As consumers come to realise the importance of looking after their hair in the same way as their skin, a dynamic new category of premium, science-based haircare brands has entered the beauty and wellness market – a market once dominated by multinationals.
Surprising many, these upstart brands are growing fast. It’s a phenomenon dubbed “skinification” because their trajectory reflects the long-running expansion of the skincare market.
According to market intelligence, haircare products jumped by 47% in 2020, which was even higher than skincare (up 18%) and make-up (up 23%). One brand, Oribe, doubled sales during the pandemic for a product retailing at between $32-$182.
This doesn’t surprise Ransley Carpio, the newly appointed head of venture investments at Fortress Brand, a US-based marketplace accelerator that nurtures these high-potential products by stewarding the long-term aspirations of their founders.
“We’re seeing some big secular shifts in consumer behaviour,” he explains. “I’ve distilled these into three pillars: ‘look better, feel better, do better.’”
As he points out, the pandemic became a catalyst as locked-down consumers became concerned about hair loss and damage and related conditions.
The new category leaders
Mr. Carpio, a veteran of the beauty and wellness industry, has a ringside seat. Before joining Fortress in April 2022, he spent the early years of his career as a consumer brands and beauty investor for the likes of TSG Consumer Partners and L Catterton, the PE fund for LVMH. He has since worked with some of the best-known premium brands and today spends most of his time helping scale up category-defining products.
“What we’re really looking for is brands that tick enough boxes in the skinification of hair and scalp,” he says. “Fortress is a direct-to-consumer channel partner. We specialise in driving growth for our clients on Amazon and other e-commerce marketplaces.”
As a B2C investor, Fortress focuses on businesses who already enjoy revenues of around $5m; who have a loyal and preferably growing following on Amazon; and who can demonstrate robust sales with a retailer. Fortress’ portfolio includes such premium brands as Glow Recipe, Youth to the People and HUM Nutrition.
Fortress takes on a lot of the heavy lifting for the brand’s founders who typically prefer to focus on the integrity of their products. “Fortress covers all the bases for our 45 leading beauty, health and wellness brands. We offer a fully out-sourced turnkey, e-commerce solution. Plus, we provide re-seller protection, which is very important. We develop the product. We organise advertising. And, extremely useful in a technology-enabled retail sector, we leverage our proprietary data analytics within the world’s largest marketplaces.”
One of the big advantages of Fortress’ business model for founders is that the firm doesn’t require them to pay back its typical investment of $500,000- $750,000. “We’re not asking for money for Fortress but that the brand invests in growth. Nor do we ask them to pay us for our services.”
Typically, Fortress will pass on the brand to a vertical or strategic company within three or six years at a 100% return on its original investment, depending on the timing of the cycle.
Rising demand
Looking forward, Carpio sees a bright future for haircare. “People are proud to have these brands on their shelf rather than hiding them under the sink in the bathroom. The products are extremely attractive and I think their acceptance was sped up due to Covid. People couldn’t go to their salons but they still wanted treatments, particularly with stress-induced conditions such as alopecia. And people were willing to pay more.”
Market research supports Carpio’s optimism, with NPD market research predicting CAGR growth at around 15% all the way to 2024. Also, the recent trajectory of a number of high-end haircare brands bears out his observations.
In May, hair and body care brand, Ouai, unveiled a duo of products, Scalp Serum and Thick & Full Supplements containing a variety of exotic ingredients, that sell for $52 for two fluid ounces of the former while thirty capsules of Thick & Full Supplements are priced at $42.
And in late April, Wella, which has a portfolio of hair, nail and beauty products, acquired Briogeo, one of the fastest growing haircare brands in the world. As Wella CEO Annie Young-Scrivner said: “Briogeo will fuel our growth momentum in the hair category which is now the fastest growing segment in beauty”. Launched in 2013, Briogeo is formulated “6-free” – that is without harsh sulphates, silicones, parabens, phthalates, artificial dyes and diethanolamine.
Both brands are following the same paths as Oribe Hair Care that was acquired by Kao USA in late 2017 for a price estimated at between $400m-$430m while another successful niche brand that has risen through the “skinification” route is Italy’s Davines, which posted a nearly 12% annual growth rate for a straight decade through to 2020.
Davines now makes nearly 80% of its revenues outside Italy with North America contributing 35% of total turnover. In the first four months of 2021, Davines increased sales by 33% compared to a pandemic-hit 2020. But, demonstrating the power of the prestige hair market, Davines still managed revenues of €153m [$186.5m] and net profit of €14.7m [$17.9m].
There’s no immediate sign that spending on the prestige haircare sector is slowing, especially in the US. That’s despite inflation rising to its highest level in 40 years. “Consumer spending has actually risen for the first four months of the year through April,” points out Carpio.
People may be tapping into their savings, as JP Morgan chairman and CEO Jamie Dimon and others note. But, in haircare, it seems people aren’t willing to compromise.
