L’Oreal’s agreement to buy Australian luxury cosmetics brand and retailer Aesop for $2.5B is the latest development in what has been one of the more active categories in the consumer sector. We’ve previously discussed why prestige beauty is one of the more durable categories for consumer spending regardless of economic backdrop and how retailers like Ulta are driving visitation market share gains by diversifying their customer base, and this deal appears to reinforce both of those themes.
According to its parent company Natura & Co, Aesop posted sales of $537M last year (an increase of 21% on a constant-currency basis) and operates 400 retail points of sale across the Americas, Europe, Australia, New Zealand, and Asia (there were roughly 90 locations in the United States at the end of 2022). L’Oreal has a strong track record for buying emerging cosmetics brands and then expanding their reach through its global distribution network to expand (To that point, L’Oreal CEO Nicolas Hieronimus called out Aesop’s “massive growth potential, notably in China and Travel retail” in the acquisition agreement announcement).
As we discussed in February, L’Oreal has been able to consistently outperform the broader category, and despite questions about the health of the U.S. consumer, we believe L’Oreal’s growth is set to continue in the future due to changing consumer routines as well as excellent brand acquisition and management practices (the company has acquired roughly 25 beauty brands the past 10 years). Aesop will join several other well known brands in L’Oreal’s Luxe portfolio–which represented 38.3% of the company’s EUR 38B in sales last year–including Lancome, YvesSaintLaurent, and Kiehl’s. Placer.ai data for Aesop’s U.S. store locations also indicates that the acquisition may allow L’Oreal to attract a younger, more affluent audience. The consolidated trade area for Aesop stores in the U.S. had a median age of 34 years old (below the median age for many more established cosmetics retail brands) and a median household income of $81K.