Beauty Industry and Its’ Dramatic Change
Beauty Industry Change: From Natural to Clinical: How L’Oréal, Unilever, and Others Are Reshaping Their Portfolios to Meet Evolving Consumer Demands.
The beauty industry landscape is shifting as major conglomerates refine their portfolios. L’Oréal recently made strategic moves, selling Sanoflore to Ekkio Capital and discontinuing Decléor’s commercialization. These actions, though significant, were overshadowed by the company’s high-profile acquisition of Aesop earlier in the year.
Simultaneously, Unilever is exploring divestment options for its non-core beauty brands, including Caress, TIGI, St. Ives, and Q-Tips, having engaged Morgan Stanley and Evercore Inc for the process.
This trend of specialization is driven by intensifying competition and the need for cost reduction. Companies like L’Oréal, Unilever, and Kao are transitioning from broad generalists to focused specialists, aiming to optimize their divisional strategies. Even with substantial cash reserves, these conglomerates face mounting financial pressures. For instance, Kao, following a projected five-year profit decline, has earmarked approximately $400 million for structural reforms, with a particular emphasis on its cosmetics division.
The shift away from diverse portfolios is partly due to internal challenges such as staffing and resource allocation. By specializing, these organizations can make more targeted and potentially more lucrative investments.
As Marko Horvat, a managing director at Raymond James, explains, “The industry’s perspective has evolved from a general ‘We are a beauty company’ approach to a more focused strategy. There’s a growing belief that specialization allows strategic players to extract greater value, as opposed to maintaining a scattered portfolio.”
The beauty industry has undergone a significant transformation in recent years, particularly in the natural and clinical skincare segments. When L’Oréal acquired Sanoflore and Decléor, these brands were at the forefront of the burgeoning natural beauty trend. A decade ago, consumers eagerly sought out “organic” and “botanical” products, with clean beauty becoming a non-negotiable standard.
However, the market has since experienced a paradigm shift. The emergence of transparent, single-ingredient brands like The Ordinary and the rise of “skintellectual” consumers has altered preferences. Today’s shoppers are increasingly prioritizing efficacy over natural ingredients, favoring science-backed brands that emphasize their clinical credentials.
This shift is reflected in L’Oréal’s portfolio strategy. Initially, Decléor and Sanoflore were part of the company’s Active Cosmetics division, alongside more scientifically-oriented brands such as Vichy, La Roche-Posay, Cerave, and Skinceuticals. In 2022, L’Oréal further solidified its commitment to clinical skincare by acquiring Skinbetter Science, a doctor-dispensed line created by pharmaceutical industry experts.
Following this acquisition, L’Oréal rebranded the segment to “Dermatological Beauty,” signaling a clear pivot towards what can be described as “beauty with a white coat.” This strategic move underscores the company’s focus on scientifically-backed skincare solutions, aligning with the evolving preferences of consumers who now seek potency and proven results over purely natural formulations.