie Cosmetics was short-lived. Data from Rakuten Intelligence in 2019 showed that Kylie Cosmetics sales were down 14% since 2018 and 62% from the brand’s peak in 2016. Additionally, 60% of shoppers purchased from the brand only once. Meanwhile, data from Euromonitor and Jefferies showed a steep decline from a height of $273.8 million in sales at retail in 2019 to a low of $185.3 million in 2020. As of 2022, Kylie Cosmetics’ sales at retail are $221.8 million, a 20% decline from 2019. Meanwhile, Jefferies analyst Ashley Helgans estimates a year-over-year decrease in 2022 SKKN sales compared to 2021 due to the suspension of the KKW brand. Searches for both brands have also declined. According to Google Trends, search interest for KKW steadily declined between July 2021 and May 2022 but received a substantial pop in June 2022 when it relaunched as SKKN. After that, searches nosedived, and SKKN saw even less search interest than KKW between Aug. 2022 and June 2023. Kylie Cosmetics also experienced its search interest height at its launch, with a steady decline following, per Google Trends data ending May 2023.

“Since the beginning of this year, Coty had focused on building their own brands, like Orveda and Lancaster. Part of this is a bit of a reaction to Kering talking about building their own beauty business,” said Helgans. “Even though the Kardashian brands are [also] owned under Coty, it felt like the narrative was shifting away from those [two] brands and more so toward some new opportunities.”

According to Coty’s latest earnings in August, Kylie Cosmetics sales grew by a “strong” double-digit percentage globally in both the fourth quarter and fiscal year 2023, fueled by an expanded distribution and new exciting launches. Recently, Kylie Cosmetics expanded into Macy’s department stores, entered the Dubai market and released a new mascara. Coty doesn’t share revenue figures for specific brands and it did not reference SKKN by Kim in the latest earnings. Coty did not respond to a request for comment.

The 2010s: A by-gone era
Since Coty’s announcements of intent to purchase Kylie Cosmetics and KKW were made — in 2019 and 2020, respectively — the beauty world and the Kardashians have changed. Kylie Cosmetics came first, launching in 2014, parlaying a mild scandal of whether Jenner received lip-plumping injections into a popular liquid lipstick brand. KKW emerged in 2017 as a brand based on contour makeup, a beauty look of which Kardashian was both an acolyte and patron saint. Prestige makeup sales at this time were in their heyday, as, historically, there is a notable shift between the popularity of prestige makeup and skin care every 4-5 years. A makeup slowdown began in 2017, per then-NPD data (now Circana), with expectations that makeup would rebound in 2020. Social media was a great catalyst for the boom in makeup, thanks to the rise of digitally-native beauty influencers and the Kardashian-Jenner clan. After months-long rumors that both KKW and Kylie Cosmetics were for sale, Coty’s purchase of both brands was seen as a crowning moment within the beauty industry, showing that the struggling Coty behemoth was still attractive for digital-first and youthful brands. KKW and Kylie Cosmetic would be Coty’s crown jewels.

But no surprise now, Covid-19’s presence in 2020 proved to upend every expectation, prediction and notion of how the world operates. Skin care gained even further traction while people were isolated at home. Meanwhile, the rising Gen-Z generation proved to prefer more natural makeup looks, a focus on good skin and aesthetic imperfections. And reporting by Forbes in 2020 indicated that Kylie Cosmetics especially was smaller and less profitable than the Jenner-Kardashian family had spent months trying to get Coty and the public to believe.

Furthermore, the Kardashian-Jenner family has gone through their own transformations. Kardashian went through a highly public divorce with Kanye West in 2021, emerging from the relationship more powerful and business-oriented than when she entered it. Most recently, Kardashian formed private equity firm Skky Partners in 2022 with Jay Sammons, a former partner at the investment firm Carlyle Group. The firm has yet to make its first investment but has gone on a hiring spree, scooping up talent from private equity firms like Permira, Blackstone and L Catterton. A Skky Partners representative declined to comment when asked about the possibility that Skky Partners would buy SKKN by Kim.

And long gone are the one-time signature aesthetics of Jenner and Kardashian; they’re evolving beyond the original aesthetics of their brands, and their brands are not as quick to catch up. For her part, Kardashian has fully embraced a svelte figure, wiggling her way into Marilyn Monroe’s 1962 Kennedy birthday dress by losing 16 pounds weeks before the May Met Gala in 2022. Her beauty company’s rebrand from makeup to skin care is a notable indicator of where and how Kardashian is now focusing her attention and publicly reflecting her aesthetic. SKKN packaging is nude and gray, resembling stone or concrete, similar to Kardashian’s house. It could be argued that the focus on skin care versus makeup also reflects her more serious persona, as the 9-step routine is not for the faint of heart. When SKKN launched, Kardashian spoke about the extreme beauty treatments she’d undergone and described the extreme lengths she’d go to look younger. Jenner, meanwhile, has transformed sartorially, moving into a clean-girl-meets-quiet-luxury look of black-and-white outfits, Chanel slingbacks and conservative tailoring. It’s a departure from her former stack of Cartier bracelets, neon wigs and colorful body-con dresses.

