Coty Inc. is laying out a new strategy as the cosmetics maker tries to capture pent-up consumer demand following a pandemic-driven slump across the beauty industry.
The company plans to rethink its Covergirl portfolio to focus on the top eight performers, Chief Executive Officer Sue Nabi said in an interview ahead of an investor meeting Friday. Its upcoming plans also include a renewed growth push in China, a revamp of e-commerce operations and the upcoming launch of Kim Kardashian’s new skincare line under the label SKKN.
The moves, plus others laid out Friday, mark the latest efforts to rejuvenate a company that had been trying to turn things around even before the rise of mask-wearing last year hurt demand for makeup. After acknowledging in 2019 that some of its brands had become stagnant, Coty has invested in businesses from members of the Kardashian family and revamped its own leadership team, including bringing on Nabi last year.
“It’s a long journey,” Nabi said of the latest moves. “We’re going to do it step by step.”
Coty’s already seeing nascent signs of a rebound, with its shares climbing 31% this year through Thursday, far outpacing the gain in the S&P Midcap 400 Index. The stock fell 38% last year and remains more than 70% below its all-time high in 2015. Shares were little changed in Friday trading.
Packaging mistakes
As part of the latest shift, Coty will narrow its Covergirl focus on eight sub-brands that make up about 70% of the brand’s sales. By moving away from lower-performing lines—brands that “no one remembers,” as Nabi put it—it will allow Coty to invest in higher growth areas, including clean-beauty items.
It’s also “correcting prior packaging mistakes” with Covergirl, according to slides presented at the investor day, including a return to pre-2018 design and advertising that focused more on A-list celebrities than being a so-called “lifestyle brand.”
“Suddenly the sales started to drop, simply because people didn’t recognize their favorite mascaras,” Nabi said during the investor day when discussing the earlier Covergirl packaging revamp. Changing it back “is going to help us a lot.”
Kim Kardashian
The company is also nearing the launch of Kardashian’s skincare line SKKN, a nod to her initials. Kardashian, who has also gone by Kim Kardashian West and has used KKW on existing products, filed for divorce from hip-hop superstar Kanye West earlier this year.
“We’re not using her current trademark for all the reasons you can imagine,” Nabi said in the interview. Coty acquired 20% of Kardashian’s beauty business last June, shortly after Coty took a majority stake in her sister Kylie Jenner’s company.
Digital will play a role, with the company launching a new direct-to-consumer—or DTC—website to sell Jenner’s line in the first fiscal quarter of 2022, which begins this summer. Its DTC site for Kardashian’s skin line will launch in fiscal 2022 as well, according to slides.
China growth
Aside from brand adjustments, Coty is also looking to capitalize on growth opportunities in China, which is seeing a rebound in discretionary purchases by consumers with disposable income—a trend known as “revenge spending.”
Nabi acknowledged that the company previously had “not been concentrating its energy” in the region. It will also work to grow what it calls its prestige fragrance business and skincare.
By fiscal 2025, Coty is targeting its skincare business to make up more than 10% of revenue, up from about 6% now; prestige cosmetics to increase to a high-single digit percent of revenue from about 3% now; and China’s contribution to make up more than 10%, triple current levels. It also reaffirmed its previous financial guidance.
One growth strategy that the company doesn’t plan to pursue as part of the latest overhaul is acquisitions.
“We’re going to make do with what we have,” Nabi said. “We have everything that’s needed both on the consumer beauty and luxury sides.”
With assistance from Jonathan Roeder.
Correction, April 26, 2021: A previous version of this article misspelled the company name in the headline and URL.
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