*This is not financial advice. All content should be considered opinionated. We are not responsible for any of your gains and losses. I am neither a licensed nor registered financial expert. Please see a financial advisor before making investment decisions.

*This is not financial advice. All content should be considered opinionated. We are not responsible for any of your gains and losses. I am neither a licensed nor registered financial expert. Please see a financial advisor before making investment decisions.

For years, Coty, the multinational beauty company, has experienced years of declining sales as fewer consumers buy CoverGirl makeup and Burberry perfume and opt for smaller and more intimate brands. Some of those brands are marketed as better for the environment for the products they use and the less harm they put on animals during testing. Other brands are run by famous beauty and makeup influencers.

To combat declining sales, Coty's management has decided to acquire various performing brands in its industry to turnaround its declining business. In November of 2019, Coty decided to invest in Kylie Jenner cosmetics. In the deal, they acquired 51% of the company and planned on using the brand to expand into other international brands and other product categories. This move has not only made Kylie Jenner a billionaire (temporarily) but also gives Coty a great chance at turning their business around.

Recently, Coty decided to take a 20% stake in Kim Kardashian's KKW Beauty brand. This deal allowed Coty to invest in a growing cosmetics company and could also give KKW Beauty access to Coty's infrastructure for logistics, manufacturing, etc. in exchange for growth and profits. From what I learned in accounting class so far, Coty's equity stake in KKW Beauty doesn't directly influence Coty's financials (since they're not consolidated under GAAP) but they can help make Coty's financials look better.

Doing business with two Kardashians is an interesting move for Coty.  By capitalizing on the growth of influencer-owned businesses, Coty is experimenting with a business strategy that hasn't been publicly tested before. I haven't heard of other big beauty brands acquiring influencer-owned businesses as a way to create growth. It will be interesting to see how this strategy goes and whether it turns out successful or not.

Because many of the influencers still have a stake in their brands, they will work hard to ensure that their beauty brand succeeds. I do see tremendous success from Coty's strategy as influencers have a better connection with consumers than big brands. Whether this strategy succeeds or not, I can see this being a Harvard Business School study as a way to teach people why influencer-owned businesses do better or not do better under the influence of a big corporation and provide other lessons to students in the meantime.

This turnaround is speculative to bet on and all turnarounds are speculative. Because influencers seem to be great salespeople and have a better connection with their audience and consumers, I find the asymmetric risk/reward for this situation to be favorable. 

At the same time, please do your own research before making any investment decisions.

*This is not financial advice. All content should be considered opinionated. We are not responsible for any of your gains and losses. I am neither a licensed nor registered financial expert. Please see a financial advisor before making investment decisions.