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Why Hailey Bieber Won the Celebrity Beauty Lottery
00:21:01
E.l.f. Beauty's $1 billion acquisition of Rhode demonstrates the power of authentic branding amid a sea of generic beauty lines fronted by famous faces.
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Unknown Speaker
Foreign.
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Brian Baskin
Hello and welcome to the debrief from the business of fashion where each week we delve into Our most popular BoF professional stories with the correspondents who created them. I'm executive editor Brian Baskin.
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Sheena Butler Young
And I'm senior correspondent Sheena Butler Young. Last week the beauty world was sent into a frenzy by news that E L F Beauty will acquire Hailey Bieber's road for a staggering $1 billion. It's the biggest beauty deal of the year and it comes at a critical moment for both brands.
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Brian Baskin
Today we're joined by our in house Rhodes scholar executive editor of the business of beauty, Priya Rao. Sorry, I had to to understand why ELF chose Rhode. How Hailey Bieber's brand managed to defy the recent downturn in celebrity beauty and why there have been so many big acquisitions lately. Priya, welcome to the debrief.
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Priya Rao
Hi guys. It's great to be back.
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Brian Baskin
Priya, just to get us started here, tell us about Rhode and tell us a bit about Hailey Bieber too. I think most people in our audience know who she is, but they're either gonna know everything or they're gonna know nothing. So why don't you tell us a little?
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Priya Rao
Sure. So to start with Hailey, you know, she's of the Baldwin clan. She's one of Alec's nieces and I believe Steven's daughters. So she is, you know, considered part of the celebrity world. She's been a model, she's been a host on certain reality shows and she really kind of blew up in the last like eight to 10 years. I would say probably her biggest achieving moment, I think in popular culture has been marrying Justin Bieber. But she had been around for quite a while. You know, friends with Kendall Kim and Kylie, the face of ysl. You know, she was kind of growing her own star simultaneously with being Mrs. Justin Bieber. And about three or four years ago she really started building out this idea for Road, which was like a minimalist Gen Z forward beauty line that was really all about her.
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Sheena Butler Young
So, you know, I love that you said minimalist because one of the big headlines on this is that there's only about, there's under 10 products or about 10 products. A lot of people are asking what makes this assortment of 10 products by Hailey Bieber worth $1 billion. Can you talk us through that valuation?
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Priya Rao
Yeah, it's kind of incredible. I mean, she only started this line three years ago. Um, it's all sold direct to consumer and the product pacing has been quite paced. You know, it's not like she's Launching things every month. I mean, it's really been every six months, every four months, you know, and it's been very intentional. I think a lot of the things that she started with first was skincare, so it really tied into her glazed dewy aesthetic, and it was very much like, dripping in that kind of glow. And then more recently, she branched into cosmetics, and she did so with, you know, Blush, which has become her signature. Most recently, she moved into cosmetics with products. Products that were so her. With the pocket blush, which was a first of its kind product for them. And it really kind of showed off her idea of blush bindness and how she wears blush all over her face. More recently, she's gotten really into lip gloss and lip liner. And so these are all products that really tie back to the Haley aesthetics. Things that she herself would wear. You don't see her yet launching, like, mascara or spf. These are not products that she's talking about, but she's definitely talked about blush. She's definitely talked about lip and skin care.
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Brian Baskin
It's so interesting that you phrase all of her business decisions in terms of what she likes, what she does, that. That's very different from other celebrity beauty brands, right?
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Priya Rao
I think so. I mean, I think what's different about this is just that she seems to be attaching products to virality after the fact. You know, it's not like she's launching a product, getting everybody on TikTok, talking about it, and then it becomes part of her routine. It's kind of like she's doing the reverse. She really started these trends like latte makeup and donut glazed skin, and then attached products that people could achieve the look with. So it feels very authentic. And I think what's really interesting about the products is, like, I mean, one could argue there are better lip liners or better cleansers out there in the market, but she's an excellent marketer. And I think what's interesting here is that she has been been able to talk about products authentically, whether it's her own products or other people's products. And it appears as though to the public that she really is a beauty lover and knows what she's talking about.
