Why Beauty Companies Keep Cutting Their Portfolios

Beauty companies want to be leaner.

On Tuesday, Coty announced that it was considering selling off its mass cosmetics division, including megabrands like Covergirl and Max Factor. The news was just one in a line of high-profile shutterings and divestments that include Flower Beauty, incubated by private equity-backed Maesa and Drew Barrymore, to indie darling Ami Colé.

Beauty conglomerates are built through mergers and acquisitions, spurring growth for the likes of L’Oréal and E.l.f. Beauty. But over time, once a firm has made a series of acquisitions, some will need to be offloaded or shuttered to better manage its resources. With M&A, there are some rockstars, and some rounding errors.

Some closures allow companies to refine their focus. L’Oréal’s choice to offload the botanical skincare lines Sanoflore and Decléor in 2024 and its sale of hair line Carol’s Daughter back to its founder this year, indicated the company saw more potential elsewhere; Coty said last week that its decision to spin off its colour cosmetics division was to free up cash for its more profitable fragrance division; Estée Lauder Companies is undertaking a strategic review of its business, as it faces quarter after quarter of declines and poorer-performing lines like Smashbox and Glamglow are having to fight to regain relevancy.

It’s a fine line between achieving so much dominance in a category that growth inevitably becomes incremental, and growth stalling altogether.

“When [brands] get really big, [they] have to keep innovating in order to stay that large,” said Jessica Ramírez, co-founder and managing director of advisory firm The Consumer Collective.

It also reflects how choosy customers are becoming with their discretionary dollars, asking brands to earn their trust time and time again. At the same time, broad distribution and overseas expansion plays aren’t as reliable as they once were to spur sales growth. All the while, ankle-biting indie brands present competition and threaten to erode market share — even if those same labels turn out to be ephemeral.

“You’ll start with a trailblazer position, and that can be differentiated for a period of time,” said Marko Horvat, managing director at investment bank Raymond James. “But if everybody else catches up to you, then everybody else has an equivalent product.”

A Clear Roadmap

Selling off an established brand is not necessarily a sign of failure or even bad news financially for a company. It can generate more free cash which can be used for dividends, debt or more investment; even if sold at a loss, it can provide tax benefits.

But it shows that the lens through which brands differentiate themselves is getting smaller. Features like “clean” or 50-plus shades of foundation have become table stakes rather than a selling point, making it tougher for even conglomerate-owned entities to hold strong positions. Covergirl, for example, was one of America’s first beauty brands and its supermodel ambassadors ruled the zeitgeist; Ami Colé brought modern luxury and elevated packaging to Black and brown customers; Ren Clean Skincare, which Unilever closed in May, was one of the first “clean” beauty brands.

As customers have become more value-sensitive, brands with a proven business model and incremental demand for their products have perhaps become more attractive to conglomerates than fast-growing, frothy lines. The two brands that L’Oréal chose to pick up this summer, Medik8 and Color Wow, have both been in business for more than a decade, and have product franchises that distinguish them from competitors. L’Oréal’s size is also an advantage when it makes missteps too. When it divested its botanical skincare brands in 2024, it had clinical brands like Cerave to lean on.

For publicly traded companies needing to improve both margins and growth every quarter, refining their portfolio may make good financial sense. Putting an established brand that has reached a growth ceiling on life support is a drain on resources.

Covergirl and Sally Hansen are multi-million dollar businesses (Barclays estimates the unit as a whole generates sales of $1.6 billion). But finding meaningful growth in the current climate and at their scale is trickier. If a brand no longer has clear white space, either in category or geography, it is finding itself on the cutting block.

Channel Pressure

Major shifts in the beauty retail landscape are also destabilising established brands.

Customers have reduced their trips to the likes of CVS and Walgreens in favour of shopping on Amazon, or reduced their basket size in store as anti-theft measures have added friction to the shopping experience, likely impacting drugstore brands like Covergirl and Sally Hansen. Ramírez noted the three-fold impact of both brands being slower to innovate, the drugstores themselves failing to elevate their in-store experience, and then having to close stores due to lower footfall.

Shoppers are diverting more spending to online retailers or big box stores with more promotion cadence like Target and Walmart, or shopping on TikTok Shop and Amazon. Bigger, older companies can find it hard to pivot and adapt to channels like TikTok Shop, and the pressure to be everywhere the customer is requires costly marketing support as well as insightful demand planning.

“The bigger you are, the harder it is to move a company,” said Ramírez.

Brands that have outperformed, like E.l.f. Beauty and L’Oréal Paris, have baked digital excellence into their marketing strategies, continually investing in reaching customers on their smartphones for discovery and shopping.

There are no more silver bullets. Previously, a brand looking to turbocharge growth may have looked to overseas markets like China to amp up sales. Now, the nation’s sluggish spending means companies have to target smaller emerging markets like Latin America, the Middle East and India, which are promising but not at the same high levels of consumption. Likewise, entering a top retailer like Sephora isn’t guaranteed growth, as brands jostle for shelf space with buzzy influencer- and celebrity-backed brands like Hailey Bieber’s Rhode or Summer Fridays, as well as emerging K-Beauty brands like Beauty of Joseon and Aestura who offer prestige products at an attractive price.

No matter how big a brand’s name recognition is, if it’s unable to chart a path to continuous and stable growth, strategic firms are right to review its place within their portfolios. The pace of innovation in product and channel will not slow.

“I don’t think anyone is of the opinion that any brand within their portfolio is a sacred cow,” said Horvat.

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