Seventy-year-old beauty empire Estée Lauder is gunning for the wallets of millennials and Gen Z.
The company announced on Monday that it had acquired Too Faced for $1.4 billion, the largest acquisition to its portfolio of brands in its history. The addition came at the same time Estée announced it had closed the deal on beauty brand Becca Cosmetics, bringing its number of brand acquisitions to seven since 2014.
The latest acquisitions are part of the company’s strategic decision to add more fragrance, skincare and younger-facing beauty brands to its portfolio to capture the attention, and dollars, of millennial and Gen Z shoppers, who have become enamored by the industry through social media and beauty influencers on YouTube.
The big buyout was warranted thanks to Too Faced’s appeal to the younger generations, according to Estée Lauder CEO and president Fabrizio Freda. Unlike the professional, buttoned-up studio brands in the company’s portfolio like Mac, Smashbox and Bobbi Brown—which are marked by their sleek, black-and-white, minimalist packaging—Too Faced is decidedly more fun. Its top-selling products include the Better Than Sex mascara, the Let It Glow highlighter and blush, and the Chocolate Bar eye palette, a collection of eyeshadows infused with cocoa powder. The products are typically encased in gold and pink packaging.
The bold names and colorful products are perfect for the “feminine, playful consumer” that Estée Lauder, a more mature brand, is trying to rope in. Too Faced, founded in 1998, has also clocked in big growth numbers. Its revenue is expected to reach $270 million this year, a 70 percent increase over last. It helps that its core customer demographic—85 percent, to be exact—is under 40.
“This consumer is driving rapid growth in makeup with a multichannel mindset and an influence from beauty bloggers and social media content,” said Freda during a call with investors on Tuesday morning. “They’re digitally savvy consumers with a connection to stores, online, and on their phones.”
In response to the beauty industry evolving and a new generation of younger customers wrangling a stronger hold on the purchasing power of the industry, Estée Lauder has made a series of brand acquisitions over the past two years meant to anchor its positioning in color cosmetics, skincare—specifically Korean—and fragrance. In 2014, Estée made four acquisitions, its first since taking on Smashbox in 2010: It purchased Rodin, a luxury skincare brand; Le Labo, a niche perfume and candle brand; Editions de Parfums Frédéric Malle, a luxury fragrance brand; and GlamGlow, a line of “mud” face masks modeled after the Korean skincare trend. In 2015, the brand also made a minority investment in Korean skincare brand Dr. Jart+, which is credited for introducing BB creams to the U.S. market.
This year, in addition to Becca Cosmetics and Too Faced, the company acquired By Kilian, a perfume and cologne brand. According to WWD, Estée is also in talks to acquire skincare brand Drunk Elephant, although the company wouldn’t confirm.
“This is the latest step in our acquisition strategy,” said Freda. “We’ve built a portfolio of fragrance brands, Korean skincare brands, and now, with Too Faced and Becca, we’ve put our focus on the younger consumer.”
Freda spoke to Too Faced’s resonance on social media as part of its appeal to the brand—Too Faced has 7.3 million followers on Instagram, compared to Estée Lauder’s 1.4 million, Bobbi Brown’s 1.8 million and Smashbox’s 2.3 million.
The rise of indie beauty brands has caused a stir in the industry, which has long been tent-poled by big, traditional players. According to digital index L2, indie beauty brands are “posing a challenge to companies that have traditionally dominated the category.”
“While traditional brands are reticent to collaborate with e-tailers or allow reviews to be posted on their products, savvy newcomers have leveraged the rise of e-commerce and emergence of new e-tailers to gain the advantage,” said L2 analyst Elizabeth Rosen in a 2016 report on indie beauty.
Estée Lauder isn’t the only beauty company looking to fortify its aging arsenal of brands with buzzier, younger product lines in the color cosmetics and skincare categories. Unilever has taken on brands like Ren, Dermalogica and Kate Sommerville. L’Oréal purchased IT Cosmetics and Kiehl’s.
