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Beauty bidding wars: where corporate social responsibility takes the back seat

In recent years, consumer product companies have consolidated, leaving just 10 of them owning the world’s most popular food brands, according to Oxfam. However, food and beverage isn’t the only hot industry for mergers and acquisitions today. Unlike the spotlight that we so often shine on what we eat, we tend to treat what we apply to our faces and skin with less scrutiny. Beauty oligopolies have been acquiring budding brands left and right, but they’ve taken new leadership roles lightly. Although companies can no longer afford to ignore corporate social responsibility, and transparency has been improving, the beauty industry’s rapid consolidation has largely been unchallenged and unsupervised by consumers.

182 of our favorite beauty brands are owned by just seven conglomerates. L’Oréal, perhaps the most familiar household name, owns 21 percent of them, including The Body Shop, Urban Decay and Maybelline, according to Beauty Packaging. Estée Lauder is also a top player and houses millennial favorites like Le Labo, Jo Malone and L Rodin. According to A.T. Kearney, a global management consulting firm, the top three companies in this space account for 49 percent of the total market share in Beauty and Personal Care, a $445 billion industry. For such brands, in an unforgiving acquire-or-be-acquired race, M&A has been the only way to survive, as the market has grown just 3 percent in the United States over the past five years. In fact, the pace of buying is still accelerating. A.T. Kearney estimates that the enterprise value growth rate of frequent acquirers is 26 percent higher than that of infrequent acquirers.

“We really want to continue winning and to continue leading this market,” Fabrizio Freda, president and CEO of Estée Lauder, remarked after making an acquisition last year. The truth is, being a leader isn’t one-dimensionally about market share, and beauty giants have not stepped up to corporate accountability. L’Oréal and Estée Lauder, for instance, recently faced major backlash from humanitarian groups, after U.K. watchdog CORE released a report that covered 50 global brands’ compliance with the United Kingdom’s Modern Slavery Act. Both beauty companies failed to meet the requirements of the Act, which states that businesses “must produce an annual statement outlining actions they have taken to combat slavery in their supply chains.” In fact, neither company made mention of the childhood slavery risk associated with the mining of mica, a sparkly mineral used for shine in make-up. According to the study by CORE, mica is mined in northeast India, where an estimated 20,000 children work under vague working conditions. Modern slavery is a real 21st century issue, with 24.9 million people forced into labor around the world, as estimated by the International Labor Organization.

In addition, the media often positions niche brands’ success by whether they were acquired by a market dominator. One recent Forbes article states that the beauty industry is an “increasingly good place to sell a business and [make] a tidy profit.” For beauty giants, indie brands allow increased access to new clientele without cannibalizing an existing customer base. When added to a large portfolio, acquired brands run the risk of jeopardizing their unique vision, or risking the loss of devoted customers who fear the brands’ positions have changed.

The uncertainty of a brand’s future once acquired is hard felt by devotees of cruelty-free brands, which have been targeted by beauty giants in recent years. At the end of last year, cruelty-free Too Faced became one of the 62 privately-held beauty companies that were acquired in 2016, according to Forbes. It was bought by Estée Lauder for $1.45 billion, unnerving those critical of the new parent company’s animal-testing practices. Although co-founder Jerrod Blandino took to Instagram to assuage fans’ fears that the brand will not take up these practices and will not sell in China, where products require cosmetic testing on animals, many of those posts were ultimately deleted due to massive feedback from upset consumers, according to the Huffington Post.

Similarly, in August last year, L’Oréal paid $1.2 billion in cash for cruelty-free IT Cosmetics, earning founder Kern Lima a Forbes-estimated $410 million after tax. Lima’s brand develops mild formulas for users like herself who have sensitive skin. While L’Oréal does not test on animals in the United States, according to the People for the Ethical Treatment of Animals (PETA), the beauty giant does pay for deadly testing in China. Although L’Oréal decided to keep the current leadership at IT Cosmetics in an attempt to conserve the mission of the brand, “IT Girls,” as Lima calls her loyal customers, were disappointed. Popular blog “Cruelty Free Kitty: Beauty Junkies Against Animal Testing” messaged its readers claiming that IT Cosmetics had sold out and readers responded with frustration, sharing reviews of alternate brand choices and stating “it really is all [about] business.” Yet, in an environment where niche brands are bought out in record-breaking deals, it is simply a question of how long before all quality niche brands are swallowed up.

Though the parent company may decide on a hands-off approach, the acquired brand’s independence is ultimately eroded, as profits funnel into a larger corporation that does not necessarily support the acquired brand’s unique values. Furthermore, by virtue of economies of scale, an acquired brand will surely be tempted to leverage the parent company’s resources, whether to enter toughly-regulated markets, to learn from a more mature operation, to access a broader distribution channel, or simply just to have more cash on hand.

At the end of the day, the most basic marketing tool for beauty companies is the consumer, who wear the brand’s products. It is our collective responsibility to know what we are representing – what we are putting on our face -on a daily basis. Consumers should demand the industry provide that level of transparency. Heightened consumer awareness about corporations and their impact on society and the environment is the way forward to keeping beauty giants in check.

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