Solomon Partners Presents
Listen in as Solomon investment bankers and advisors share their latest thinking and insights across a broad range of sectors, with a focus on M&A, financing, and deal-making.
Solomon Partners Presents
EP 08: Beauty and Personal Care: Reshaping Strategies in the Changing Marketplace
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Season 1
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Episode 8
PJ SOLOMON Managing Director Irina Adler and Conor Begley, co-founder of Tribe Dynamics, discuss how beauty and personal care brands are reshaping their strategies in response to a rapidly evolving marketplace.
Irina Adler (00:04):
I'm very bullish on the beauty industry long term, but in this environment it is about reinventing ourselves. It is about building agile models that are not only relevant today, but will also work in the future.
Conor Begley (00:20):
I think those models apply not only to marketing, but to product, to distribution to all the strategies that work to drive a business forward. It's a super interesting time to be a part of that.
Irina Adler (00:36):
Welcome to our podcast. We are recording from our homes, which is indicative of the unique times we are in. I am Irina Adler, Managing Director at PJ SOLOMON's Consumer Retail Group. I lead their coverage of the beauty, personal care and health & wellness industries. I'm delighted to be joined today by Conor Begley, co-founder and president of Tribe Dynamics. The firm works with leading brands, companies and investors in the beauty and fashion industries to provide data driven insights and tools impacting marketing strategies and investment decisions. Conor, I'm sure a lot of our listeners know Tribe Dynamics, but for those who may be new to your company, could you please give a bit more color on your background and firm's capabilities?
Conor Begley (01:26):
For sure. And thanks to PJ SOLOMON and to you for inviting us on today. I'm really excited. We founded Tribe close to eight years ago, before Instagram even existed. What we exist in is commonly referred to as the influencer space. I think of it really more as publishers. So people that create content about your brand and trying to measure the impact of that content on your brand. That historically has been if you got coverage on Good Morning America or in Glamour magazine, but now what's happened is every individual is a publisher. Every brand is a publisher. Every retailer is a publisher. And the reason that can happen is the cost to publish content has dropped so dramatically over the last 20 or so years because of the internet and mobile phones, that it's just enabled everybody to create an audience and talk about the things that they're interested in. That's led to the fairly dramatic shift in the marketing strategies that work for brands in these passion-driven industries, whether that's beauty, fashion, fitness, gaming, cars, consumer electronics, those opinions that people have, and that they can express now just have a really big impact on what people decide to buy. We work with probably 60 to 70% of the major U S beauty brands, as well as a big portion of the luxury brands and apparel market as well.
Irina Adler (03:01):
I'd love to talk about how this unprecedented environment - a global pandemic and outcry for human rights, has impacted the beauty and personal care industry. We've seen dramatic changes in consumer behavior in terms of what categories consumers shop, how they shop and how they react to marketing. Interesting how internet has become a proxy for human interaction. Virtual has replaced physical for things such as trial, consultation, entertainment, and we've seen tremendous increase in social media consumption and content consumption. It does seem like in this environment, it's all about reinventing ourselves. It's about building those agile models that are not only relevant today, but that'll bode well for your future business. Could you please talk a little bit about what you have observed is working well for brands in this disrupted environment?
Conor Begley (04:06):
I haven't been in an environment where there's been so much change in such a short period of time from so many different perspectives. I think in terms of pivots, obviously the big discussion, like you said, is how do I pivot a lot of my revenue from being offline to being online? Because even if this pandemic does start to slow down again, which it doesn't look like it is, there's a risk that it could happen again. These kinds of pandemics have hit Asia several times now and just hasn't made its way all the way to the United States. So the idea is okay, before I was getting 20% of my revenue direct to consumer and online, and now I want to get 50%. And how do I get there? So a few examples that I think are interesting. One of the brands is a client of ours that isn't a big brand, its called Aquis a haircare brand. They've gotten really popular with their hair towels and their hair turbans. My wife's a huge fan of them. What's interesting for them is initially there's panic because a significant amount of their distribution is offline. And so the pivot they made wasn't necessarily moving more online versus offline, but they actually really accelerated their China strategy. So they pushed really hard into China and Southeast Asia where they aren't having as severe a response as the U S is to the pandemic and they're having their best months by far during the pandemic. One of the things that we've seen in the data, that's a little broader, but very interesting, is that the independent brands have actually outperformed the strategically-owned brands during this time. So looking at the top 30 brands, just specifically in the beauty category, the independent brands, even if they're owned by a TSG, a TPG, whatever, are outperforming by 10 plus percent in beauty, in skin care, in hair care. So in every single category, they are outperforming the strategically-owned brands.
