Beauty Brands’ Life Expectancy And The Implications For M&A

According to management consultancy McKinsey & Co., the life expectancy of an S&P 500 company in 1935 was 90 years. In 2010, it was 14 years—and company life expectancy has only shrunk since then. Andrew Ross, senior advisor and venture partner at XRC Ventures, sees a similar phenomenon happening in beauty as the pace of consumer trends accelerates, barriers to entry weaken, and the power to define awareness and equity shifts toward content creators and communities.

He argues the tighter timeframe of brand life cycles has profound implications for beauty investors and conglomerates building and managing brand portfolios. Speaking of strategic beauty players’ approach to mergers and acquisitions, he explains, “You need to get in earlier and be much more cognizant of the prices that you’re paying and your terminal value assumptions. Most important, you need to be more aggressive on portfolio management and resource allocation, including divestiture.”

We were wondering if other investors agree with Ross’s assessment. So, for the latest edition of our ongoing series posing questions relevant to indie beauty, we asked 10 of them: Is the lifespan of beauty brands shortening? If beauty brand lifespans are shortening, how does that impact your investment strategies? How do you expect beauty companies to handle their brand portfolios differently as a result?

Kevin Murphy Managing Director, Sonoma Brands Capital

That’s an interesting take. I think there is some truth to it, but my feeling is that it is a bit more nuanced than that. I think we have only recently emerged from a sustained stretch of brand proliferation that was driven in large part by the ability for many brands to gain scale in the DTC realm more quickly and easily than was possible before that or that may be possible now.

There was perhaps access to capital at an earlier stage than what might have been helpful, with the benefit of hindsight, and I think this created distortions. Many lesser brands with strong performance marketing skills ascended quickly. In other cases, some brands with more long-term potential felt compelled to pursue faster growth to keep up, and in chasing that growth, may have missed out on the important signals and steps that only time can provide.

In the last couple of years, when performance marketing became tougher for all of the well-chronicled reasons, a lot of those brands were shown to have been constructed on shakier foundation as a result of shortcuts that were either chosen or, in a way, forced upon them.

The present always seems to feel more challenging than the past, and maybe it is when it comes to building brands that can not only grow to scale, but then continue to evolve and thrive. One brand which I invested in previously, Tarte, has celebrated its 25th birthday. Another, Supergoop, is at the 15-year mark.

There are younger brands I am currently working with, which I believe have a good chance of thriving for the long term, at least that’s the plan. The founders and teams behind these brands are constantly considering long-term implications of decisions while also running hard to make things happen in the short term.

It may be a contrarian view, and there may be a large number of brands from the recent past that cycle out quickly and make the average success and longevity metrics appear tough. But I strongly believe that brands that have the right origin magic, the right people making thoughtful decisions and a good deal of luck can and will be able to grow and sustain themselves.

Odile Roujol Founding Partner, Fab Co-Creation Studio Ventures

The market is fragmented, and there are so many brands now. The ones that will stay for decades, if not centuries, are the ones fixing big problems with their products, making people feel they belong and offering a unique experience.

I only invest in founders building a brand that will last and that’s purpose driven. They wake up every day with it as their mission. I carefully avoid the more opportunistic ones. For the purpose-driven founders, repeat purchase matters more than the number of customers and fast growth at all costs.

As a past CEO of a leading global brand and now VC, I would respectfully disagree that a corporation needs to purchase more companies, purchase them earlier and be ready to sell the ones not meeting expectations. I believe the financial analysts and the market would be in trouble if this was the vision.

We first and foremost need to keep in mind that founders are the best at building purpose-driven brands with an engaged community and products addressing key needs of a specific population. I believe that aiming for sustainable growth means keeping brands as long as possible with their founders and investors adding their skills and network to the table.

At later stages when brands are profitable, corporations are the best to build them globally. They can then help brands scale, thanks to their expertise in development, branding and retail with different footprints and teams on every continent. I believe they are fully aware of where they add value and will invest accordingly.