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Sheena Butler Young
I was gonna say, are you taking notes that there's, like, blind blush, there's latte makeup, there's donut glaze. I'm just writing these all down.
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Brian Baskin
I remember the glazed donut era of beauty. I remember that very well. That seemed to be everywhere for a time. That was only two years ago, right?
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Priya Rao
That was only two Years ago and she did a Krispy Kreme doughnut collection alongside with it.
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Brian Baskin
Oh, how far she's come. So is what Elf is buying here for a billion dollars, is a lot of that her or is it the brand?
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Priya Rao
I think it's both actually. I mean I think there's a lot of Runway for the brand. It's only sold direct to consumer now. It is going into Sephora in the fall in the US and the UK and Canada. But there's a lot of upside. There's a lot more products they can launch. They there's a lot more retailers they can expand to and Elf is excellent at doing that because they have distribution all over the place and worldwide. They also are buying into the prestige part of beauty as well. Because Elf is known as a mass brand, they previously were known as a dupe brand and all the brands in their portfolio are sold at a much lower price point. Whether it's Naturium or Key Soul Care or well people, they're all sold in like Ulta and Target stores. So this kind of brings Elf into the prestige market.
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Brian Baskin
I was curious if they'd ever duped a road product.
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Priya Rao
I don't think so, not yet.
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Sheena Butler Young
Now it won't count if they do it. It won't count.
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Brian Baskin
That's true.
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Priya Rao
Well, no, it won't count. She is going to be a strategic advisor for Elf. So I'm sure she's going to be able to bring a lot of her pull into the audience, into their broader audience. But Elf has always kind of been a brand for young people. They've always had a really good sense of what young people want, whether it's cheaper products, whether it's value driven products and also been really smart with their marketing. So it seems like they are synergistically the right pairing.
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Sheena Butler Young
Something the CEO kept saying, well he said it in our story and he said it elsewhere, is that they saw and wrote a like minded disruptor. What's been so disruptive about what Hailey Bieber is doing? We're also at a point of like fatigue on celebrity beauty brands but she's managed to buck that trend it seems. What is the disruption common denominator between both brands on that point?
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Priya Rao
Well, I think it's for certainly the digitally native roots. Elf started as a digital brand. They were sold for years just online and their products were 1, 3 and $5 when they launched about 25 years ago. So that like mindedness, the ability to cut through the noise only online with no retailers and doing it on your own seems Totally in line with one another. As for her herself, she's an out of the box thinker. Like she started this brand on her own. She's kind of worked with people on her, her and Justin's team, like Lauren and Michael Ratner, people like in their circle. She's obviously brought on really smart operators like Nick Vallejos from the Honest Company, which was Jessica Alba's line. So she seems to be doing things her own way and not really following the traditional beauty playbook, which is what ELF did.
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Sheena Butler Young
I'm also curious about market reaction. Something I've been thinking about is a week prior, ELF announcing a price hike because of tariffs and that kind of pressure and then a week later buying something for a billion dollars. What has been the consumer reaction to this deal? Have you any, anything about that from the consumer side?
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Priya Rao
From the consumer side. I mean, I think there's the constant conversation of like, is she selling out? Are the products going to change or the formula is going to change? That happens anytime a brand gets sold. I mean, it happened with Monique and Maille, it happened with Summer Fridays. And I think that like that will continue to happen. I think people have been pretty positive, at least in the comments that I've seen. People aren't like, oh, don't change the formulas, don't go to Estee Lauder, don't go to Shiseido. You're going to kill the brand. Like that. That happens a lot. But people have been seemingly pleasantly surprised, at least from the online conversations that I've seen.
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Brian Baskin
And investors have also loved this deal. I was looking at the stock chart for ELF and it's up 40% since this deal was announced. And often it's the acquirer that sees their stock go down after a deal like this. So it's pretty remarkable.