Irina Adler (06:05):
Its interesting to see how consumer spending has evolved in terms of category focus areas as well. We are witnessing this accelerated convergence of beauty and wellness, as consumers focus in on areas such as self care and do it yourself beauty. Categories, such as hair, skin care, color, supplements, amino boosters, not to mention hand sanitizers are experiencing very high growth rates in some cases, triple digit growth rates. And then it's also been fascinating to watch how clean is becoming analogous with safe. It was particularly made clear when I saw data for Prestige Beauty for Q1, where you had 25% growth differential between clean products and the overall category. On the flip side, you're seeing cologne and fragrance categories significantly under perform. Do you think you're going to see a step function change in areas that are aligned with self care? Do you see more dollars migrating into those areas longer term?
Conor Begley (07:15):
I think you just have to think about incentives. Why do I wear a fragrance? I wear a fragrance because I see people that I don't see all the time. People just aren't doing that. That's unlikely to change in the short term. And so just thinking about these incentives, why people are buying something or not, I think helps you uncover whether or not this is expected to be a long-term trend or a short-term trend. I think with make up specifically, it was already generally on a downward trajectory over the last 18 plus months or so, or maybe even a little bit longer. And so I think this is kind of an acceleration of that consumer behavior. I still think you're taking almost as many photos of your face as you were before. So I think there's still incentive to put on lipstick. And I think as masks become a little less common and it becomes a little bit more contained, I would expect that to rebound. In the data, we are seeing skincare, makeup, hair care have all grown during pandemic month over month. So they've all done well. Now cosmetics is still down year, over year, but compared to February it is up.
Irina Adler (08:23):
Switching gears a little bit, the global pandemic, and then international outcry for human rights have challenged brands and the way that they conduct business, but we've seen some brands not react as quickly as they should have. And certainly some brands have fared better than others. Why do you think that's the case?
Conor Begley (08:44):
From a consumer perspective, the expectation of authenticity has increased significantly over time as the visibility into brands and brand actions has increased. And what I mean by that is if you're to look 20 to 25 years ago, you just really couldn't get a lot of information about what a brand was doing. Was this marketing slogan just something they were acting on, or is this something that was just to position the brand and that particular fad or that particular social narrative. So I think what's happened is as that visibility has increased the expectations around "are your actions consistent with your words?" has just increased in importance. In terms of individual brands, I think there's a bunch that have done a really good job. I was just interviewing the CEO of Tula. So I was looking into what they were doing and I think they've just done a really good job. And I think they've shown a lot of consistency in terms of the people that they support. And that's allowed them to do this in a way that people really respect .
Irina Adler (09:47):
Authenticty as you said, this word, I feel like I hear a lot in the industry. It's all about walking the talk so to to say on social issues and the sense that I have consumers right now really want that authentic engagement. Particularly if you compare it to this great content, which is useful, relevant, purpose driven, that shows you're being empathetic to various issues.
Conor Begley (10:12):
It's not even just a marketing thing. Marketing is certainly a big element of it, but it comes down to like your ingredients. Where are you sourcing them? What are they? Are you a clean brand or are you not a clean brand? How do you treat your employees? I can go on Glassdoor and look at what people are saying about how you're treating your employees. That's like, Oh, wow, I love this brand. I love these products, but it looks like they're treating their employees really poorly.
Irina Adler (10:41):
You talked up front about how, in some ways, a lot of consumers are becoming publishers. A lot of consumers are influencers. As you reflect on this very difficult environment, do you see influencers becoming more or less important? How is the relationship between brands and influencers evolving and where do you think it goes from here?
Conor Begley (11:08):
Frankly, in this push to get more and more of your revenue directly from online sources, influencers just actually play a role in that. Fort us, I think the word influencer is what causes people to feel like this is more of a fad than anything. If you were to use the word publisher and you were to say like, hey, these are new publishers. It's easier to publish today than it was before. And that's why you have all of these new publishers in the same way that the reason there's 10,000 TV stations is not because, it's not a fad, it's because publishing TV content has just gotten easier and easier over time, so there aren't just three TV networks. Same basic premise here. And from a consumer perspective, it allows you to find people that are really aligned with your interests and aligned with who you are as a person so you get content that makes the most sense to you. If you were to remove the word influencer and use the word publisher, I've heard of the death of the influencer for five years in a row. And every year, it gets bigger. In terms of how brands interact with them from a data driven perspective, the brands that have been most successful are the ones that are consistently maintaining long-term relationships with their community. So what I mean by that is if you were to look at a brand like ColourPop, which is now the number one or number two brand we track within the US, if you were to look at their coverage, whether you want to measure it by EMV or posts or number of engagements, any metric, about 80% of their coverage will come from the exact same people this year as gave them coverage last year.
