Hailey Bieber's ‘glazed donut' is a $1.5 billion gamble

Sydney Morning Herald

2 days ago

But Elf is paying a pretty polished price for Rhode, also known for its sleek, minimal packaging. The $US800 million in cash and stock payable at the close of the deal, expected before September, equates to 3.8 times Rhode's sales of $US212 million in the year to March 31, 2025. Including the additional $US200 million payable based on Rhode's performance over the next three years, the multiple is 4.7 times. The latter is in line with the lush deal multiple on L'Oreal SA's purchase of natural beauty label Aesop two years ago.
To justify the price tag, Elf must ensure that its new addition doesn't run out of, well, Rhode.
The narrow product range is the obvious starting point for expansion. Elf has rolled out a raft of innovations, appealing to its Gen Z buyers and turbocharging sales, so this avenue looks promising.
There is also scope for Rhode to reach a wider range of customers. The brand is already due to launch in Sephora in the US, Canada and the UK this fall, a major milestone. Longer term, Elf could leverage its partnerships with other retailers — it is available in Ulta Beauty in the US for example, in Douglas in Italy and Boots in the UK — to maintain the momentum.
Assuming Elf doubles sales over the next three to five years — which looks feasible — then the acquisition multiple would fall to a more reasonable level of about two times.
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But there are risks to this trajectory, the most significant of which is Bieber herself.
So far, she has bucked the broader boredom with celebrity-led brands. But her relevance must be sustained. Six years ago, Coty made a big bet on the Kardashians, paying $US600 million for a majority stake in Kylie Cosmetics, founded by Kylie Jenner. A year later, it spent $US200 million on a 20 per cent stake in Kim Kardashian's beauty business. The results have been mixed. While Kylie Cosmetics has increased sales by 1.5 times over the past two years, helped by launches of skincare and fragrance, Kardashian's underwear label Skims recently acquired Coty's shareholding, resulting in a $US71 million loss for the US-listed company.
Bieber will join Elf as Rhode's chief creative officer and head of innovation. The new owner also has a strong track record of connecting with Gen Z via social media, through viral moments such as its tie-up with Chipotle Mexican Grill. And it has some experience managing celebrity and influencer involvement. It acquired Naturium, the skincare line created by influencer Susan Yara and beauty-brand accelerator The Center for $US355 million two years ago. It also developed Alicia Keys' brand. Even so, Rhode being so closely associated with its founder is a risk that must be managed.
This isn't the only challenge. Lindsay Dutch, analyst at Bloomberg Intelligence, expects Elf's sales growth to slow this financial year following a frenetic pace of revenue expansion. The beauty boom is also fading, although Ulta said after the deal was announced that many consumers were turning to fragrance and body lotion as a comfort and escape from economic uncertainty. There's also the pressure from US President Donald's Trump's tariffs. Elf makes about 75 per cent of its products in China and will add $US1 to all its products globally on August 1 to reflect the levies.
With so much to grapple with already, taking a big bet on a celebrity-backed brand looks a surprising diversion. But as any beauty enthusiast knows, there is always room for one more lipstick, particularly if it's a peptide-infused pout enhancer.