Kylie and Coty vs. Rihanna and LVMH
In a recent article CNN Business discusses the poor sales performance of mascara in relation to the booming popularity of lash extensions. I think this is too narrow to be a correct analysis of the industry.
I don’t think that mascara is dipping off so lashes can rise from the ashes; this is not direct cause and effect. Instead, I think the rise of false lashes and the slow downtick of mascara are both representative of general consumer behavior: lashes are easy to see on social media, mascara tubes are less easy to see on social media. The inflection of social media-driven ecommerce more than likely accounts for the decrease in sales of mascara, generally a drugstore or beautycounter purchase. But I’ll have to do more specific math on that.
I don’t think it’s fair to pit one product type directly against another, but I was intrigued by the introductory framing of this eyelash trend article: Kylie, Rihanna, and Lady Gaga didn’t originally offer mascara, so it must not be relevant. Which got me thinking: what exactly makes Kylie and Rihanna the representative leader of trends and products?
Are Kylie and Rihanna the real leaders? And if they are, what does that say about the industry? More specifically, what does the relationship of Kylie and Rihanna to each of their parent companies (Coty and LVMH, respectively) say about the longevity and profitability of their brands?
Both Kylie and Rihanna leveraged their celebrity status to maintain ~49% and contribute their name, time, and personal brand. But the amateur analyst in me sees these as significantly different deals.
This isn’t new news, but still very much on my mind: Why did Kylie agree to give up 51% to Coty?
In November 2019 Coty took a majority stake in Kylie Cosmetics for $600M at ~$1B valuation. Coty CFO described the deal as key to understanding digital dominance.
Kylie’s 49% gets her a better network for global distribution and larger sales. 51% Coty gets a brand that knows how to talk to its customers over social media. Coty is very much the cool dad. But something is weird.
In 2017 Coty paid $600M for a partnership with Younique, at a $1B valuation. The deal was essentially dissolved in August 2019 at undisclosed terms. Coty had claimed their partnership was key to Coty’s digital growth strategy.
It’s not the same money, or even the same considerations. But I do wonder about the coincidence in check size for sequential investments whose aim was to supposedly expand the digital relevance of Coty.
In reporting on this termination of their Coty relationship, WSJ also mentions Younique’s positioning with respect to Avon, whose restructuring has been/is notoriously ugly. Point is, the financings aren’t simple; these simplistic linear threads can’t really be drawn. But I’m still curious. Especially because Coty’s past partnership with Younique and the relative fumbling of the 2016 beauty package from P&G don’t make for the prettiest reputation. So why did Kylie take the deal? Why not go to an institution better equipped to handle her pace, size, and strategy?
It’s also difficult for me to justify Coty’s check size. But I have no trouble seeing why Kylie cashed it.
I think Kylie was simply in it for the cash up front, the option of international distribution, and the ability to move on from the brand, should she get bored.
Or she knows her bubble will burst: social media followers purchase once, then never again. Especially if the product is poor quality.
But can a consumer tell if a product is poor quality? Even if they can, do they really care? The Kylie skin is crap, but it’s still a great brand. The Fenty products are great, and it’s a better brand.
Why?/How? Because unlike Kylie, Rihanna gave 51% to a conglomerate with a strong track record* of making, distributing, and marketing high-quality goods in digital marketplaces. It wasn’t a cash-out like Kylie’s deal, it was a strategic cash infusion of $30M.
The lip kit wasn’t anything new. Or at least it doesn’t ultimately matter. But the high-pigmented foundations were. It matters very, very much that Rihanna makes and sells high-pigmented foundation. The matte lip market was not underserved. The diverse shade market very much was.
Both Kylie and Rihanna are celebrities that negotiated 49% of a new, quickly growing beauty brand. But only one did it as a way to make high-quality goods accessible to an underserved market, thanks to a 51% ownership by a strategic partner.
But do high-quality formulas matter when it’s arguably the celebrity that carries the brands? For their brands to live, Kylie just has to be Kylie, Rihanna just has to be Rihanna. It shouldn’t really matter what they make, they can sell it.
But for everyone else, it is starting to matter what they make. If Drunk Elephant loses their formulas, what’s left? Arguably, still a brand: through price point, positioning, and a strategic break out formula and line extensions, they’ve solidified an expectation of good products. They could come out with crap next, and it will likely will be received as anything but. There is a high level of quality expected of them. Nope, a high quality assumed of them.
If Drunk Elephant comes out with a lame product (who says they haven’t already…) then they may eventually fail, despite their reputation and loyalty thus far. It’s their market position to have a defensible formulation thesis, and a progressive one at that.
But if Kylie or Rihanna make crap products, the brands should still carry. There’s a feeling of deniability here: yes, Kylie and Fenty are beauty companies, but Kylie and Rihanna aren’t beauty professionals, so it’s not really their fault if their products suck; they didn’t know any better. I think Kylie relies on that. And I think Rihanna rejected this notion and instead created real value with a strategic partner. Therein lies the difference. Kylie is using crap products to make money off of her celebrity status. Rihanna is using her celebrity status to create an opportunity to make high-quality products.
Kylie Cosmetics and Fenty Beauty are two vastly different companies. They’re both near/at the top, yes. But I think of very different verticals.
P.S. The 51% investment at $600M brings Kylie equivalent to the current evaluation of Glossier. In my mind, Emily Weiss is building something much bigger than Kylie can ever hope to. If anything I think this speaks more to the bloated power of celebrity cultism than it does to the ability of beauty powerhouses. Will the “democratization” of beauty create loyal consumers? Or will masstige positioning—Kylie’s sweet spot—continue to dominate consumers’ attention?
Related Tidebits: WeWork finally sold its minority equity in The Wing, arguably an epicenter of LA/NYC beauty girl bosses. The divestment doesn’t really mean anything to the Beauty Industry. But as a WeWork member, I feel like it significantly diminishes the chance that my space will put in a Beauty Room. But at least there’s The Lieu, which has recently oversubscribed it’s crowdfunding Republic Campaign. (Still time to invest!) (The Lieu did a pilot program in WeWork. I can personally attest to the higher-level of product curation than exists in the The Wing beauty room, or any NYC Equinox.)
Otherwise, strategic partnerships and licensings continue to sharpen competitive advantages in the prestige beauty world, as with L’Oréal’s licensing deal with Prada. Though I may be more excited about the Hermès lipstick launch.
-- Lizzy Trelstad, Founder + Chemist
lizzy@hellobeaker.com
Originally published on 27 January 2020 in the Swirl the Beaker industry newsletter.
*Both Coty and LVMH have very strong track records. In fact, Coty’s market cap is a wee bit bigger than LVMH’s. I imply that LVMH is “better” in many regards because, though a scientist, this response was more the consumer in me reacting than the scientist in me reporting. As a consumer, I respond better to LVMH’s portfolio than to Coty’s. As an entrepreneur, I certainly admire Rihanna more than Kylie. As a chemist, I would not recommend Kylie’s products.