Rich Gersten Co-Founder and Managing Partner, True Beauty Ventures

Trends come and go. It is why, as sector specialized beauty and wellness investors, we are not category/thesis-driven investors, but rather have a detailed set of criteria we look for in order to find opportunities to invest early in uniquely positioned brands that have the potential to build longstanding, industry-recognized businesses. We are very proud of the recognition many of our brands have received (e.g., Beacon Awards, BeautyMatter Future 50, WWD, etc.).

With that said, we do believe the lifespan of brands is shortening, driven by a few factors:

1). The younger consumer is more fickle and entering the beauty category at younger and younger ages.

2). Brand incubator models have launched numerous brands (e.g., Amyris) with influential founders (influencers, celebrities, etc.) believing their social following is enough to launch and differentiate their brands, which is a false premise.

3). The amount of capital required to launch a brand is as little as it has ever been. However, the amount of capital required to scale a brand is as high it has ever been, resulting in too many brand launches and not enough brands having the ability to raise capital to scale it, especially in this more challenged fundraising environment.

4). The rise of TikTok and social media allows virality, which accelerates growth more quickly than ever before, but makes it more difficult for these for brands to then sustain that growth and build longstanding brands on top of it.

It is also why we encourage brands to work with investors that have experience in this industry and do not just encourage or expect growth at all costs with disregard for profitability and a strong economic model.

We have seen large beauty companies begin to divest underperforming brands as well as close down some brands. I would expect this trend to continue.

I also think this lifespan issue is making it more difficult for some large beauty companies to be aggressive in the M&A market for fear of making a mistake. These companies need to recalibrate and take some risk as the market is quickly changing around them.

Tina Bou-Saba Investor

This is an intriguing question. I have thought about this, too, but in somewhat different, although certainly related, terms. Specifically, I have puzzled over what the optimal and maximum scale of a prestige beauty brand is today, and how that has changed over time.

My sense is that, as consumer trends hasten, interest in legacy "megabrands" has to some extent declined. At the same time, many consumers want brands and products that feel new and unique, rendering the realistic scale of indie brands today smaller than that of their legacy predecessors.

It is absolutely true that this means that strategics need to get involved in high-growth beauty brands earlier, well in advance of the plateau that might come much sooner than it used to. In my mind, this is a function of both time and scale. In other words, the pace of growth of a brand will determine its life expectancy if we assume a sort of "maximum viable scale" beyond which consumer interest diminishes.

That said, brands evolve, and growth is never a straight line. I think about Drunk Elephant, which under Shiseido grew 77% year-over-year in 2023. Pretty impressive! Drunk Elephant was founded in 2012, launched at Sephora in 2015 and was acquired in 2019. Shiseido has brought the brand into new global markets and distribution channels.

Of course, the brand is also hugely popular with gen Z here in the U.S. Bottom line: The beauty market is massive, and the runway for the best brands across geographies, channels and demographic groups can be very long. Growth spurts exist even for relatively grown-up brands.

For emerging brand investors like me, valuation is extremely important. We must underwrite to realistic growth expectations and ultimate scale, not world domination. Beauty is fundamentally not a winner-take-all market. We can't assume that a promising indie brand will be the next Drunk Elephant, although we can certainly hope for that.

Instead, we need to think about the scale and profitability required to garner strategic acquisition interest, how much capital it will take to get there and how the business will then be valued. This is a crucial exercise for investors and founders alike. It benefits everyone in the long run.

Separately, I think that we might see strategics more aggressively divest of brands that are not achieving their growth and/or profitability expectations. I agree with Andrew that this would be the natural result of earlier strategic involvement.

Not all of the acquired brands will be the next Drunk Elephant. Better for the big strategics to cut bait and focus resources on their top-performing brands. We already see some of the large CPG conglomerates doing this. I think that this will create compelling acquisition opportunities for smaller strategics as well as private equity firms, especially those that have platforms to support consumer brands.

