Less than a month into 2024, it’s already clear that a lot of brands are going to find new owners this year.

I write a piece like this almost every year, and usually there’s one key theme connecting all the deals: there was the run of $1 billion-plus price tags; the run of sub-$1 billion price tags; a makeup M&A boom, then one for skincare, then for fragrance, and so on.

In 2024, it’s about all of the above, and more.

With fewer huge targets, strategics – who can only grow through acquisitions – and private equity firms – which have an excess of capital to deploy – are going after the same select group of well-managed, mid-sized brands.

Below, some thoughts on the upcoming year in beauty M&A.

Who’s Selling

The last year or so was heavy on blockbuster deals.

In late 2022, Estée Lauder announced it would pay $2.8 billion for the Tom Ford brand, parent of Tom Ford Beauty, one of the conglomerate’s most valuable properties. In June, Kering Beauté bought Creed for $3.8 billion, making L’Oréal’s $2.5 billion acquisition of Aesop two months earlier seem like a bargain. K18 and Parfums de Marly, a very expensive and very niche fragrance brand, were acquired for about $700 million each.

There may be some mega-deals this year too (if Rare Beauty sells, it will certainly command at least a $1 billion valuation), but expect more mid-sized M&A along the lines of Shiseido’s late December acquisition of Dr. Dennis Gross Skincare for a reported $450 million. Roc Skincare, the anti-aging brand that was just acquired by the investment firm Bridgepoint for a reported $500 million, and The Honey Pot, bought by Compass Diversified for $380 million, fit in this mold too.

Most of the brands on The Business of Beauty’s list of likely M&A targets fall in the mid-sized deal category, including Kosas, Merit, Summer Fridays and Makeup by Mario. They are brands with sales around $150 million (Makeup by Mario is a bit bigger, with estimated 2023 sales of $225 million).

Who’s Buying

If they do end up selling, those brands will follow in the footsteps of brands like Youth to the People, Tula and Ouai, which were scooped up by L’Oreal and P&G for between $300 million and $500 million each.

Well priced with reasonable multiples, a line like Youth to the People was a relatively inexpensive way for a legacy conglomerate like L’Oréal to buy a Gen-Z clientele.

Strategics have to grow via acquisition. Some do have venture arms, like Lauder, LVMH and Unilever, but none have made a serious play in terms of creating newness, whether through investment or internal development.

In uncertain times, these companies are looking for safe bets that won’t require major investment to scale, and aren’t going to flame out as soon as they’re acquired. Strategics aren’t looking to take an unprofitable business that’s growing fast and dump it onto their balance sheet with a multi-year strategy of turning it around and making it profitable; they’re looking for brands that are instantly accretive.

While a Creed, Tom Ford or Aesop comes along from time to time, strategics can’t afford to wait for a mature asset to hit the market, however. They need to sift through the many, many small and mid-sized lines and find the few gems that are both fast growing and profitable, or headed in that direction. They have to act fast, too, before a competing conglomerate or private equity firm snaps them up. Does a strategic want to wait until Summer Fridays get to $150 million in revenue? Probably. But are they going to? Probably not.

There aren’t many Summer Fridays out there, however. Many of the businesses that have started to scale – $50 million to $100 million in net sales – took a counterintuitive strategy to where the market was at the time (a strong retail presence in lieu of a direct-to-consumer model), and thus, there are just fewer of them. Rhode and Jones Road, which are mostly direct to consumer brands, are outliers, having yet to ink major retail partnerships.

And with the market heating up now, private equity will be the first to react and try to mirror what strategics are doing. These shops have a lot of money that needs to be deployed, and they’re willing to do deals at compressed valuations. (Private equity and VC are lagging indicators of where strategics are. If strategics are buying at lower multiples, then PE has to buy at lower multiples, and then the venture community either doesn’t invest or tries to at lower multiples.)

