Reasons you should be investing more in beauty brands – Are they investment-worthy?

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If you’re acquainted with the news of the beauty and cosmetic industry, you will be aware of the news that within the last 2 tears, Unilever acquired the company named Carver Korea for $2.7 billion. The ace brand Estee Lauder bought Too Faced Cosmetics for around $1.45 billion and L’Oreal bought a trio of skin care brands for around $1.3 billion. However, the venture capitalists didn’t invest in any of the beauty businesses as they skipped Tarte, Urban Decay, Hourglass, Bluemercury, Becca Cosmetics, ESPA, Paula’s Choice, names of beauty brads which have been sold off for hundreds of millions.

All this is partly happening because everything has got an online platform these days. Then why did they miss on the wave of such beauty acquisitions? How are companies like Ecostore Australia and several other manufacturers of skin care and beauty products still flourishing and prospering on their own? There are some who don’t consider makeup as the most suitable venture investment and there are few others who believe that cosmetics are late in understanding the ways of the market.

Should you invest in the beauty industry or in bitcoins?

There’s no doubt about the fact that bitcoin is all the rage at the current moment and it is also the latest tech trend which can make wonders in the social media industry. But did you know that experts are reiterating the fact that there’s no reason to feel excited about bitcoin. Bitcoin and other tech trends like bitcoin usually such too much of hype out of the room while speaking about investing.

Amidst all this, one more industry which is presently garnering a lot of attention is consumer. Consumer care and personal care has become one of the most attractive forms of investing for the seasoned investors. If you seem to be interested in knowing the factors which make cosmetics and beauty products a worthy form of investment, here are some that you may consider.

 

  • Brand loyalty plays a vital role

 

In this industry, you will be rather hard-pressed to look for stronger brands and other brand devotees within the space of personal care. Commodities of personal care like dish soap and paper towels – are they going to gain all the attention of the investors? People will definitely shift their allegiances based on the price of commodities but even the highest priced thing will be the last thing to go when budget is tight and there’s less money in the hands of the consumers. Did you know that during the deepest phase of the Great Recession, sale of skin care products was up by 25%? This shows that customers always stay loyal to their chosen brand, no matter what happens to the economy of the country. This is an industry where brand matters way more than personal care.

 

  • Frequency of purchase
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There can be nothing better than customers who are extremely loyal to their brands. You will always find loyal customers who will keep returning to the brand, no matter what fluctuations they find in price of the products. Majority of the personal care products are bought either once in a month or once in 2 months. Hence, this will become a recurring stream of revenue and these are the recurring customers that you’ve got for life. If you take into account the cost of acquiring a new customer as against the cost of retaining that same customer, here is where recurring revenue will become important. This is also important for stability, something which is preferred by seasoned investors.

 

  • Margins are pretty lucrative

 

One of the biggest myths in Silicon Valley is that the products of consumer care have very low margins. There are lots of investors who are still of the opinion that the consumer care companies are huge manufacturing plants. This is nowhere less true than the personal care industry. Hair care and skin care companies, typically have more than 60% gross margins which showers them with a lot of capital for investment in new consumer care products. There are times when you can even get 70% gross margins along with 40% of EBITDA margins.

 

  • Better sales opportunities
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The consumers of the present generation are always looking for products that are geared towards them and which can offer a solution to their own problems. They are also more willing to try out niche products, new products and for them the retailers have opened up their aisles like never before. In fact, it has never been easier for any personal care product to move up to the shelves of the biggest retailers. Besides the traditional form of selling, the consumer care companies also have websites where they can sell off their wares. You get subscription boxes focused on beauty and you can use them for finding more customers.

 

  • Exit markets

 

The most vital element of any specific investment is the exit strategy. One of the main questions that are asked to an investor is what strategic investor can a product sell to. Few of the major strategics that are there in the market are Estee Lauder, L’Oreal, Unilever and many others which are intensely acquisitive. They have big gross margins and this gives them adequate amount of capital to spend on as long as acquiring smaller companies are concerned. This gives them a competitive edge either because the acquisition lets them break within a new market or because they successfully acquired a competitor. Estee Lauder has acquired Aveda, Smashbox, Bobbi Brown and L’Oreal has acquired other small companies in Asia and Africa.

Today’s world makes consumer product investing much different and more interesting than ever before. But what is the reason behind this? It wasn’t long ago that the high-growth, robust and young consumer product companies were safe under the radar but today these businesses are getting access to all sorts of investors of different types. On the contrary, investors are the ones who have greater and earlier access to businesses.

 

 

Disclaimer: This content does not necessarily represent the views of IWB.

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