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Priya Rao
Yeah. And it's so expensive. I mean, yes, it's only a 4x multiple. I mean, she achieved 212 net sales last year. But it's a big number. A billion dollar brand, we haven't seen that in years. And we also haven't seen any activity in the M and A market. So it is a good sign for ELF that their stock price continues to rise.
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Brian Baskin
Yeah. On that note, have you gotten comment from Selena Gomez on this? She must be quite jealous that Hailey Bieber managed to beat her to that billion dollar payout.
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Priya Rao
Well, I think Selena is probably going to ipo. That's just my gut feeling. Or get bought by l' Oreal. But like you didn't hear it from me.
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Brian Baskin
First we should say Selena Gomez Rare Beauty. And that was kind of the original celebrity beauty success story. I guess the original would be Rihanna and Fenty and then Rare Beauty was that next generation, right?
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Priya Rao
Well, certainly rare of this class of brands was the brand that people were talking about. You know, they had great success with Blush. They were in Sephora early, they went global. And I think it's still a very hot brand that people are interested in buying. But if we want to go back, it was Rihanna who started this, and Rihanna and Fenty and her collaboration with lvmh. But what I think is going to happen now is that even though there is so much consumer fatigue from every celebrity brand, Blake Lively, you know, even Ariana's line rem, people are really questioning whether or not people will buy these brands and buy these products. But now seeing like the dollar signs on ROAD and Elf, I think we're going to see a whole new class of celebrities try to do this again.
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Sheena Butler Young
And so the acquisition is clearly strategic for Elf, but where does ROAD fit into their strategy? Can we talk a little bit about what the plan is that we know so far in terms of Rhodes Roadmap into the future? I didn't even mean to do that pun.
- [09:56]
Priya Rao
There's so many puns you can do with road. Well, I mean, I think right now they're integrating the entire team. The plan is for them to stay in Los Angeles, but they're all becoming Elf employees. This kind of follows a very similar playbook as what they did with Susan Yara's line Naturium, which was developed by Susan Yara, the influencer and the Center, a beauty brand accelerator. So they're, they're coming into the Elf fold. They let their brands really run independently. The Naturium team is pretty. Yes. I mean, I get a lot of feedback from the ELF executive team. I think that they are integrated into marketing plans. And I think Tarang said this in our interview. He said, like, we're not trying to overly manage these brands and we really want to let the founders do what they do best. And I think that's what actually when Tourang came on and the founders of Elf were still on board, that's what they did too. They let the founders be founders. He absorbed what was so great about the company and then he just kind of supercharged it.
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Brian Baskin
So Elf, at this point, they've got three pretty big, well known, thriving brands. I mean, are they approaching that point where we can talk about them as a conglomerate alongside Estee Lauder or Coty or l' Oreal Even, I mean, I.
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Priya Rao
Thought we could start talking about them like that two years ago when they acquired Naturium because that was like a $400 million deal. Also in a pretty slow time when people weren't buying beauty brands. I think that we have been desperate in beauty to find that second class of acquirers, especially with Estee Lauder, Shiseido, Cody, like strapped for cash. I mean the only, and I said this to you Brian, the only sure bet in town is l' Oreal. And from the after that then we have to think like who else is out there? I think ELF is there. I think Pooj is there. They have a lot of room to grow in their portfolio. They have money to spend.
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Brian Baskin
Pooja owns Charlotte Tilbury. It owns. Who else?
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Priya Rao
Birado. They just bought Barbara Sturm about a year and a half ago. So I think both of these conglomerates in very different ways because Pooj is on the much more prestige end of the spectrum right now. And elf, which is kind of toeing the line between mass and prestige, have a lot of money to play with and I think would be a desirable home for a lot of people.
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Sheena Butler Young
By the way, Rhode is also elf's entry point into some pretty premium retailers like Sephora stores in the U.S. canada and the UK. It was, I think the price point was 6.50. The average price point, $6.50. It's going up a dollar, maybe that's 750. But how important is this new retail presence for Elf?
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Priya Rao
Well, I think for Elf, actually the $6.50 is the new.
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Sheena Butler Young
Oh my gosh.