“The PE funds are super interested in beauty and personal care, but they have not done, at scale, a lot of acquisitions. They have a lot of dry powder,” Alexandre Terseleer, a principle at Kearney, said. Deals, he explained, could centre on “one brand that’s very strong” – along with some its suppliers – or a house of brands where they can “consolidate players into a bigger machine they can better market down the road or IPO.”

Overall, though, M&A in 2024 will be largely led by businesses doing $50 to $100 million in net sales that are profitable and fit the thesis of a strategic. Unfortunately, there are just fewer businesses like that which means more competition for fewer assets. It will take another year or two, at least, for businesses to pivot their strategies to adhere to what the market is looking for. Except by that time, it’s going to be something else.

Disclosure: LVMH is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholders’ documentation guaranteeing BoF’s complete editorial independence.

At 78, Norma Kamali isn’t ready to retire. But the celebrated New York designer is starting to think about how the company she built from scratch and has run for more than 50 years will carry on when she eventually steps back.

Typically, this kind of succession planning entails preparing the right leadership to take creative oversight of the business and carry it forward. Kamali’s plan is to develop an AI version of herself to support them.

For months, she has been working with the AI-focused agency Maison Meta to build a custom tool that can generate new designs based on her creative DNA from text prompts. They’ve been feeding thousands of images from the brand’s archive into the model, teaching it the essence of her style.

The intent isn’t to have the machine replace human designers. Kamali thinks AI has its limits, and it will require people with original ideas to make the best use of it. Instead, the hope is that, when the day comes that she’s no longer there, her team will still be able to draw on her creativity as if she were.

“The model will start to really be in the process of downloading my brain, so that when I train other people here to follow what I’ve done, the legacy of the company can literally continue and go on,” she said. “I have the advantage of that because it’s 56 years of content and there’s only been one designer. It hasn’t had different identities. It hasn’t had that mix up. It’s very exciting. It gives my company a really big value that way — in a way that nobody would’ve thought of before.”

Kamali isn’t just chasing the latest tech industry buzzword. Her enthusiasm for technology dates back to the 1960s, when she worked on an early computer — the Univac — as an employee of Northwest Airlines. She’s been interested in technology since, and in finding ways to use it in her business. A few years back, she began thinking about AI after working on a fashion game tied to a line she designed for Walmart. Now, generative AI is offering new possibilities.

The technology’s arrival on the fashion scene has sparked a rush by brands and retailers to find uses for it. They’re experimenting with AI for writing product descriptions and powering chatbots, while designers like Collina Strada’s Hillary Taymour and Julius Juul of Heliot Emil are turning to image-generating AI to push their creative boundaries. To make sure it maintains their aesthetic signatures and doesn’t just spit out generic designs, they train the AI on past collections. Kamali may be the first to do it so extensively, and for the purpose of continuing her legacy.

For a founder-led label like hers, succession is a vital issue. Numerous companies defined by their creators such as Helmut Lang and Ann Demeulemeester have struggled after their departures. Today, big players like Armani and Prada are in the midst of planning their own post-founder futures, undoubtedly working out the best way to preserve their businesses and creative visions.

AI offers a new, if unconventional, means for doing so — or at least attempting to. How well it works, or whether it can work at all, is still to be determined.

“The limitation of AI is that it can process data, but can it dream?” said Alice Bouleau, partner in charge of creative recruitment at Sterling International, an executive search firm that works in fashion and luxury. “Yes, of course, you can preserve the archive and you could have a billion alternatives to things you’ve done before. But can you guess what you should do next for a brand? This is where I’m more sceptical.”

Still, some brands might want to consider the option, Bouleau said, if they aim to maintain their current course with little change.

Future Proofing

When Bouleau helps brands prepare for life after a founder, talent scouting for a successor begins well in advance. In the best-case scenario, the “future heir,” in Bouleau’s words, is able to work side-by-side with them for a year or two as they’re groomed to take over.

Preparing an AI system goes a bit differently.

