Why Estée Lauder Is Finally Acquiring Deciem - SolidRumor.com

Why Estée Lauder Is Finally Acquiring Deciem

 Why Estée Lauder Is Finally Acquiring Deciem

The Ordinary’s $7.20, blood-red AHA Peeling Solution went viral on TikTok in early 2020. The subsequent “significant” sales bump prompted the company to plan on producing 15 million units of that SKU alone for 2021, says Nicola Kilner, the chief executive of the brand’s parent company, Deciem.

Kilner says the attention garnered on TikTok is just a continuation of how The Ordinary has grown since its launch in 2016 — by the word of mouth of very enthusiastic consumers, whether it’s teens on TikTok or 40-something moms that frequent the 187,000-member strong Facebook fan group.

The Estée Lauder Companies (ELC) recognised the company’s buzz only a year after The Ordinary’s launch, taking a 29 percent stake in Deciem in 2017. This week, ELC announced that it was increasing its stake in Deciem to 76 percent, with plans to acquire the company completely after three years. The brand’s 2020 sales of $460 million and ELC’s $1 billion investment gives Deciem a $2.2 billion valuation. Deciem has five other brands besides The Ordinary, including body care, hair care and the higher-priced skin care line, Niod. But the Ordinary drives the majority of the company’s sales.

The journey from initial investment to eventual acquisition has been anything but smooth for either party. Thanks to the actions of its polarising late founder Brandon Truaxe, Deciem became an internet soap opera for millions of people who didn’t necessarily know anything about skin care. Truaxe insulted customers, made problematic remarks, broke deals with partners on social media and ultimately threatened to shut down the company. It put Estée Lauder and its traditional corporate values in an uncomfortable situation, and eventually it had Truaxe legally removed from the company. He died in 2019 after a fall from a balcony at his home in Toronto. Since then, Kilner has been a steadying force in the company, repairing fractured relationships with retailers like Sephora and Ulta and guiding it through a pandemic while increasing revenue.

For ELC, too, the acquisition marks a new era. It has always stayed firmly in the prestige lane, selling its brands primarily in department stores and specialty beauty retailers, at least in the US. With the Ordinary and Deciem’s other up-and-coming brands, ELC is now well-positioned in a market in which so-called “masstige” brands have flourished and beauty retailer partnerships, like that of Ulta/Target and Sephora/Kohl’s, have blurred traditional distribution routes.

“I was surprised when [ELC] made the initial investment. I was not surprised by this one,” said Rich Gersten, founder and managing partner of investment fund True Beauty Capital. “Consumers have gotten very price sensitive and the Ordinary has done a great job on delivering active ingredients at an affordable price.”

The New Prestige

In the last several years, even pre-pandemic, masstige brands were gaining market share, in no small part because of The Ordinary.

“Brands in this category position themselves as having the benefits and qualities similar to premium skin care, but at a more accessible price point,” said Kayla Villena, a consultant at Euromonitor International, in an email. “Add in the impact of Covid-19 … and you now have this cocktail found in masstige skin care which could potentially convince consumers who have traded down from premium skin care or traded up from mass skin care to stick around.”

Companies owning a high-low mix of brands is not new. L’Oreal owns both mass and prestige brands, and early last year, LVMH Luxury Ventures invested in Versed, an aspirational-yet-affordable Target brand.

It’s making its way into US retail, too. In Canada and the UK, luxury brands often sit next to mass brands at drugstores, but in the US, mass and prestige brands have traditionally been delineated into different sales channels. That started to change several years ago as Ulta convinced more prestige brands, including those from Estée Lauder, to sell their products next to traditional drugstore brands.

In the past year, news broke that Ulta would be selling a selection of products at Target, and Sephora would do the same at Kohl’s, providing an avenue for those beauty retailers to tap a new customer base. Consumer data shows that more consumers shop at Target and Kohl’s than do at Ulta or Sephora, said NPD beauty industry advisor Larissa Jensen.

A brand like The Ordinary, which sits at a perfect price point for Target and Kohl’s but with an authentic, aspirational reputation, seems ideal for the hybrid concept. (Kilner was noncommittal about whether or not The Ordinary will be considered for these new retail experiments.)

ELC acknowledges that the definition of prestige is shifting beyond just price.

“Important hallmarks for ‘prestige’ products are the unique nature of a brand’s equity and the quality of its products, which can combine to create a compelling brand proposition for consumers,” an ELC spokesperson said in an email.

In other words: “It’s about good old-fashioned branding at the end of the day,” said Jensen.

“Deciem has always been a great catalyst for change.”

What Deciem Gets From ELC

The downside of Deciem’s popularity is that it has struggled to keep up with demand for The Ordinary’s products. While it will maintain its Toronto headquarters and manufacturing facility, Kilner said that there are plans to expand manufacturing globally, which will increase supply in a sustainable way, if products can be produced where they’re sold. It will also help expand the brands to new markets.

Kilner and the executive and R&D team, many of whom have been there since the beginning of the company, are staying put — at least for the next three years. And Kilner says there is still a commitment to Deciem’s 40 brick-and-mortar stores, though some may close and move to more ideal locations.

To fans who are already expressing their concerns on social media that The Ordinary will change their formulas and increase prices, Kilner says that ELC recognises why and how The Ordinary became so successful.

“Deciem has always been a great catalyst for change,” she said. “You can create a profitable brand by actually having affordable pricing.”

The Present and Future of Beauty

ELC’s acquisition of Deciem also points to a more innovative future — a shift that is needed. The pandemic has been hard on beauty, but not for every category. In 2020, the prestige beauty market declined 19 percent, with makeup taking a 34 percent hit and skin care 11 percent, according to NPD data. But there was some positive growth as well. Sales of exfoliation products, like the Ordinary’s viral AHA mask, were up in 2020, said Jensen. Sales of clinical skin care brands, which center ingredients and a scientific-based approach, were up 3 percent. Jensen considers the Ordinary to be in this category, and therefore a boon to ELC at this particular moment.

Deciem is also, at its heart, an incubator for new brands, with a history of innovation, something many conglomerates aren’t great at. (The last new brand ELC tried to develop from scratch, the Estée Edit, shuttered one year after its launch, in 2017.) ELC isn’t just buying The Ordinary — it’s buying the braintrust that invented the Ordinary.

“We have such a creative, entrepreneurial mindset and are always coming up with new concepts,” said Kilner. “So having the integrated incubator, where we can get back to creating new brands, I think is something that excites them.”

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