Oliver Nordlinger Co-Founder and Partner, Monogram Capital Partners

I don’t know empirically whether the lifespan of beauty brands is shortening, but it sure seems like the rate of new brand creation is exceeding the overall growth of the beauty market. This would imply that many of these newer brands will have shorter lifespans and that mature brands may be facing precipitous declines with this onslaught of newness.

The implications for strategics would seem both to be the need to acquire and to be all the more cautious about which acquisitions they make. With regard to the latter, that means weeding out the “it” brands and those built on hero SKUs that are tempting but may not prove to have staying power. Brands built with a strong DNA and a broad-based product appeal should carry the day and offer the best chance for longevity.

Claire Chang Founding Partner, IgniteXL Ventures

We are seeing more M&A activity at earlier stages of a brand's life (i.e., K18, Hero Cosmetics, etc.), although this doesn't necessarily indicate that lifespans are shortening generally. We think this M&A activity indicates corporate urgency to stay on-trend and the importance of acquiring younger consumer cohorts. Earlier M&A activity also permits strategic acquirers more attractive prices and easier operational integration.

The recent M&A winners may distort the picture, though, and we still see many brands that take six to 10 years to build momentum. Given the rise of AI and the ease of digital content distribution, we actually think there are some cases where brands can burn less capital over a longer period of time to really refine messaging, positioning and identify their core consumer bases.

From an investment perspective, we certainly agree that it has never been easier to start a beauty brand, which has led to fierce competition. Brands can stand out from the noise by building a sustainable moat.

Whether this is a unique ingredient, a passionate community, a data/insight-driven approach or novel marketing strategies, we believe strong brands can still stay relevant to their consumers for an extended period of time. For us at the pre-seed and seed stages, the fundamentals of the business and the team's ability to cater to consumers remain the most important aspects of an investment.

We don't anticipate significant deviation from beauty companies on how they handle their brand portfolios, although it's possible that we could see more trend-driven M&A activity in pursuit of staying relevant with increasingly inattentive customers and accelerated brand divestiture.

Manica Blain Founder, Top Knot Ventures

It’s such a good question and I find myself thinking about this a lot recently, especially in light of two observations I’m making amongst brands that are quick to rise, one being cancel culture, and the other being that influencers and celebrities don’t necessarily convert to any kind of longevity.

Brands backed by influencers, celebrities and founders that have gone viral on TikTok can be quick to rise and garner quite a bit of buzz early on, but these brands also seem to be susceptible to cancel culture and just generally falling out of favor.  While there may be a boost that influencers/celebrities can deliver resulting in a conversion to actual sales early on, that seems to fade quickly, which likely results in a shorter lifespan.

I’ve rarely been attracted to a brand that’s been quick to rise, especially if the initial traction comes from any kind of virality associated with influencer or celebrity. Most iconic brands, beauty and otherwise, that have realized long-term success have taken at least a few years to gain meaningful scale organically.

Some investors call this class of brands, particularly in beauty, “sleeper” brands. I call them brands with lasting power. They pivot, iterate and intentionally build real loyalty amongst their respective communities before putting the gas on and really scaling.

They also typically do this without a whole lot of outside funding in the early innings, and so these brands end up being pretty capital efficient and have survival instincts ingrained in their core DNA. This is why I’m generally long on “sleeper” brands, and I think the average age of a “sleeper” brand will generally outlast the average age of the super quick-to-rise brand that has some sort of influencer/celebrity-infused virality behind it.

From the perspective of large strategics and conglomerates, I agree with Ross wholeheartedly, and I would expect a shift away from brands that are quick to rise for fear they may be susceptible to being quick to fall and thus have shorter lifespans.  Finally, strategics are increasingly focused on fundamentals and “sustainable” financial metrics when evaluating acquisitions.