Maison Meta has been working with Kamali’s archive team to gather and prepare the imagery needed to train the AI, which Maison Meta said uses the open-source model Stable Diffusion XL as a foundation combined with another open-source tool called Fooocus that it customised for the job. Because there’s so much imagery, they’re going by categories, beginning with swimwear, one of Kamali’s specialties.

As part of the process, Maison Meta talked to Kamali about her workflow and how she would like to communicate with the AI. The images need to be tagged with keywords, such as the type of cut, the fabric and any other important details, so when Kamali later enters a text prompt, it understands what she’s asking for and can produce a corresponding image. The tagged imagery is fed into the AI model to train it. In the case of Kamali’s swimwear alone, there were about 10,000 images.

“It took us about a month to get it to the right point,” said Cyril Foiret, founder and creative director of Maison Meta. “Training itself is pretty heavy because you need big machines. To do batches of 1,500 [or] 2,000 images, it takes about seven hours of training. Then you have to do testing. You see what the results are. And then after this, you go on to the next one.”

Kamali also had some requests that posed challenges. For example, she wanted one consistent avatar for her generated swimwear designs to appear on, rather than having a different avatar with a different body every time she entered a prompt. Foiret said they essentially had to develop a mini AI model just for that.

“It was not too easy,” he said. “This took also about a month to have her right.”

Once they’ve finished training the AI on all the different product categories, they’ll combine everything in a master model. The whole system runs from a computer Foiret installed in Kamali’s office so it’s secure, rather than having it run on the cloud.

Kamali wants to use the AI to design a swimwear collection first. But it’s still a work in progress — “rough and raw” she called it — and she’s trying to understand how it will fit into the company. She’s convinced it will ultimately transform how the business can operate.

“I keep thinking about it as this baby that’s learning to walk, but it’s this genius at the same time,” Kamali said. “I’m going along with that. I’m learning and experimenting and each day I’m going to figure out how I integrate it into the future of the company.”

Where AI Is Headed

Kamali first considered training her own AI after crossing paths with an e-commerce company that wanted to have AI do all its design. As Kamali put it, it wanted to download her brain. She said no, but the thought of doing something similar for her own company stuck. Last year, she contacted Maison Meta, which was creating a name for itself through projects like organising the first AI Fashion Week with Revolve.

Maison Meta by then was already noodling on a concept it called “future vintage,” according to Nima Abbasi, partner at the company. What if you could take all the work of a designer such as Vivienne Westwood, who died in 2022, and use it to build a data set that would allow for new creations in her spirit? There could be other uses, too.

“A private equity [firm] or an investor that wants to buy a dormant brand, let’s say a Romeo Gigli, and wants to reinvent it without paying a designer to go and design the clothes, we can help them see the future of the brand from a design perspective without them having to actually go make the investment,” Abbasi said.

Of course, there are qualities a founder offers that can’t be replicated by AI. They set a culture for their company and give a sense of purpose to their employees and the product, noted Bouleau of Sterling International. When they leave, the company will still need a strategic thinker who can provide that.

“AI cannot tell you why this brand is this brand. What is the reason why of this product?” she said.

Designers also evolve over time, she added. A company can stagnate if it’s too focused on the past.

Kamali said if her company is going to use AI it has to produce ideas that combine what she’s done in the past into something unique and innovative. She has her own reservations about AI’s abilities.

“When a designer designs a collection, it has to have a soul,” she said. “Sometimes I feel like AI designs are soulless.”

Kamali, who is a patternmaker, believes any design must have a strong connection to the pattern. She’s not certain right now how they’ll achieve that with AI designs and is still determining which parts of the company will be trained to use her AI system. It might not just be the design team. (There are companies working on AI tools that can generate patterns, but they aren’t open-source and integrating the technology into Maison Meta’s custom AI would be an entirely new challenge.)

No matter what, Kamali believes human creativity will remain indispensable. She emphasised that human originality is different from AI.