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Priya Rao
So there's still so even with the dollar increase, it's still going to be on average $6.50, which is so, so cheap in the grand scheme of things and also value driven. So they're much lower. Even though with the tariff conversation and the inflation conversation, they're priced really competitively for road. I mean their products range from 10 to $38. So this is going to be like a boost to their margins, a boost to ELF's margins and their overall portfolio. And I think it's also going to allow them to maybe play with a little bit of a higher price point in other brands portfolios like can we go a little bit more expensive here or you know, play with pricing in different ways. They have been saying for a long time, analysts have been saying for a long time that ELF has room to grow distribution in the U.S. and so yes, ELF is in Target, they are in Ulta, they're in Walmart, but they're not in Sephora. So I imagine if this partnership with Road goes well, like there is no reason why elf, the proper band, could be in Sephora too.
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Brian Baskin
Does Sephora sell products at that price point though? 650 per item?
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Priya Rao
Well, I mean, I mean if you look at the bottom basement prices of the Ordinary or the Inkey list, I mean those are $10 too.
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Sheena Butler Young
Not 650.
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Priya Rao
Not 650.
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Brian Baskin
It should be noted though that elf's been this runaway train for years at this point. But on the same day they announced this acquisition, they also said that their growth last year slowed pretty dramatically and in the fourth quarter their sales only grew by 4%. Which is, which is in line with some of these slow, slower moving, struggling conglomerates that we've been talking about. I mean, is there a case to be made that this acquisition is ELF trying to find a second act?
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Priya Rao
I don't think it's a second act, but I do think it's like giving it a little bit of a buttress, if you will. I think that like elf, yes, its sales growth slowed this quarter. It wasn't a 77% increase like it was last year. But these other conglomerates have been slow for many years. Like Estee Lauder has seen quarter after quarter of sales declines. So is like Shiseido, it's been slowing growth. So this is the first time that ELF has kind of slowed down and it makes sense. I mean, you know, tariffs, inflation, consumer spend is down. I mean, people are not buying beauty. And I know you guys talked about this last week on the debrief. People aren't buying beauty the way that they used to. I think they're being much more careful about how they spend. So I don't think it's necessarily a second act, but it's certainly giving the portfolio energy and in the right places.
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Sheena Butler Young
You know, maybe some celebrities themselves being excited when they hear evaluation like what Hailey Bieber's line just got. But on the other side of that, do you think that other potential acquirers would be more interested in celebrity brands because of Haley's success? Like, does it feel like that has momentum or she a one off?
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Priya Rao
I think Hailey is a one off story. I think she, aside from Selena Gomez, I think is one of the few celebrities right now with a new brand that people are excited about. Of course, if Rihanna ever leaves lvmh, that's another story. But I think the celebrity brand space is very, very tricky. I think the M and A beauty space is very tricky. And if you look at just what happened with KKW and Kim Kardashian's line and Cody Kody just had a huge write off because they had to sell that brand back at a loss. And so I think a lot of brands are being very, very careful about who they partner with, what brands they're looking at. And if this brand has longevity, of course Kim Kardashian has longevity. But you also need to have a brand name that doesn't have the brand's founder's name in the title. Right. We've seen that happen over and over and over again. And I think that you need to have the brand founder be super, super involved for at least three to five years after an acquisition.
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Brian Baskin
I think what you're describing here is Sydney Sweeney's soap with the bath water, right? I mean, how can you get more involved in that?
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Priya Rao
Well, Sydney Sweeney is an interesting one. I mean, she's the face of everything, which we know and Dr. Squatch has seen a lot. I mean, Dr. Squatch is in market and you know, she's the main marketing face for that brand. So we'll see. Maybe she has equity.
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Sheena Butler Young
Hailey also has a lot of titles at Rhodes. She's founder, but she's also chief brand officer and head of innovation. Is she taking all of that into the new acquisition or she's just coming on as an advisor?