I wonder if there may be increased reluctance in acquiring in or investing in any consumer brand that is too tied to a celebrity or influencer and paying a big multiple for something that may not be deemed sustainable because it carries with it an amplified cancel risk and a shorter lifespan.

Sonya Brown General Partner and Co-Head of Growth Equity, Norwest Venture Partners

A beauty brand's lifespan is often determined by factors including their target age demographic, channel focus and product category.

  1. The younger the brand focuses, the shorter the attention span of the user, which means brands have to engage older buyers to bolster longevity. This isn’t always easy without alienating the core demographic.
  2. The channel has impact as well. A DTC-only brand that hasn’t invested in omnichannel will likely have a shorter lifespan compared to a brand with a diversified strategy.
  3. Some product categories like color cosmetics are more fashion-influenced and brands taking direction from current fashion trends could overtake competitors.
  4. Lastly, is it a product-first company or a brand-first one? Brands take longer to build and are more enduring, but they have to create an emotional connection with the consumer that keeps them coming back.

Science-backed beauty is here to stay so this notion of brand life spans shrinking doesn't affect our investment strategy. One of the most lasting trends, regardless of the economic climate, is consumer willingness to invest in products that offer an effective solution to a specific problem, a solution that is clinically proven and backed by science. This criteria underpins our investment thesis at Norwest and enables us to focus on long-term opportunities in the space.

I think we'll see beauty companies start paying closer attention to fundamentals, ensuring they are solving specific concerns and pain points and diversifying demographic and channel strategies.

Nicole Fourgoux Operating Partner, Stride Consumer Partners

I do agree that the average lifespan of beauty brands is shortening for two reasons:

  1. More brands have successfully entered the beauty market and some of these brands are focused on short-term trends rather than long-term consumer movements.
  2. Shorter innovation cycles for products and business models are putting more pressure on a brands capacity to constantly innovate and pivot.

It is important to identify large, long-term consumer movements early on and be able to identify brands that are best positioned to capture consumers and become a leader in their segment.

When it comes to the actual selection of brands, we have not changed our approach. We continue to look for brands that are uniquely positioned and meaningfully differentiated with an authentic founder story that will still be relevant several years later.

Because beauty brand lifespans are shortening, it is important that we are able to differentiate brands with staying power from brands that will end up being a flash in the pan. There are much more of the latter than the former in the market right now, and if a brand is not well-positioned, it will be challenging for that brand to survive over the long-term. That’s why we focus on understanding each brand’s differentiators and long-term relevance.

Most big beauty companies are still looking for brands that they can scale into billion-dollar global powerhouses rather than short-term opportunities. For a strategic, the investment into the acquisition, integration and global development of a brand is significant and doesn’t make sense if a brand does not have a substantial runway.

As a result, strategics will still look to acquire brands that can complement their portfolio and help them address new consumer movements that they cannot serve as well with their existing portfolio brands. There is a high level of skepticism around brands that are hyped up too quickly and don’t have the fundamentals in place to give them staying power.

George Birman Principal, GroundForce Capital

We don’t think the lifespan of brands themselves is shortening, it’s the lifespan a brand’s marketing strategy, campaigns and overall approach to resonating with consumers that needs constant attention and more frequent reinvention than ever before.

As we look to add beauty brands to our portfolio, we pay as much attention to what a brand stands for and how it reaches its audience today as we do to that brand and team’s ability to listen, adapt and shift with the same speed as the ‘hyperactive’ consumer navigating a swelling sea of options.

We think that strategic beauty acquirors are increasingly buying capabilities and not just brands, products and audiences. With that said, we do think there’s less room in today’s market for global multibillion-dollar megabrands.

They will still continue to emerge, but overall we predict more diversified portfolios are likely to be a result, a positive over the medium-term for M&A activity, yet at the same time a challenge to underwriting individual brands as future flagships, meaning more scrutiny and pressure on exit valuations.

If you have a question you’d like Beauty Independent to ask beauty investors, please send it to editor@beautyindependent.com.