“There are things that AI will not replace,” she said. “But AI will provide new opportunities that we can’t resist.”

For the past two years, I have been working with the New Standard Institute to secure passage of the New York Fashion Act. The Act represents the first thorough attempt to regulate the fashion industry in the United States requiring that brands selling in New York state perform due diligence, report on their impacts and reduce carbon emissions in keeping with planetary boundaries. As part of the process, I have engaged with scores of industry participants including brands, suppliers, trade associations, unions and activists.

The conversations have been constructive. One proposal has, however, led to surprising consternation. With few exceptions (which include progressive brands such as Patagonia, Reformation, Cotopaxi, and Eileen Fisher), big fashion brands and trade associations have bemoaned the “impracticality” of the Act’s mandated disclosure of their supply chains. This disclosure is needed to engender transparency and to link output to impacts.

Notwithstanding advances in technologies including blockchain, smart sensors, isotope identification and supply chain mapping software, many industry participants maintain that it is “next to impossible” to know which suppliers are growing their cotton, tanning their leather and dying their fabrics. After all, they explain, raw inputs are typically blended with many others en route to market, brands do not always nominate upstream suppliers, factories often subcontract without approval and demands for faster product introductions outpace brands’ ability to collect data.

Said differently, financial outcomes supersede efforts to assure supply chain transparency.

In the endless drive to expand gross margins and increase revenue, fashion brand executives continue to press supply chains to speed up product introduction and drive costs down. This leads to transience, opacity and complexity which is often accompanied by a reluctance to invest in voluntary disclosure. After all, why invest in traceability for a fast changing, upstream supply chain when reporting is voluntary and consumers do not demand or understand this information. According to Fashion Revolution, only 12 percent of the biggest 250 fashion brands publish a list of their raw material suppliers.

It Wasn’t Always This Way

Fifty years ago, many brands were manufactures and production was more geographically concentrated, making it easier to track. For example, at Timberland (where I served for 15 years, seven as COO), the original factory was located in New England, the same region as the company’s leather suppliers and footwear equipment manufacturers. Timberland’s tagline “More Quality Than You May Ever Need” was premised on the trained expertise of its own production workers. Traceability was straightforward.

However, a shift towards trade liberalisation precipitated a ramp up of outsourcing from the ‘90s onwards. The result: most fashion brands’ manufacturing assets suddenly became liabilities, burdened by higher operating and labour costs when compared to Asian alternatives. Outsourcing led the locus of competition to shift from an emphasis on quality and innovation to a focus on flexibility and low cost.

Brand Upside, Societal Downside

Shifting production to ever cheaper locales has enabled the fashion industry to keep prices low, helping to fuel its rapid growth over the last 30 years. It has also allowed fashion companies to benefit from regulatory arbitrage — because environmental and labour regulations and enforcement in Asian sourcing hubs have often been laxer than those in the US and Europe. This has led to worsening unit for unit environmental impact of fashion production.

While outsourcing to multi-tier supply chains has benefited big brands and acquisitive consumers, it has led to far reaching social and planetary damage. Fashion is one of the world’s most environmentally damaging industries, with impacts spanning chemical, land and water usage, as well as carbon emissions. Trends are not positive. Predictions estimate that plastic polyester fibre production will increase by 47 percent in the next decade while carbon emissions from fashion are on track to grow by 30 percent.

Other Paths

The structure and impacts of the fashion industry are not immutable or preordained. They are choices. Indeed, some brands are choosing to move in the opposite direction to the wider industry pattern by localising and verticalising production. As but one example, entrepreneur and creative director Brunello Cuccinelli took a joint-minority stake in a cashmere yarn producer last May. At the time, he noted, “I’m not worried about who’s going to buy the product, but I’m worried about who’s going to produce the product.” All the brand’s products are made in Italy.