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Priya Rao
No, those are all her new roles. So she's acted as, you know, a brand officer, as co founder of the brand up until this point. And so I think again, like going back to formulas, I remember Hailey Bieber as the brand ambassador for bareminerals about 10 years ago and it was because her mom was a fan of Bareminerals and she really loved clean beauty and she was an ambassador for this brand. This is like when she wasn't even like that famous, you know. And so I think she's actually had a very active role in like figuring out what products she likes, what she doesn't like. And if you think about it, models and celebrities should know what they love and like when it comes to makeup because they know what's going on their face, they know how they react to it. It's just that not a lot of people are able to translate what they like or even care what they like into product for other people.
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Brian Baskin
One thing that's interesting about both these brands is they've managed to have a hold on Gen Z for years at this point and that's very rare. Right. So how are they doing that?
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Priya Rao
I mean, for Elf, it's been decades at this point, they've always been a youth culture brand, and I think they've gotten better at it, you know, with some of their collabor.
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Brian Baskin
Back when Gen Z was called Millennial.
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Priya Rao
Right, right. When we were millennials. And when we were young, when we were not geriatric millennials. But I love calling us geriatric millennials. But yeah, exactly. When we were young, I mean, Elf was still cool. It's still cool now. And so I think they've had a real foothold with young consumers from the get go. I think with Hayley, I mean, she's growing into herself. She's only, I believe, like 28 years old. The line is 3 years old, but I think she can speak to younger and older customers. And you think about, like, what a young girl may want to look like, and it's being natural, being herself. For someone first discovering beauty, it's like this could be the Cerave or the Neutrogena or the like, Clinique of this generation. Because that's what we started with. Like, this was like what we looked at. Simple products, a simple routine, and then just giving you that natural, really glowy feeling. Like, this is kind of like, if you think about it, what Glossier wanted, right? Glossier wanted to be this minimalistic, amazing brand for millennials and sell for bazillions of dollars. And yet Haley's managed to do it in three years and get out. And, and, and to be fair, they're both direct to consumer brands.
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Sheena Butler Young
It's funny because they kept saying how young this brand was. And then ELF CEO points out, we're only like 20 years old ourselves. So you have like a, and a, like a young adult and a toddler, basically. These are young brands together.
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Brian Baskin
I mean, beauty, it's like dog years, right? I mean, be like the grandparents.
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Sheena Butler Young
So Alpha is a geriatric millennial and Road is a older Gen Zer. So, Priya, looking ahead, is there anything that this deal indicates about the future of beauty? Right now we know beauty was the recession proof category. If you're thinking about fashion more broadly and accessories, some of that is starting to show cracks in the armor. But does this say anything about beauty's future? Is this a reinvigorating moment? Is it something entirely different?
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Priya Rao
I think it's definitely reinvigorated people. I think people are excited again about, like, oh, what other things could happen. But there are a lot of brands sitting in market. There are a lot of brands that have not found homes. And I think that there is because there's not a lot of differentiation. And I think valuations are out of whack. I think for from the consumer side, I think it just shows that like the right brand can find the right price at any time as long as you're able to point and show that you offer something different. And I bet whoever those bankers are and whoever that was looking at that deck, if you were able to see it, like look at a hotmap and like where people were looking and where they were buying and how her connectivity was to her customer, I bet that would show a lot because, you know, not all brands have that. And she's talking, I always hear from other brands, like if she talks about like their mascara or their foundation, they see a boosted sale. So she has that kind of ability to do that for other brands. Imagine what she could do for a portfolio of brands.
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Sheena Butler Young
Priya, thank you so much for joining us today. This was lovely.
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Priya Rao
Thanks guys. Thanks for having me.
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Sheena Butler Young
Please be sure to check out our coverage of this landmark deal@businessoffashion.com these and other stories are available to BoF Professional subscribers only and you can find the links in the episode notes. You've been listening to the debrief produced and edited by Olivia Davies and Eric Ria. I'm Sheena Butler Young.
- [20:46]
Brian Baskin
And I'm Brian Baskin. We'll be back next week with a new episode. Thanks so much for joining us and be sure to follow us wherever you get your podcasts.
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- [21:32]
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