Coty, Which Has Been Aging Ungracefully, Has A Turnaround Plan

Coty, which purchased 43 Procter & Gamble beauty brands for $12.5 billion in 2015, disclosed  yesterday that it is undergoing a massive makeover to “build a culture of pride and performance” to rejuvenate the company and its brands sold in more that 150 countries around the world.

“The struggling cosmetics maker laid out a four-year restructuring plan, sending its shares down as much as 19%.… Sales in the consumer beauty division have fallen in the past four quarters, as the company wrestles with competition from more affordable and Instagram-friendly brands such as NYX, Kylie Cosmetics and ColourPop,” writes  Reuters’ Aishwarya Venugopal.



“If we are able to stabilize our share in this moderately declining category, this will allow Coty to return back to growth,” said Coty CEO Pierre Laubies during a call with analysts.

It will take a $3 billion writedown on the “botched” P&G acquisition, Leila Abboud reports for Financial Times, adding that revenue has stagnated, and the shares have halved since the deal was announced.

“The acquisition, which doubled Coty’s size in an effort to compete with industry leaders L’Oréal and Estée Lauder, foundered during a complex integration process that involved 20,000 employees in 41 countries, working across 70 brands, and 16 manufacturing sites. Meanwhile, Coty’s largest division, which sells mass-market consumer make-up brands like Max Factor and accounts for 40% of sales, began to lose market share to new brands,” Abboud adds.

“Many women have shifted to higher-end and niche brands, and increasingly buy beauty products from online startups or outlets like Sephora and Ulta Beauty. Fighting back, CVS and Walgreens have looked to expand their selection while paring mass-market beauty names. The shift has meant sales declines for many once-popular brands, including Revlon Inc.’s namesake line and L’Oréal SA’s Maybelline,” writes  Sharon Terlep for the Wall Street Journal.

“Clearly we are underperforming; we want to close the performance gap,” Coty CEO Pierre Laubies, who took over from Camillo Pane in November, tells Terlep. 

“While mass-market beauty brands as a whole are declining due to shifting consumer habits, Mr. Laubies said the bigger issue for Coty are the years of brand neglect and mishandling. ‘Our performance is much lower’ than the overall market, he said,” Terlep adds.

“Coty says the mass beauty category has been declining 1% to 2%, which … Laubies called ‘alarming’ on the call following the announcement. The company plans to prioritize 20 brands including CoverGirl, Rimmel, Burberry and OPI,” Tonya Garcia reports  for MarketWatch.

“The pressure on our consumer beauty business has really been out of share losses, which are a big component of what we are trying to address with our turnaround plan,” Laubies said. “And if we are able to stabilize our share in this moderately declining category, this will allow Coty to return back to growth.”

Coty, which is based in New York City, has been a subsidiary  of Joh. A. Benckiser (JAB) GmbH, the family-controlled German holding company, since 1992, according to In February, JAB Holdings announced that it planned to increase its holdings from about 40% of the company stock to as much as 60%, as Bloomberg’s Tiffany Kary reports. JAB also owns  controlling stakes in Krispy Kreme, Panera Bread, Keurig Dr Pepper and Peet’s Coffee, among other global brands.

Mark Tepper, RBC Capital Markets president of strategic wealth management, told CNBC’s “Trading Nation” last month that Coty’s fundamentals don’t support a long-term breakout, CNBC’s Maggie Fitzgerald reported on Sunday (before its new plan was announced).

“Their overall strategy, in my opinion, is still flawed,” Tepper said. “With their acquisition from P&G, they’ve basically doubled down on mass consumer, but consumer buying trends have changed. Consumers now want experience, they want prestige, they want boutique, not CoverGirl. And [Coty’s] debt levels are sky high.”

Not that others aren’t succeeding.

Indeed, most of the the big "pure play" cosmetics companies -- L’Oréal, Estée Lauder, Shiseido, for example  -- are doing well, Ian King observes  for Sky News, citing four factors:

  • The emergence and expansion of a middle class in markets such as China and India, with hundreds of millions more customers seeking to spend more on looking good.
  • The increasing tendency of men to spend more on cosmetics and fragrances.
  • The aging population in established Western markets, driving both male and female customers to buy more products allowing them to retain a youthful appearance, with both hair and skin products.
  • Changes in societal behavior: the ‘selfie’ culture and the rise of influencers on social media has helped ensure that Generation Z and millennial consumers are every bit as interested in looking good as older generations.

But they will no doubt discover, as Coty has, that wrinkles and sags are inevitable.

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