Henkel AG, the German maker of Schwarzkopf, Dial and Diadermine products, has been reassessing its business model, but a fix remains elusive — especially for its beauty retail activity.
The Düsseldorf-based company holds a top rank worldwide in the professional hair care category, but has been underperforming against its cohorts such as L’Oréal, Unilever and Proctor & Gamble in the large and dynamic beauty space.
Henkel placed 16th in WWD Beauty Inc’s Top 100 Global Beauty Manufacturer ranking for 2021, which estimated the group’s beauty sales hit 3.49 billion euros that year, down 1.9 percent versus 2020 and 5.2 percent against 2019.
Over the last five years, Henkel’s organic top-line beauty growth was minus 0.7 percent. The previous five years it was plus 2.5 percent, and the five years prior to that plus 4.8 percent, according to Eva Quiroga, managing director of European Consumer Staples at Bank of America.
So why this persistent downward trajectory? And what might be done to reverse the slide?
Henkel is a rare breed — the only top 20 beauty company with beauty as a minor activity. In 2021, the category rang up just 18 percent of Henkel’s total sales of 20.07 billion euros, versus adhesive technologies with 48 percent and laundry and home care combined with 33 percent.
Looking back some 10 to 15 years ago, Quiroga shined a light on Henkel’s heyday in beauty. That was when Tina Müller — now chief executive officer of Douglas — was running the firm’s hair care business, and Hans Van Bylen was the executive vice president for the Beauty Care division.
“They basically did innovation, but in a focused way,” said Quiroga, who explained Van Bylen had a table in his office, and whatever Henkel was launching had to fit on that table — otherwise, it was too much.
“Which meant there was definitely much greater focus on bigger ideas,” she said. “He also took the view that if a product doesn’t work quickly, it’s not going to work. And they were also super smart with their marketing. It was a shift from being boring to being quite funky. That made a massive difference.”
Müller launched the Syoss hair care brand just after the financial crisis, in 2008 and 2009.
“Syoss resonated unbelievably well with the German consumer, because it was perceived as a professional brand in a big bottle and at an affordable price. It was just perfectly executed,” Quiroga said. “It was the most successful hair care launch in years. Since then, however, momentum has been slowing.”
That is partly due to other players ramping up competition when they saw Henkel as a threat, especially in hair care. Also, Müller left the group.
Henkel has been acquisitive in professional hair care, especially in the U.S., and became strong in the category that way. In 2014, it bought Sexy Hair, Alterna and Kenra, followed by Nattura Laboratorios and the North American Hair Professional business from Shiseido three years later.
In North America last year, Henkel ranked second after L’Oréal in the category, and worldwide it placed third, following L’Oréal and Wella, according to Kline & Co.’s Salon Hair Care global series.
This February, Henkel announced it would buy Shiseido’s professional hair business in the Asia Pacific region, a deal that CEO Carsten Knobel at the time called “a step-change” for the company’s professional activity. That’s because it would significantly increase the group’s market position in Japan and China, the world’s top-two and -three professional hair markets, and key centers of trends and innovations. Additionally, it could elevate Henkel to the number-two worldwide rank in the segment.
Last year, about 70 percent of Henkel’s beauty sales were from hair care, and of that, one-third was professional and the remainder retail, including care, color and styling. Approximately one-quarter came from body care, such as deodorants, shower gels and soaps, and then some 5 percent from oral care.
By geographic region, most of Henkel’s business is rung up in developed markets, such as Europe and North America.
Henkel ranks 11th in the U.S. market in overall beauty, which include the fragrance, hair care, makeup, skin care and toiletries categories, Kline data shows.
“They play in only two,” said Carrie Mellage, head of beauty and personal care at Kline, referring to hair care and toiletries. “There’s a lot of things they’re not doing, like participating in some key sectors of beauty that most of the other leaders are doing. They’re not as diversified.”
She pointed out the top five beauty players trade in every or almost each product class. Yet even in those two, Henkel is not leading in either. Kline rankings show Henkel is fifth in the U.S. hair care and U.S. toiletries markets, where Dial is a force in personal cleansing.
“But they really struggled last year with the brand,” Mellage said. “They had a slowdown in 2021 relative to the rest of the category. Some of the brands that were performing better were like Dove or Olay — more skin care oriented. Bath & Body Works is another key player that did really well in that space and more fragrant body care. Dial is really none of those things.”
In comparison, Henkel’s professional hair care business fared well, outperforming the U.S. market. But the same didn’t hold true for its beauty activity. According to Kline’s Cosmetics and Toiletries USA 2021 program, the country’s total beauty market grew 9.5 percent, whereas Henkel’s beauty sales there, consolidating consumer purchases only, declined 5.4 percent.
“While the professional business has been doing quite well over the last few years, the retail business has been struggling, consistently underperforming its peers for years now,” Quiroga said.
In late January, Henkel announced plans to merge its Laundry and Home Care and Beauty Care divisions to form a new Consumer Brands business, and expects to divest or discontinue non-core brands and activities, while making acquisitions in the consumer-goods space.
The company said the new organization, designed to create more scale, capture synergies and grant further agility, should be operational by early 2023 at the latest. The group anticipates from it leaner structures, faster decision-making and attractive opportunities.
However, some industry experts believe that combining two underperforming businesses might not be the best fix. Nor would selling Henkel’s skin care holdings, such as Diadermine, which is strong in countries such as Germany and France.
“Skin care is obviously structurally the most attractive part of the beauty industry in the long term,” Quiroga said.
Mellage agreed, noting: “They’ve been very successful growing by way of acquisition, and I do see that could be a path forward for them in the other areas.”
Skin care is the biggest product class, and Henkel does not trade in it.
“Lots of opportunity there,” she said.