Conor Begley (12:47):
And on top of that, not only will 80 plus percent of that coverage come from the exact same influencers as the year before, but that group will double their coverage from last year to this year. So they created a hundred thousand posts about them last year. They're going to create 200,000 posts about them this year. So for ColourPop, they could almost double their total coverage on social media without adding anybody new. And that is again, that's just something, that's a characteristic that we see across all of these brands that are successful, whether it's them or it's Milk or it's Charlotte Tilbury, who's been doing really well right now.
Conor Begley (13:30):
So let's talk about M&A, a topic that I love. Beauty M&A has been on fire over the last few years. Strategics went after indie brands that could provide good growth rates. Digital capability has cross-generational appeal. We also saw at ton of capital inflows from the PE and VC firms. Multiples reached all time high levels last year, and then we had this pandemic. So when the pandemic hit activity has largely halted and there was an expectation that multiples were going to come down. So when the Charlotte Tilbury deal got done in this environment, particularly when you reflect on the rumored deal value, it turns a lot of heads. I know you've done some interesting analysis around Charlotte Tilbury's earned media value, which supports growth and the attractiveness of this business. Can you comment a bit more on that? And also, what do you think it implies for future M&A?
Conor Begley (14:34):
I was just really surprised that that would happen in the middle of something like this. Like you just have to imagine that that would slow down, but at the same time, if you were to look at Charlotte Tilbury as a business, at least from a social driven perspective, it's just grown every year. It's moving up the rankings, its getting higher and higher. And I think the reasons for that are one, if you don't have products that are worth talking about, people aren't going to talk about you. And so for Charlotte Tilbury specifically, she has a set of hero products that people just love, and that have just done really well for them. I think from a strategic marketing perspective, they just did a really good job of building relationships, getting to know these people, investing in it the right way, which is important. And I think for the why now for Puig, they were heavily invested in fragrance and fragrance is not doing well as a category. And so getting kind of diversity in the portfolio there was probably strategically important for them and why they would pull the trigger, even in a down market. You have to imagine that it will continue to be slow right now, but at the same time, sometimes the slow markets are the buyers markets. That's when you can go out and get a really good price on an asset or get a good deal that would have cost you a lot more 12 months ago,.
Irina Adler (15:54):
Conor, it's been a pleasure speaking with you and getting your perspectives on the industry in this very challenging environment. Thank you everyone for listening to PJ SOLOMON Presents, if you would like to learn more, please visit our website, pjsolomon.com.
I'm very bullish on the beauty industry long term, but in this environment it is about reinventing ourselves. It is about building agile models that are not only relevant today, but will also work in the future.
Conor Begley (00:20):
I think those models apply not only to marketing, but to product, to distribution to all the strategies that work to drive a business forward. It's a super interesting time to be a part of that.
Irina Adler (00:36):
Welcome to our podcast. We are recording from our homes, which is indicative of the unique times we are in. I am Irina Adler, Managing Director at PJ SOLOMON's Consumer Retail Group. I lead their coverage of the beauty, personal care and health & wellness industries. I'm delighted to be joined today by Conor Begley, co-founder and president of Tribe Dynamics. The firm works with leading brands, companies and investors in the beauty and fashion industries to provide data driven insights and tools impacting marketing strategies and investment decisions. Conor, I'm sure a lot of our listeners know Tribe Dynamics, but for those who may be new to your company, could you please give a bit more color on your background and firm's capabilities?
Conor Begley (01:26):
For sure. And thanks to PJ SOLOMON and to you for inviting us on today. I'm really excited. We founded Tribe close to eight years ago, before Instagram even existed. What we exist in is commonly referred to as the influencer space. I think of it really more as publishers. So people that create content about your brand and trying to measure the impact of that content on your brand. That historically has been if you got coverage on Good Morning America or in Glamour magazine, but now what's happened is every individual is a publisher. Every brand is a publisher. Every retailer is a publisher. And the reason that can happen is the cost to publish content has dropped so dramatically over the last 20 or so years because of the internet and mobile phones, that it's just enabled everybody to create an audience and talk about the things that they're interested in. That's led to the fairly dramatic shift in the marketing strategies that work for brands in these passion-driven industries, whether that's beauty, fashion, fitness, gaming, cars, consumer electronics, those opinions that people have, and that they can express now just have a really big impact on what people decide to buy. We work with probably 60 to 70% of the major U S beauty brands, as well as a big portion of the luxury brands and apparel market as well.
