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L’Oreal’s acquisition of Urban Decay expands a strategy of premium product acquisiton
L’Oreal has announced its plans to acquire cosmetic brand Urban Decay, demonstrating further signs of a new strategy exploiting specialist brands in emerging markets.
Urban Decay, owned by private equity firm Castanea Partners, is believed to have been sold for between $300-400m to L’Oreal, although the financial details were not fully disclosed.
Urban Decay’s specialist, high end brands have enjoyed success since its creation in the 1990s. It is considered more edgy and fashionable, making it appealing to a younger demographic. These types of premium brands represent a significant proportion of the luxury makeup market in developed countries, and are also succeeding in emerging markets, where young consumers with burgeoning disposable incomes are exponentially growing. According to L’Oreal’s estimates, specialist brands represent 44% of the US luxury makeup market. L’Oreal’s results in the first three quarters of 2012 suggest North America and Asia are strongly growing markets for the company. The Luxury division is buoyed by the success of products such as Lancôme performing well in Asia.
The mass-cosmetics division has not been performing as well, and hence represents further initiatives to exploit the opportunities presented by specialist brands. L’Oreal has stepped up such acquisitions, purchasing Pacific Bioscience Laboratories, which manufactures the Clarisonic sonic facial brush. The strategy of investing in premium, specialized products signals an attempt to compensate for the muted mass-marketed products.
Urban Decay’s distribution channels focused on specialist retailers such as Sephora and Ulta, adopting a selective distribution strategy. L’Oreal’s acquisition will see the company’s products distributed on a much wider scale through more abundant channels, increasing its potential audience.
MarketLine has produced a Case Study on L’Oreal’s acquisition of Body Shop, available here
MarketLine L’Oreal Company Profile can be reviewed here