Cosmetics Industry Eyes Social Media with Purchase of Kylie Cosmetics

By Nathan TynanCoty, a cosmetics giant behind brands such as Covergirl, has purchased a controlling stake in Kylie Cosmetics. With a 51% share, the purchase values Jenner’s brand at roughly $1.2 billion, reflecting her status as the youngest self-made billionaire. While this valuation pales in comparison even to Coty’s annual sales of $8.6 billion, the move is notable given the disruptive nature of Jenner’s firm. Particularly, the move reflects the changing landscape in cosmetics, as consumers eschew traditional brands for online moguls. Despite owning multiple industry staples, Coty has recently struggled with slumping sales and poor profitability. While they reported a profit in the most recent quarter, Coty had not previously been profitable since the second quarter of 2018, and total sales fell 9% from the previous year, despite a return to profitability. Notably, Coty acquired Proctor & Gamble in 2016, a move that proved to be disastrous, as they’ve reported $4 billion in losses from the brand. These issues have led Coty to look to new strategies, fueling the purchase of Kylie Jenner Cosmetics.It is critical to describe Jenner’s social media presence when discussing her brand. Prior to launching her cosmetics company, Jenner was a major celebrity, appearing on a major reality TV program. Her status has allowed her to develop a massive social media following of 270 million, particularly on Instagram, where she has 151 million, a whopping 2% of the global population. Whereas traditional firms face significant advertising costs, Jenner is able to utilize her social media presence to reach a wide audience with virtually no expense. This has allowed Kylie Cosmetics to achieve incredible success since its founding in 2015, with Coty projecting $200 million in sales this year alone. Kylie Cosmetics, while the most noteworthy, is not the only example of this business model, with independent brand sales growing by 24% in 2017, compared to 5.9% for the average firm.While Coty expects Kylie Cosmetics to increase the growth of its essential product line by over 1% per year for the next three years, there are reasons for skepticism. Despite the continuing success, the brand is past its peak, with sales declining by 14% from the previous year, and by 62% from 2016. Because Jenner’s celebrity status is responsible for much of her brand’s success, any change to her notoriety will affect her bottom line, leading to concerns among Coty investors that Kylie Cosmetics is a fad, along with an analyst for Citigroup describing Jenner losing popularity as “the biggest risk to this acquisition,” along with her losing interest in the industry. This risk applies to the rest of the independent industry as well, with firms risking stagnation if they cannot maintain their social media presence. Considering the considerable growth of the sector, market saturation may also become an issue. With the proliferation of social media, a massive change in the cosmetics industry is occurring. As outsiders have leveraged their popularity to produce immense sales, even traditional firms have taken notice. Despite their successes, these players face immense challenges maintaining brand awareness, introducing considerable risk. Going forward, perhaps the industry will not be defined by long-standing names, but rather by transient influencers fighting for their fifteen minutes of fame. Sources: https://www.wsj.com/articles/kylie-jenner-sells-600-million-stake-in-beauty-business-11574084772https://www.forbes.com/sites/andriacheng/2019/11/18/can-kylie-jenner-be-a-game-changer-for-coty-the-jury-is-still-out-on-that/#1719d2b022d9