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L’Oreal Looks Younger With Urban Decay

The small, edgy brand is a big step into specialty make-up


Two things about Urban Decay — maker of edgy, vegan cosmetics — are certain:

  1. It is the largest independently owned color cosmetics company in the U.S.
  2. Most of the old men working on Wall Street have never heard of it.

Until today, that is.

The no-longer independent company is making headlines in the financial world after being snatched up by L’Oreal (PINK:LRLCY), the world’s largest cosmetics and beauty name, in a deal estimated to be worth $200 million to $350 million. The news of the buyout sent the pink sheet-traded shares to nearly five-year highs around $27.

California-based Urban Decay was started 15 years ago by two women — one was a co-founder of Cisco Systems (NASDAQ:CSCO) — with a desire to offer a wider array of bright cosmetic colors. An early advertisement, the company’s website tells, asked the question: “Does pink make you puke?”

Today, you can buy the company’s products — from purple eyeshadow and red lip sticks to simple foundation and bronzers — at Macy’s (NYSE:M), Ulta Salon (NASDAQ:ULTA) and Sephora stores across the country … and overseas. Urban Decay is sold in Canada, France, Italy, Ireland, Mexico, Spain and more.

That’s a pretty wide footprint, but it’s only made through a three-way channel of distribution — which leaves plenty of room for expansion after the acquisition is complete. As Tim Warner, Urban Decay’s general manager, explained:

“L’Oréal’s strong innovation capabilities and presence in every channel of distribution will enable Urban Decay to reach its full potential in the marketplace.”

The acquisition should help L’Oreal as well, but it’s a small pebble chucked into a huge pond. Last year, Urban Decay did $130 million in sales — an impressive three times more than its sales in 2009, but a mere ripple compared to the $26 billion-plus L’Oreal brings in through its worldwide operations.

Like I said, we’re dealing with the largest cosmetics and beauty company in the world.

L’Oreal offers everything from hair dye to skin care to perfume with big-name brands beyond its namesake, including Garnier, Essie, Maybelline and Redken. It has even teamed up with Ralph Lauren (NYSE:RL) and Diesel for fragrances in recent years.

What Urban does bring, though, isn’t quantitative: a young, playful and unique brand that’s a big step into the specialty make-up world — and that can help the big dog continue to fend off a growing list of competitors, including Avon (NYSE:AVP), Coty, Mary Kay, Revlon (NYSE:REV) Procter & Gamble’s (NYSE:PG) Cover Girl … you get the idea.

L’Oreal has been making other moves to maintain its dominance, too. It has expanded its U.S. salon presence by quietly snatching up smaller companies like Emiliani Enterprises and Peel’s Salon Services — each owned by SalonCentric — in the past few years.

More recently, the company acquired Colombia’s Vogue — the country’s leader in mass-market cosmetics. It also opened a $130 million plant — its biggest factory in the world — in Indonesia. Channel News Asia says L’Oreal considers Indonesia and Southeast Asia “the new frontier of growth,” as it has seen sales grow at an annualized rate of 30% over the last four years.

L’Oreal already enjoys global dominance. Plus, cosmetics are essentially recession-proof and loaded with loyalty. Times might get tough, but foundation and eyeliner have become a day-to-day necessity for many women.

The Urban Decay acquisition is just the perfect extra touch.

As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

©2017 InvestorPlace Media, LLC