Due To Major Sales Slump, Celebrity Beauty Brands Are Coming To An End

It was a strong reminder that Rihanna's beauty line, not her music, has made her one of the wealthiest female performers ever when she paused during the halftime performance of the Super Bowl to dab her nose with a $36 dust from Fenty Beauty. According to a 2021 Forbes estimate, the value of Fenty is $2.8 billion. Several famous people have attempted to duplicate her achievement, but very few have succeeded.

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According to a Trade Algo count, more than 50 celebrities and influencers, including tennis prodigy Naomi Osaka and singer Lady Gaga, have launched cosmetic, haircare, and skincare companies in the past three years alone. Due to its large operating margins and the fact that many of its goods are used every day, the US beauty business is particularly tempting. The boom was powered by inexpensive internet advertising and all the money that was floating about the economy as a result of low borrowing rates, just like other areas of the consumer sector.

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Nonetheless, interest rates have increased, recessionary worries persist, and consumer choices have shifted. Skincare is more appealing to post-pandemic customers than makeup. Thanks to the deluge of product reviews on websites like TikTok and Reddit, consumers are also becoming more discriminating and taking a brand's quality and authenticity — or lack thereof — into consideration. According to a Trade Algo survey of 650 people using cosmetics and skincare, the endorsement of a celebrity is unimportant to the majority of female consumers.

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Businesses are in a panic. Just in January, Kristen Bell shut down her CBD skincare line Happy Dance, Addison Rae and Hyram Yarbro's brands were pulled from Sephora, and Ariana Grande paid $15 million to Forma Brands to acquire the physical assets of her company, r.e.m. beauty, after the latter's big bet on celebrity influencers through Morphe Cosmetics backfired and drove it into financial trouble.

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In 2020, brands connected to popular YouTube beauty influencers and celebrities accounted for more than a third of Morphe Cosmetics' income. Due to irresponsible online behavior, the eyeshadow vendor ended its relationship with James Charles and Jeffree Star. When Forma filed for Chapter 11 bankruptcy on January 12, efforts to boost revenue with Grande's r.e.m. beauty and other influencer partnerships eventually proved fruitless.

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Since beauty trends have changed throughout the epidemic to favor a so-called "clean girl aesthetic," which has customers trading in lipsticks and makeup palettes for complex skincare routines, several celebrity-backed firms are attempting to reinvent themselves.

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The tide is changing, even for long-standing leaders in the sector. In 2022, skincare generated more than twice as much income as makeup, according to Estée Lauder.

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Where the money is in skincare

Revenue by product category for Estée Lauder each fiscal year

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Some famous people are making huge efforts to change. Kim Kardashian shut down her beauty firm KKW Beauty, which thrived on the 2010s trend of a strongly contoured face, shortly after she filed for divorce from the musician formerly known as Kanye West in 2021. She debuted her skincare brand SKKN in June 2022.

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In 2019, four years after the success of Kylie Cosmetics lip kits, her younger sister Kylie Jenner introduced Kylie Skin in a similar manner. Even so, according to data from Trade Algo, direct selling through the websites of Kylie Cosmetics and Kylie Skin have decreased by nearly 80% in the US since the start of 2017. An official from Coty Inc., who owns 51% of the business, claims that the company's concentration on in-store sales at Ulta and Macy's, where Kylie goods are sold, as well as its growth into overseas markets, are the causes of the fall.

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Kylie's Beauty Companies' Online Sales Slump

Observed quarterly US direct-to-consumer sales index rise versus Q1 of 2017

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With straightforward packaging and minimal promotion, Deciem Inc., the incubator behind the skincare line The Ordinary, has pushed into the science behind beauty goods. Deciem made a pointed comparison between their organization and organizations run by celebrities in an unapologetic Instagram post, questioning whether actors, singers, athletes, and influencers have the technical know-how to create efficient products.

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"Our scientists aren't famous people. Also, the majority of celebrities aren't scientists or experts in beauty, the business noted on its Instagram page.

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Like other startups, the objective of many of these companies is to be purchased by a bigger business in exchange for a sizable payment. According to statistics gathered by Trade Algo, Coty's $600 million acquisition of a major stake in Kylie Cosmetics in 2019 represents the sole celebrity cosmetic business acquisition in North America since 1994. Given how crowded the industry is, investors have grown sceptical that new celebrity businesses can succeed.

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"I've honestly looked at several products that were being developed in the last year where my advise to the founders was, 'Don't include that celebrity as a founder or a co-founder,'" said Rich Making an appearance, co-founder of True Beauty Ventures, a hygiene products and cosmetics focused investment company.

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Unilever purchased Tatcha LLC, a Japanese creams company, for $500 million in 2019; Estée Lauder bought Deciem for $1 billion; and L'Oreal purchased survival Youth to the People Inc. for an undisclosed amount in 2021. Big companies are snatching up skincare brands as a way to acquire innovation and add younger customers.

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VC Deal Making in the Beauty Sector Peaked in 2021

Total amount invested in US-based beauty enterprises through venture financing

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Because traditional venture capitalists are showing less interest, celebrities are turning more and more to beauty incubators to build their brands. At least 22 of the celebrity beauty brands that Trade Algo listed were launched in this manner. SOS Beauty, an incubator that oversees brands like Summer Fridays, offers a wealth of retail relationships, financing access, and product development knowledge. Although every collaboration is unique, the incubators frequently own an equity position.

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Dustin Cash, a co-founder of SOS, said, "We're either 50-50 partners, or something like that.

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When a celebrity projects authenticity and the products function well at a price point that matches the quality, a brand will do well with investors, merchants, and consumers.

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According to Cash, the results are better when the celebrity is more engaged and hands-on. "Authenticity is the quality that everyone is seeking these days."

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Drew Barrymore's Flower Beauty and Selena Gomez's Rare Beauty seemed to have the biggest proportion of nice feedback on posts about brands, out of the twelve celebrity brands analyzed, according to a Trade Algo sentiment analysis, which classifies text based on if the content is generally extra positive or negative. The lowest-scoring films were Grande's r.e.m. beauty and Le Domaine, starring Brad Pitt.

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The beauty business is becoming increasingly frustrated with each new launch. In an open letter posted on Notanothercelebritybrand.com, which has since gone away, a group of six beauty business owners attacked Pitt when the Oscar-winning actor introduced his new skincare line last year.

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The businesspeople wrote to Pitt, saying, "You, dear celebs, have NO experience in this field. "Invest in us or collaborate with us if this is a sector of the economy that you genuinely want to be a part of."

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Some other celebrities are doing the exact same thing. Maria Sharapova, a tennis player, purchased 10% of Supergoop, a sunscreen manufacturer. according to PitchBook, along with golfer Michelle Wie West in 2014. Sharapova joined Supergoop, and the company's founder, Holly Thaggard, claimed that while the athlete wouldn't be the brand's face, she would assist fund product design and act as a "megaphone" to reach a broader audience. When Blackstone acquired the business in 2021, it had a $700 million market worth. The following year, it obtained more money from Hugh Jackman and other well-known figures.

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Some investors support a strategy similar to Sharapova's.

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As a customer, you may read about celebrities all day long, but as long as you say something was "started by a celebrity," we lose interest, according to True Beauty Venture's Gersten. "The bullseye on your back is what we've seen on a lot of a celebrity brands."