Irina Adler (03:01):
I'd love to talk about how this unprecedented environment - a global pandemic and outcry for human rights, has impacted the beauty and personal care industry. We've seen dramatic changes in consumer behavior in terms of what categories consumers shop, how they shop and how they react to marketing. Interesting how internet has become a proxy for human interaction. Virtual has replaced physical for things such as trial, consultation, entertainment, and we've seen tremendous increase in social media consumption and content consumption. It does seem like in this environment, it's all about reinventing ourselves. It's about building those agile models that are not only relevant today, but that'll bode well for your future business. Could you please talk a little bit about what you have observed is working well for brands in this disrupted environment?
Conor Begley (04:06):
I haven't been in an environment where there's been so much change in such a short period of time from so many different perspectives. I think in terms of pivots, obviously the big discussion, like you said, is how do I pivot a lot of my revenue from being offline to being online? Because even if this pandemic does start to slow down again, which it doesn't look like it is, there's a risk that it could happen again. These kinds of pandemics have hit Asia several times now and just hasn't made its way all the way to the United States. So the idea is okay, before I was getting 20% of my revenue direct to consumer and online, and now I want to get 50%. And how do I get there? So a few examples that I think are interesting. One of the brands is a client of ours that isn't a big brand, its called Aquis a haircare brand. They've gotten really popular with their hair towels and their hair turbans. My wife's a huge fan of them. What's interesting for them is initially there's panic because a significant amount of their distribution is offline. And so the pivot they made wasn't necessarily moving more online versus offline, but they actually really accelerated their China strategy. So they pushed really hard into China and Southeast Asia where they aren't having as severe a response as the U S is to the pandemic and they're having their best months by far during the pandemic. One of the things that we've seen in the data, that's a little broader, but very interesting, is that the independent brands have actually outperformed the strategically-owned brands during this time. So looking at the top 30 brands, just specifically in the beauty category, the independent brands, even if they're owned by a TSG, a TPG, whatever, are outperforming by 10 plus percent in beauty, in skin care, in hair care. So in every single category, they are outperforming the strategically-owned brands.
Irina Adler (06:05):
Its interesting to see how consumer spending has evolved in terms of category focus areas as well. We are witnessing this accelerated convergence of beauty and wellness, as consumers focus in on areas such as self care and do it yourself beauty. Categories, such as hair, skin care, color, supplements, amino boosters, not to mention hand sanitizers are experiencing very high growth rates in some cases, triple digit growth rates. And then it's also been fascinating to watch how clean is becoming analogous with safe. It was particularly made clear when I saw data for Prestige Beauty for Q1, where you had 25% growth differential between clean products and the overall category. On the flip side, you're seeing cologne and fragrance categories significantly under perform. Do you think you're going to see a step function change in areas that are aligned with self care? Do you see more dollars migrating into those areas longer term?
Conor Begley (07:15):
I think you just have to think about incentives. Why do I wear a fragrance? I wear a fragrance because I see people that I don't see all the time. People just aren't doing that. That's unlikely to change in the short term. And so just thinking about these incentives, why people are buying something or not, I think helps you uncover whether or not this is expected to be a long-term trend or a short-term trend. I think with make up specifically, it was already generally on a downward trajectory over the last 18 plus months or so, or maybe even a little bit longer. And so I think this is kind of an acceleration of that consumer behavior. I still think you're taking almost as many photos of your face as you were before. So I think there's still incentive to put on lipstick. And I think as masks become a little less common and it becomes a little bit more contained, I would expect that to rebound. In the data, we are seeing skincare, makeup, hair care have all grown during pandemic month over month. So they've all done well. Now cosmetics is still down year, over year, but compared to February it is up.
Irina Adler (08:23):
Switching gears a little bit, the global pandemic, and then international outcry for human rights have challenged brands and the way that they conduct business, but we've seen some brands not react as quickly as they should have. And certainly some brands have fared better than others. Why do you think that's the case?
Conor Begley (08:44):
From a consumer perspective, the expectation of authenticity has increased significantly over time as the visibility into brands and brand actions has increased. And what I mean by that is if you're to look 20 to 25 years ago, you just really couldn't get a lot of information about what a brand was doing. Was this marketing slogan just something they were acting on, or is this something that was just to position the brand and that particular fad or that particular social narrative. So I think what's happened is as that visibility has increased the expectations around "are your actions consistent with your words?" has just increased in importance. In terms of individual brands, I think there's a bunch that have done a really good job. I was just interviewing the CEO of Tula. So I was looking into what they were doing and I think they've just done a really good job. And I think they've shown a lot of consistency in terms of the people that they support. And that's allowed them to do this in a way that people really respect .
