Home Fashion Kim Kardashian West and Coty Talk Details of Partnership – WWD

Kim Kardashian West and Coty Talk Details of Partnership – WWD

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When Coty Inc. revealed that Peter Harf, a founding partner of its majority owner JAB, would become chief executive officer of the beleaguered beauty company, the intent was clear.

“The purpose,” said a company statement, “was to instill urgency and deliver results.”

Twenty-nine days later, Harf made his opening move, announcing Coty would pay $200 million for a 20 percent stake of Kim Kardashian West’s beauty brand, KKW, and that the two had signed a licensing deal for Coty to produce skin-care, hair-care, personal-care and nail products for global distribution.

Skin care is the immediate focus, and the one with the most potential. The category was up 11 percent for the first quarter of 2020, according to The NPD Group, and has been one of beauty’s few bright spots during the pandemic.

“Skin care is still white space for Coty, and to be able to attack it with this fantastic brand is the biggest opportunity in our turnaround,” said Simona Cattaneo, president of Luxury Brands at Coty. The group’s primary skin-care brands are Philosophy, which has struggled to maintain consistent growth and relevance, and Lancaster, which is marketed primarily in Europe.

Jefferies Group estimates skin care will be 5 percent of Coty’s business after the spin-off of its professional and retail hair businesses, fragrance is 50 percent and color cosmetics, 45 percent.

“Kim is a mom, an entrepreneur, a businesswoman, a philanthropist. She is very inclusive in the way she lives and acts. She is multifaceted, and most importantly, she is genuinely and authentically connected with her community and this is something that today resonates more than before — this is an accelerator for us,” said Cattaneo.

The question is: Will it be enough? Initial Wall Street reactions to the deal were tempered even as Coty’s stock ended the day up about 13 percent to close at $4.74.

Steph Wissink, managing director of Jefferies, said a 10 to 15 percent increase in stock price seems to be the bump for a company when they sign a celebrity in the Kardashian-Jenner orbit, noting Gap’s stock increased similarly after it unveiled its deal with Kanye West’s Yeezy brand last week.

“In the past, celebrity in beauty has not been enough in isolation to drive sustainability over decades,” said Wissink. “You need those other elements that make a beauty brand durable — hero products, great efficacy, differentiation, innovation.

“Yes, Kim Kardashian’s follower base on Instagram is big with 177 million people,” she continued, noting the KKW Beauty account has 4.4 million, “but are they going to buy the beauty products? There is a big distinction between follower count and potential addressable market.”

Other analysts reacted similarly. “While the goal of cultivating a new global, high-growth d-to-c beauty brand is laudable, at first blush we are not especially positive on this announced deal,” wrote Citi analyst Wendy Nicholson in a report released shortly after the news went public.

Nicholson cited three primary reasons: The high price Coty paid for its involvement with KKW, which values the brand at $1 billion; the troubled state of some of Coty’s core brands, like CoverGirl, which are still in need of “fix-it strategies,” and the timing of the deal, which coincides with a “significant transformation through change in management, the involvement of a private equity partner [KKR], and the sale of its professional and retail hair-care businesses, all of which creates opportunities for missteps…”

Joe Lachky of Wells Fargo was slightly more optimistic, but also noted that the deal is far from a silver bullet for Coty. “We do not expect the announcement will have a material impact on Coty’s financials in the near term…,” he wrote. “Overall we view the announcement positive and expect Coty shares to trade up on the news, but remain cautious longer-term as the company is navigating a tremendous amount of change and continues to deal with significant COVID-19 fallout.”

Cattaneo, who also oversees Kylie Jenner’s beauty brand for Coty, refuted the notion that the brands detract from the group’s focus and emphasized that Kylie and KKW form a core part of its strategy moving forward, particularly as the business looks to diversify out of fragrance and also become stronger in the direct-to-consumer business. Coupled with the $600 million Coty spent to acquire a 51 percent stake in Kylie Cosmetics, it has spent $800 million on Kardashian-Jenner brands in the last year.

“We’re going to capitalize on this strategic opportunity. Our strategy is to focus on the priorities,” said Cattaneo, noting that Jenner and Kardashian West appeal to two very different demographic groups. “Kim resonates very well with older Millennials and Gen X — 60 percent of her followers are over 25. Kylie resonates more with Gen Z and early Millennials. They are two very different communities.”

Coty’s research also showed that Kardashian West has a very big global following, with more than 40 percent of her combined 300 million followers on social media residing outside of the U.S. “We have big global ambitions,” said Cattaneo, noting that when Kardashian Jenner held a launch event for her fragrance last November before Single’s Day in China, 12 million people tuned in to watch her livestream and 15,000 bottles sold out in minutes. “She is recognized globally — as a mom, a businesswoman, an activist.”

Wissink noted that Harf addressed the celebrity head-on during a call in early June with the subject of a potential deal came up. “We thought it was quite notable, because he really stuck a stake in the ground,” she recalled. “He said, ‘You’ll see other social media phenomena added to our portfolio, because we feel this is a growing part of the market, and a market that’s going to stay. We’re going to see some other people, commentators of the industry, who fear that the Internet-based, social media based brands and endorsers will turn out to be a fad. We strongly believe that they’re here to stay.’”

The deal is expected to close in the third quarter of Coty’s fiscal year 2021, and as of yet, Cattaneo said there is no definitive launch date for skin care. “As soon as possible!” she exclaimed when asked when products will launch.

For her part, Kardashian West said the expansion opportunities — both in terms of category and geography — were what made the deal attractive to her. “Coty wanted to work with me to explore untapped categories and I felt they were the right company to work with as I’m really impressed by their commercial and go-to-market expertise,” she said, speaking to WWD exclusively post-deal. “The partnership will allow us to exercise our complementary strengths — I can focus on the creative aspects that I love, and their global reach will unlock faster expansion.”

She, too, declined to provide a timeline, but did not that the launch model will most likely follow the drop model that she’s deployed for makeup and fragrance, rather than introducing a full brand at once.

“So far, the drop model has been really successful as we focused on launching products that we felt people needed and were solving for gaps in the market,” she said. “As we expand globally and address different shopping habits and needs around the world, we’ll have to take that into consideration to see if that model is still applicable.”

In terms of what the product lineup will consist of — for that, Kardashian West said she’ll tap into her followers, as well as her own expertise when it comes to skin care.

“I’m fortunate to have access to so many products that I’ve been able to test over and being able to focus group my fans has also allowed me to get real time feedback on what they’re looking for from a product,” she said. “Having said that, I’ve always had a really strong intuition when its coming to launching products and knowing what would resonate most in the market. At the end of the day, I have to trust my gut and make sure it’s something that I really believe in if I’m going to be asking people to make an investment.”

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