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.
Marketplace is on a mission.
We believe Main Street matters as much as Wall Street, economic news is made relevant and real through human stories, and a touch of humor helps enliven topics you might typically find…well, dull.
Through the signature style that only Marketplace can deliver, we’re on a mission to raise the economic intelligence of the country—but we don’t do it alone. We count on listeners and readers like you to keep this public service free and accessible to all. Will you become a partner in our mission today?