A founder’s perspective
While founders buying back their respective brands is not frequent, it is also not uncommon. And founders can have varying reasons for doing so, from dissatisfaction with the new owner management to seeing more value for the brand under their own leadership.

Such was the case for Francesco Clark, founder and CEO of Clark’s Botanicals, who initially sold Clark’s Botanicals in 2016 to private equity firm Warburg Pincus as part of a new portfolio beauty company called Glansaol. He said he did so at the time to do what was best for the brand and fuel its growth. He said he had the same thinking when buying the brand back in 2018, during Glansaol’s bankruptcy. Clark is now the sole owner.

“I didn’t want someone else to buy it and then fire the wonderful team we finally had put together. I didn’t want the brand to be bastardized in any way,” he said.

His experience under Warburg Pincus and Glansaol ownership was positive, he said. It helped that he had stayed on as CEO after selling the brand and, therefore, could retain directive control. The brand had positive EBITDA growth, growing revenue 2.5x year-over-year in the last four years.

“In buying it back, there was also this huge opportunity to take all that work that we had put in and see Clark’s Botanicals blossom,” he said. “It put me back into startup mode all over again.”

Kylie Cosmetics has had a revolving door of leadership since its acquisition, with Christoph Honnefelder, Simona Cattaneo, Kris Jenner, Andrew Stanleick and Anna von Bayern each taking a turn. Kardashian is the CEO of SKKN by Kim. Both brands report to Constantin Sklavenitis, chief prestige brands officer at Coty.

Frédéric Fekkai is also familiar with the experience of buying back a brand, having repurchased his namesake Fekkai hair-care brand in 2018. Fekkai and his fund, Mistral Capital Partners, joined with private investment firm Cornell Capital to purchase the brand from Dilesh Mehta and Tony Bajaj. Mehta and Bajaj bought the brand from P&G in 2015, when Fekkai was interested in buying it back but could not secure funding.

Fekkai created his namesake brand in 1995 as part of a joint venture with Chanel, and later, in around 2005, it was sold to Catterton Partners, which sold it in 2008 to Procter & Gamble. Fekkai stayed with the brand in a consultant capacity during this period but said that, by around 2010, it was no longer the brand he recognized. When Fekkai was at the brand’s helm, distribution partners included premium and luxury retailers like Sephora, Neiman Marcus and Selfridges. But under P&G’s ownership, distribution focused on food, drug and mass channels.

“If a corporation doesn’t have [the founder’s] story well communicated and ingrained within it, and if they don’t market that story, but only market products, it becomes a conflict,” said Frédéric Fekkai, founder of Fekkai and CEO of holding company Blue Mistral, which houses Fekkai and Bastide. “When I saw that the brand was not going in the same direction that I had visualized, I was sad and wondered if I would ever be able to take it back.”

A sobering moment in 2012 led to this realization during a meeting with P&G executives in Geneva. Speaking with a female executive, Fekkai said he had no issues with Fekkai at food, drug and mass, but that there should be different pricing, product sizing and marketing to better compete. She responded by saying that P&G already had brands like that.

“When you sell a product in FDM, you sell a commodity. When you sell a product in an environment such as Sephora, Ulta Beauty and Blue Mercury, you sell a brand or a story,” said Fekkai. “[The strategy] was not to satisfy the customer. It was to satisfy their portfolio.”

What’s in it for Coty
Helgans said that, if it is assumed that Kylie Cosmetic’s revenues today range between $150 million and $200 million, and a market-appropriate ~4.5x multiple is used, Jenner would likely pay $350 million to $450 million to buy back her 51% stake. Meanwhile, SKKN by Kim’s sales are at a “fraction” of the estimated $100 million to $150 million in annual sales at the time of acquisition, with sales likely closer to $30 million.

“The hardest part with a celebrity brand is that the repeat purchase rate is lower than for a traditional brand, because you need to convince someone to continue to use that product,” said Helgans. “There’s usually a lot of initial enthusiasm, but to get a longer duration loyalty is harder.”

For Coty, the compelling reason to sell both brands would be an opportunity to pay down the company’s debt, which sits at $3.9 billion. And the ratio of net debt to adjusted EBITDA is 4:1. Coty plans to get it down to 3:1 by the end of 2023 and to 2:1 by 2025.

“If a brand is in decline and it’s going to require a lot of investment … and [Coty can have] two-less brands to worry about, then I don’t see why they wouldn’t sell, especially because they are focused on hitting their leverage targets,” she said.

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