Beauty firms have seen skincare sales soar during lockdown while consumer interest in makeup declined.
Two heavily indebted beauty firms have bet on Kylie Jenner’s skincare regime to boost sales as locked-down consumers invest less in lipstick and more in their complexions.
Last month German cosmetics retailer Douglas GmbH started selling the Kylie Skin range following an exclusive tie-up with US-based manufacturer Coty Inc. to bring the product line to Europe. The appeal of both skincare and Jenner may help mitigate the economic fallout from Covid-19.
Both Douglas and Coty, borrowers in the European leveraged finance market, are deep in junk territory and risk further downgrades. Moody’s Investors Service last week estimated that Douglas’ core earnings could fall as much as 30 per cent this fiscal year, and recently forecast “significant declines” in Coty’s earnings due to store closures and reduced demand.
The two companies are now hoping the break out star of the reality TV show Keeping Up with the Kardashians can help turn things around.
“We have one very, very strong and important element, which is playing both in the skin and indirect consumer and this is Kylie,” Coty’s Chief Operating and Financial Officer Pierre-Andre Terisse told investors in May. Coty bought a majority stake in Kylie Cosmetics last year.
A spokesperson for Kylie Jenner declined to comment.
A Douglas representative said that the launch of Kylie Skin has been a “great success” so far and referred to a previous statement about the rating downgrade which noted that the company’s “robust liquidity position” meant it won’t need external support.
A Coty spokesperson wrote that the company is committed to building Kylie’s beauty business into a “global powerhouse brand.”
Across the beauty sector, bricks-and-mortar based businesses are scrambling to keep up with the surge in online shopping. Whereas other retailers that have raised funding in the leveraged debt market, such as UK-based Hut Group, are already fully-established in virtual sales, Douglas has an expensive network of physical stores dotted across Europe to maintain.
Both Coty and Douglas also have heavy debt burdens to manage and the success of Kylie Jenner’s brand and others like it will help shape their fortunes after-sales cratered in the second quarter.
One bright spot for the sector, however, is skincare. “That’s really taken off during a lockdown,” Deborah Aitken, from Bloomberg Intelligence, said. Consumers “are not buying makeup so much but skincare is kind of a pick-me-up. For those at home longer and more luxurious skin treatments have become a passion.”
Douglas’ shops have now largely re-opened, but a weak recovery from the virus outbreak may threaten its ability to refinance looming debt maturities, Moody’s warned this month.
The company, owned by CVC Advisers Ltd., has nearly €2 billion ($2.3 billion) of bonds and term loans maturing in 2022, plus a €200 million revolving credit facility that it drew in mid-March as the pandemic hit. CVC didn’t respond to a request for comment.
“I don’t see how you end up with a Douglas that profitably runs 2,400 stores in a couple of years’ time,” said Neill Keaney, an analyst for Credit Sights.
Coty, meanwhile, has been weighed down by euro and dollar loans and bonds stacked up via a series of acquisitions, which are worth more than $11 billion, according to data compiled by Bloomberg. The firm stands to reduce its debt pile from the $4.3 billion disposals of professional beauty and haircare brands to KKR & Co
Now, having offloaded those assets, the company may be about to tie its fortunes more tightly to the Kardashian/Jenner family, entering talks for a possible collaboration with Jenner’s half-sister Kim Kardashian West.
For now, though there’s pressure on Kylie Jenner’s brand to boost sales for both companies, particularly if Covid-19 continues to disrupt business.
Douglas, in particular, will need to see some tangible results from the Kylie partnership, according to Keaney.
“I’m not sure that the margins on those products are going to be sufficient,” he added.