Nov 11, 2019: Elisabeth King reports on this week’s business news

Kline Group analyses potential buyers for Coty Professional Beauty; nearly 2 million Australians have used buy-now-pay-later methods; SC Johnson makes second sunscreen brand acquisition of the year; and Walgreens Boots Alliance explores US$70 billion go-private buyout.

Kline Group analyses potential buyers for Coty Professional Beauty
Recently earmarked for sale, Coty Professional Beauty is a rich prize, says Kline Group. With net revenues of US419.6 million in Q1 2020, the division has a number two ranking in the global professional haircare market.  Wella is also the number one professional hair colourant worldwide, following rapid growth in China, Japan and Brazil.

Analysing the potential suitors for the Coty sell-off, the global market research and consulting firm considers L'Oréal a complete long shot because the French multinational is so dominant in the professional haircare market it would face difficulties gaining regulatory approval for a deal. Although there is a possibility that L'Oréal could be interested in acquiring OPI and ghd in a piecemeal sale as it has a limited presence in the professional nail and hair appliance categories.

Kline considers Henkel, the owner of Schwarzkopf, to be a major contender. An opinion largely based on the German multinational's recent corporate acquisitions of a clutch of US brands to capture the number two spot in the lucrative North American market.

According to Carrie Mellage, Vice-President of Kline Consumer Products practice - " If Henkel were to acquire Coty's professional haircare brands, it would put the company within a close reach of #1 – only two share points away from L'Oréal".

Kao Corporation, the Japanese multinational, owns the Goldwell brand, long a fierce competitor of Wella. The acquisition of the Coty haircare brands would elevate Kao to the number two position in the salon haircare market.

Then there are the outliers, says Kline, AmorePacific, one of South Korea's big two, and Brazilian giant Natura, which has acquired The Body Shop and Avon Products in recent years to fast-track international expansion. Henkel, Kao and Unilever all have annual revenues of over US$10 billion and should be able to absorb Coty Professional Beauty without much difficulty, says Mellage. But don't count out private equity firms, she notes.

Nearly 2 million Australians have used buy-now-pay-later methods
Last week, Amazon Australia became the latest company to partner with a leading buy-now-pay-later company (BNPL) - Zip, one of the leading players in the market behind Afterpay. A smart move reveals the latest research from Roy Morgan. The number of Aussies who have used BNPL methods over the past year has increased from 1.38 million to 1.95 million, says the researcher.

BNPL is particularly popular with Gen Z and Millennial consumers. A huge 55.9 percent of users are aged between 14 and 34 and over a third fall in the sweet spot for brands and marketers – 25 to 34. To further underline the youthful nature of BNPL users, Roy Morgan points out that people aged 25 to 34 account for only 18 per cent of the population. By contrast, Australians aged 50-plus represent 40.7 per cent of the population yet account for only 14.2 per cent of BNPL users.

Awareness of BNPL companies is high at 52.2 per cent of Australians surveyed. Yet in spite of the big figures, says Roy Morgan, Australian users of BNPL represent 9.4 per cent of the population and only 17.2 per cent of those aged 25 to 34. Older Millennials and Gen Xers aged between 35 and 49 are the second highest users of BNPL at 29.8 per cent.

SC Johnson makes second sunscreen brand acquisition of the year
In June, SC Johnson bought Sun Bum, a rapidly-growing brand noted for its sunscreens, haircare and lip products. Sold in Target and Priceline, the brand was founded in Cocoa Beach, Florida, by two Australians – Adam and Francis Teague. Earlier this year, Sun Bum sponsored the Bum Rush Tour on the east coat to seek out the best local surfing talent.

SC Johnson, one of the world's leading makers of household cleaning products, shoe and hair care with revenues of US$10 billion a year, has taken another step into the sun protection market with a majority stake in Coola, the Californian mineral-based sunscreen brand. A major award winner, Coola picked up gongs this year at Allure magazine's Best of Beauty Awards and the Teen Vogue Awards. With annual sales of US$30 million, the brand is sold in Sephora and Nordstrom in the US and on Amazon.

SC Johnson has a longterm commitment to sustainability and the environment and the investment in Coola, with its eco-conscious formulas and farm-to-face philosophy dovetails with the multinational's family-centred ethos. Like Sun Bum, Coola has significant appeal to Millennials and Gen Z and those with active lifestyles.

Walgreens Boots Alliance explores US$70 billion go-private buyout
Walgreens Boots Alliance has reportedly tapped Evercore Inc, one of the world's leading global investment banking advisory firms, to sound out major private equity firms to fund a bid to take the multinational private. A global leader in retail and wholesale pharmacy and present in 25 countries, the company has a market cap of US$55 billion. According to financial, data and media giant, Bloomberg, a private equity buyout in the vicinity of US$70 billion would be the largest leveraged buyout in history.

The drugstore titan has had an up and down year. Retail comp sales have been declining and the value of its shares fell 25 per cent from February to late October. In August, Walgreens announced plans to close 200 locations in the US as part of a strategy to cut US$1.5 billion from its budget over the next two years.

The main benefit of becoming a private company is to remove the pressure of having to report its quarterly profits. But taking on huge debt has major risks and could intensify the retailer's current problems.

Asian expansion has been a major goal over the past two years, particularly in China, Thailand and South Korea. Last week, the company announced its entry to Indonesia with Boots-branded pharmacies through a partnership with local lifestyle retailer, MAP (PT Mitra Adiperkasa). Australia has proved a tough nut to crack. Although Walgreens Boots Alliance announced three years ago that it was again looking at launching the Boots brand in the Australian market, little more has been heard. Boots has been interested in setting up shop in Australia for over 100 years, ever since founder John Boot's son Jesse scoped out the Australian market before the outbreak of World War I.

Snippets from the Wires

  • The latest Parcel Shipping Index from Pitney Bowes, the global e-commerce solution company, reports that Australians hold the number 2 position globally for online shopping internationally. Cross-border commerce increased 7.3 per cent over the past year and the US, China and the UK are the top three countries selling into Australia.
  • New Zealand's manuka honey could be facing serious competition in the medical and beauty industries. A five year study conducted by the University of Technology in Sydney has revealed that Australia has seven of the Leptospermum plant species that give manuka honey its antibacterial, healing and medical properties.
  • Shiseido sales in China have increased 40 per cent this year and travel retail sales are up 25 per cent. The Japanese giant has reported 2019 year-to-date sales of 846.6 billion yen (AUD$8.63 billion) – a 7.7 per cent increase compared to the same period in 2018. Prestige brands such as Cle de Peau, NARS, Anessa and the re-launch of Laura Mercier in Australia have been key drivers of the growth.