Procter & Gamble Plans to Spin Off its Beauty Business

Procter & Gamble, the world’s largest maker of consumer products, is currently studying the segregation of the beauty business in a subsidiary, an operation which may include an IPO of the new company. Although the decision is not final yet, it appears that the US company will carry out the operation to reduce its presence in this business, where it faces fierce competition and which it has so far failed to generate attractive returns for the group

We do not know which P&G brands will form part of the subsidiary. Currently it has more than 100 different brands in this business segment, with big names such as Olay, Herbal Essences, CoverGirl or SKII. The idea of the company would get rid of most of them, with residual or even zero growth, to focus on the most value brands. In addition, it should also specify whether the hair-care division Wella is within the new group or is sold separately.

Procter & Gamble´s beauty business reached sales of nearly $20 billion annually, almost a quarter of the total group. However, these revenues are stagnant since 2010. This level of sales placed P&G in the third place worldwide, just behind L’Oreal and Unilever.

The decision shows the difficulty of the cosmetics market due to both changes in trends (which require a great flexibility to meet the new customer needs) and the existing competition. P&G has committed to increase the presence of its existing brands into new market segments, while its competitors have used a different strategy: creating new brands for these business segments. The result has been negative for P& , which has lagged behind its competition.

The company´s shares have taken advantage of this news. After a dismal start to the year, where his shares lost as many as 11% of its value for its poor results (P&G announced in January that second quarter sales fell 31% due to the strong dollar), the stock has rebounded 5%. Anyway, its performance is well behind its competitors. In the last twelve months it is up 10% compared to a 50% risen by L’Oreal and a 25% of Unilever in the same period.

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