Irina Adler (09:47):
Authenticty as you said, this word, I feel like I hear a lot in the industry. It's all about walking the talk so to to say on social issues and the sense that I have consumers right now really want that authentic engagement. Particularly if you compare it to this great content, which is useful, relevant, purpose driven, that shows you're being empathetic to various issues.
Conor Begley (10:12):
It's not even just a marketing thing. Marketing is certainly a big element of it, but it comes down to like your ingredients. Where are you sourcing them? What are they? Are you a clean brand or are you not a clean brand? How do you treat your employees? I can go on Glassdoor and look at what people are saying about how you're treating your employees. That's like, Oh, wow, I love this brand. I love these products, but it looks like they're treating their employees really poorly.
Irina Adler (10:41):
You talked up front about how, in some ways, a lot of consumers are becoming publishers. A lot of consumers are influencers. As you reflect on this very difficult environment, do you see influencers becoming more or less important? How is the relationship between brands and influencers evolving and where do you think it goes from here?
Conor Begley (11:08):
Frankly, in this push to get more and more of your revenue directly from online sources, influencers just actually play a role in that. Fort us, I think the word influencer is what causes people to feel like this is more of a fad than anything. If you were to use the word publisher and you were to say like, hey, these are new publishers. It's easier to publish today than it was before. And that's why you have all of these new publishers in the same way that the reason there's 10,000 TV stations is not because, it's not a fad, it's because publishing TV content has just gotten easier and easier over time, so there aren't just three TV networks. Same basic premise here. And from a consumer perspective, it allows you to find people that are really aligned with your interests and aligned with who you are as a person so you get content that makes the most sense to you. If you were to remove the word influencer and use the word publisher, I've heard of the death of the influencer for five years in a row. And every year, it gets bigger. In terms of how brands interact with them from a data driven perspective, the brands that have been most successful are the ones that are consistently maintaining long-term relationships with their community. So what I mean by that is if you were to look at a brand like ColourPop, which is now the number one or number two brand we track within the US, if you were to look at their coverage, whether you want to measure it by EMV or posts or number of engagements, any metric, about 80% of their coverage will come from the exact same people this year as gave them coverage last year.
Conor Begley (12:47):
And on top of that, not only will 80 plus percent of that coverage come from the exact same influencers as the year before, but that group will double their coverage from last year to this year. So they created a hundred thousand posts about them last year. They're going to create 200,000 posts about them this year. So for ColourPop, they could almost double their total coverage on social media without adding anybody new. And that is again, that's just something, that's a characteristic that we see across all of these brands that are successful, whether it's them or it's Milk or it's Charlotte Tilbury, who's been doing really well right now.
Conor Begley (13:30):
So let's talk about M&A, a topic that I love. Beauty M&A has been on fire over the last few years. Strategics went after indie brands that could provide good growth rates. Digital capability has cross-generational appeal. We also saw at ton of capital inflows from the PE and VC firms. Multiples reached all time high levels last year, and then we had this pandemic. So when the pandemic hit activity has largely halted and there was an expectation that multiples were going to come down. So when the Charlotte Tilbury deal got done in this environment, particularly when you reflect on the rumored deal value, it turns a lot of heads. I know you've done some interesting analysis around Charlotte Tilbury's earned media value, which supports growth and the attractiveness of this business. Can you comment a bit more on that? And also, what do you think it implies for future M&A?
Conor Begley (14:34):
I was just really surprised that that would happen in the middle of something like this. Like you just have to imagine that that would slow down, but at the same time, if you were to look at Charlotte Tilbury as a business, at least from a social driven perspective, it's just grown every year. It's moving up the rankings, its getting higher and higher. And I think the reasons for that are one, if you don't have products that are worth talking about, people aren't going to talk about you. And so for Charlotte Tilbury specifically, she has a set of hero products that people just love, and that have just done really well for them. I think from a strategic marketing perspective, they just did a really good job of building relationships, getting to know these people, investing in it the right way, which is important. And I think for the why now for Puig, they were heavily invested in fragrance and fragrance is not doing well as a category. And so getting kind of diversity in the portfolio there was probably strategically important for them and why they would pull the trigger, even in a down market. You have to imagine that it will continue to be slow right now, but at the same time, sometimes the slow markets are the buyers markets. That's when you can go out and get a really good price on an asset or get a good deal that would have cost you a lot more 12 months ago,.
Irina Adler (15:54):
Conor, it's been a pleasure speaking with you and getting your perspectives on the industry in this very challenging environment. Thank you everyone for listening to PJ SOLOMON Presents, if you would like to learn more, please visit our website, pjsolomon.com.