This approach is not exclusively the domain of luxury labels. For example, Welsh brand Huit Denim produces all its jeans in its own factory in Cardigan, a town that used to host to Britain’s largest denim factory (which closed in 2002). According to co-founder David Hieatt, “Our grandmasters are craftsmen and women. Having a factory in the town where we live allows us to be transparent, responsive and assures superior quality.”

While neither Brunello Cuccinelli nor Huit Demin share detailed mapping of their supply chains, implementation of regulation that mandates such disclosure would be straightforward for both companies. Other industry participants including Another Tomorrow and a partnership between Levi’s and Artistic Milliners are demonstrating that transparency is possible. So is VF Corporation which has mapped and shared the complete multi-tiered journey for one hundred of its highest volume products.

What Next?

Why do traceability and disclosure matter?

Firstly, absent robust traceability, brands will soon no longer be able to make green claims. Last week, by a vote of 593 to 21, the European Parliament voted to adopt a new anti-greenwashing law banning the use of generic product claims including “environmentally friendly” or “climate neutral.” This law was a response to industry abuse. According to a European Commission study, more than half green claims by companies in the EU were vague or misleading, and forty percent were completely unsubstantiated.

In addition, to maintain its social license to operate, the fashion industry will have to address and minimise its negative externalities: the harmful social and environmental side effects of doing business. Today, the fashion industry does not pay for externalities including labour abuses, pollution and carbon emissions — these costs are borne by society. However, legislation including the Uyghur Forced Labor Prevention Act (UFLPA) is being adopted to force brands to limit their negative impacts.

Disclosure alone, will not address all the industry’s negative externalities. Nor will it be simple. Fashion supply chains have become astonishingly complex.

Disclosure is, however, a first step. According to McKinsey, 79 percent of fashion executives consider “the lack of access to standards to assess sustainability performance as the greatest hurdle to improving” customer perception of sustainability. It follows, then, that fashion brands who want to message authentic sustainability ought to support legislated standards to require reporting on the lineage and contents of production.

So doing is a necessary precursor to getting brands to internalise externalities. The industry’s current inability or unwillingness to do so is a choice — one borne out of a desire to optimise for financial outcomes, not reduce social or environmental harmful impacts.

Kenneth P. Pucker is a professor of practice at the Tufts Fletcher School. He worked at Timberland for 15 years and served as chief operating officer from 2000 to 2007.

TikTok is testing a feature that could make all posts shoppable, the social media company’s latest move to create a multi-billion-dollar US e-commerce business.

The new feature uses technology to identify objects in a video automatically. Then, it encourages viewers to “find similar items on TikTok Shop” by clicking into a page of products, according to screenshots and posts viewed on the app by Bloomberg. Previously, only approved influencers and brands could tag products when they posted content to the app.

A TikTok spokesperson confirmed the feature is an early test.

The Chinese social-media company last year launched the US version of TikTok Shop — an effort to combine the ease of shopping on Amazon with the product discovery afforded by social-media sites like Instagram. The new business is a top priority for TikTok, which aims to sell $17.5 billion worth of goods in the US this year, people familiar with the matter said earlier this month.

The launch of Shop so far has received mixed reviews. Merchants interviewed by Bloomberg in December applauded the app, having seen record sales for their small businesses through the first holiday season as TikTok bankrolled discounts and free shipping for shoppers. In November, which included Black Friday and Cyber Monday, more than 5 million new customers bought something, the company has said.

But users have complained about counterfeit and knockoff products sold on TikTok’s marketplace. Some also say the preponderance of ad-like posts from influencers is wrecking the experience.

TikTok offers content creators commissions on product purchases made from their posts, giving them an incentive to push the merchandise. The new feature being tested links to products on regular users’ posts without the hard sell, potentially making the experience more palatable for visitors just looking to be entertained.

So far, the items being surfaced by in the test aren’t always a perfect match. For example, a video reviewed by Bloomberg from a woman who polishes stones served up a gold ring and two sets of metallic press-on fingernails tagged with “similar to item in video.”

By Alex Barinka

Learn more:

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