Makeup Industry Faces M Stalemate Amid Market Challenges

What's Happening?

The makeup industry is experiencing a stalemate in mergers and acquisitions (M&A) despite the buzz generated by social media-savvy brands like Rare Beauty and Merit. These brands have captured market share from traditional heritage brands by connecting with younger audiences. However, the prestige makeup category is facing challenges, with acquisitions slowing down significantly. Recent deals include E.l.f. Beauty acquiring Rhode and L’Oréal purchasing Medik8 and Color Wow. Despite strong retail performances, many color cosmetics brands, such as Makeup By Mario and Rare, have yet to find acquirers. The prestige makeup category in the U.S. is slowing, with only a 1% increase in dollar amount and flat unit sales in the first half of the year. Industry insiders suggest that the category's dynamics make it a harder sell to investors.

Why It's Important?

The slowdown in M&A activity within the makeup industry highlights broader challenges faced by color cosmetics brands. The prestige makeup category's sluggish growth contrasts with stronger performances in hair and fragrance segments. This situation affects brands' ability to secure investments and expand their market presence. The hesitancy among investors is attributed to the high SKU intensity and working capital demands of the color cosmetics sector. As brands struggle to prove brand loyalty over product loyalty, the industry faces pressure to innovate and stay relevant. The outcome of this stalemate could influence future investment strategies and the competitive landscape of the beauty industry.

What's Next?

Industry insiders speculate that Makeup By Mario may eventually secure a transaction due to its strong consumer resonance and projected revenue growth. Rare Beauty, with significant net sales, might explore options such as an initial public offering or investment from unexpected players. Brands like Westman Atelier are rumored to be considering market entry, potentially opening opportunities for M&A activity. The focus for makeup brands will be on enhancing customer loyalty and integrating products into daily routines to mimic the dynamics of skincare and haircare brands.