Procter & Gamble is selling most of its beauty brands to Coty for $13 billion — brands like Clairol, CoverGirl and Max Factor. It’s a big chunk of the business. According to Moody’s, P&G’s beauty lines account for almost a fourth of its $78 billion in revenue. The brands being sold to Coty make up $5 billion to $6 billion of that.
Consumers may love their CoverGirl lipstick and how nice and easy Clairol’s Nice ‘n Easy hair color is. But that doesn’t mean it worked for P&G.
“There’s a difference between being a good brand, and being a lucrative brand,” says Jonah Berger, a marketing professor and author of “Contagious: Why Things Catch On.”
He says unloading most of its beauty brands is P&G’s attempt to get rid of the losers.
“They’re trying to say, well, look, we can’t be everything to everyone. We can’t manage you know, a few hundred different brands really effectively,” he says.
Nancy Meadows, vice president and senior analyst at Moody’s Investors Service, says this pruning of P&G’s portfolio comes as no surprise.
“These are categories that everybody’s known … (have) been posting rather weak performance in recent years,” she says.
Coty is a company known for smaller cosmetics and perfume brands. Not having these brands could reduce P&G’s revenue by $5 billion to $6 billion.
“And moreover, we fully expect, now that they’re going to be focusing on more profitable faster-growing brands that they’ll be able to grow earnings,” Meadows says, “more than enough to offset the loss of earnings as part of this transaction.”
Meadows says a transaction representing only $5 billion in revenue is not enough to move the needle on the company’s overall outlook. But for a huge company that’s had trouble growing its profits, getting rid of its poor performers should make the remaining brands look more, well … lucrative.
Correction: The original version of this article misstated the size of deal in which Procter & Gamble is selling several beauty brands to Coty. All of P&G’s beauty lines add up to a fourth of the company’s $78 billion in annual revenue. The brands being sold are only $5 billion to $6 billion of that. The article has been corrected.