A tale of two acquisitions
What can Rhode’s new owners learn from Kylie Cosmetics?
Last week, Hailey Bieber’s face graced multiple news outlets after she announced that e.l.f. Beauty would be purchasing her 3 year old beauty brand, Rhode, for 1 billion dollars. Amidst a beauty slowdown, the acquisition is exciting.
It’s also a bit of déjà vu.
Just 7 years ago beauty conglomerate Coty purchased 51% of Kylie Jenner’s Kylie Cosmetics for $600 million, valuing the then 4-year old brand at 1.2 billion dollars.
According to multiple outlets, growth of Kylie Cosmetics stagnated soon after Coty’s purchase. Kylie’s ecommerce sales declined from $68.7 million in 2017 to $29 million in 2024 (Yahoo, Forbes). While entry into Macy’s and Ulta replaced some of those sales, Forbes reports that these were short term boosts only. What is clear is that the brand’s heat has died down. Last year, the brand lost nearly half a million Instagram followers, while engagement is below average, signalling a brand in distress (Hype Auditor).
Knowing this, why is e.l.f. banking so much on Hailey Bieber’s Rhode? The billion dollar deal is equal to 76% of e.l.f.’s most recent annual revenue (1.313 billion), and a multiple of e.l.f.’s cash on hand, requiring el.l.f to take on significant financing to acquire Rhode (e.l.f.)
But, there are signs that e.l.f. is a much stronger fit to see Rhode to growth than Coty with Kylie Cosmetics.
To understand why, consider the ways that a new owner will typically look to grow a brand:
- Expand distribution via new stores and international markets
- Expand audiences via enhanced awareness and relevance
- Expand via new products
Rhode and e.l.f. have a much stronger path to all three routes to growth — based on 3 factors.
*Product Mix and Margin improvement are two other levers, but these are less relevant for influencer led brands which tend to have already high margins and slim product lines.
1) Operational Alignment (Expand via distribution)
Pre-acquisition, Kylie Cosmetics was a direct-to-consumer (DTC) brand, built on digital intimacy and viral product drops. In contrast, Coty is a legacy wholesaler. Its core business is selling brands like Gucci and CoverGirl through mass retailers like Walmart and Macy’s. Coty does not operate a website of its own to avoid channel conflict with its retail partners; in fact, companies like Coty often are contracted not to undercut the prices of its retail partners. Instead, Coty would go to market via trade promotions and in-store activations, with top of funnel brand advertising. This meant Coty couldn’t leverage Kylie’s DTC playbook across its portfolio, nor was it equipped to nurture Kylie’s digital-first audience as the brand expanded its retail presence.
On the other hand, Rhode and e.l.f. are both DTC brands that thrive on intimacy and direct relationships. e.l.f. chose to announce its tariff-related price increase in an emoji laden Instagram post, while Bieber has been teasing her next Rhode product release via a beta program where influencers are live sharing the ‘secret’ new product on Instagram. e.l.f. has already managed to expand from DTC into wholesale accounts while maintaining a direct dialogue with customers online. This means e.l.f. can help Rhode expand to new channels (like Sephora) without losing the DTC intimacy that made it so successful.
2) Stable influencer aesthetic (Expand via awareness and relevance)
When Kylie Jenner launched her brand, she wrapped it in her glam, heavy makeup aesthetic. She often paired makeup posts with brightly dyed hair. Kylie’s highly engaged and growing audience then bought into this look via Kylie’s makeup products. But since selling to Coty, Kylie has shifted her aesthetic to line up more with the ‘clean girl’ look. Gone are the heavy eyeshadows and bold lips. She is still intimate with her audience — but the posts about Kylie Cosmetics feel incongruous with her life, limiting the marketing impact of Kylie’s persona.
For e.l.f., risks are lower because Rhode focuses on skincare, which is more evergreen than a makeup aesthetic. Skincare is ingredient focused, and Rhode can continue to grow sales even if Hailey’s makeup aesthetic changes — giving e.l.f. some certainty about the investment.
Hailey, 28, is also a bit older than Kylie was when she sold Kylie Cosmetics at 22, suggesting that her aesthetic is more defined.
3) History of Product Innovation (Expand via new products)
While fashion is about trends, beauty is about innovation. You wouldn’t go back to a beauty product from 20 years ago. Successful beauty brands are those who continue to innovate.
e.l.f. has proven itself to be a consistent product innovator — its Power Grip Primer and Halo Glow Liquid Filter both command legions of fans by offering fresh benefits at unmatched prices. Rhode is also an innovator — multiple times over during Rhode’s 3 year lifetime. Hailey Bieber partnered with dermatologist Dr. Dhaval Bhanusali and chemist Ron Robinson to bring science into her skin products. She also launched innovations in packaging (Pocket Blush), product (skinification of lip liner via Lip Shape and gloss via Peptide Treatment) and marketing (Rhode phone case) to offer newness to audiences. Her low number of SKUs are an asset; she has managed to turn each of her products into a hit, and there is still a wide space of future products to expand Rhode to in the future — offering a path to positive return for e.l.f..
Compare this to Kylie Cosmetics. Kylie achieved massive success with her viral lip kits, which quickly became the hero product for the brand. However, she has yet to replicate that success across other products, despite expanding Kylie Cosmetics into eyeshadow palettes, concealers, and blushes.
e.l.f. would have had access to the Rhode product roadmap in their due diligence process, and e.l.f. ‘s press release on the acquisition mentioned innovation as a key point of similarity between the two companies. This comment, in addition to the $1 billion price tag, suggests that e.l.f. is bullish on Rhode’s upcoming launches and has faith that Bieber and Rhode can deliver:
“This powerhouse alliance between e.l.f. Beauty and rhode is built on both brands’ shared focus on disruption and product innovation, setting the stage for transformative global expansion.” - e.l.f. Press Release
It’s tough to say exactly what will happen with e.l.f. and Rhode. Most of the discourse focuses on Hailey Bieber’s red-hot brand — which is a key asset in the transaction. But hotness is transitory. The formula for a great acquisition (particularly one backed by heavy financing) is growth and synergy (almost as sexy as brand, I know). Behind these is a set of serious questions: Do we have the operational fit to grow this brand as we expand its distribution to new channels and markets? Do we have a set of products to launch to keep up interest? And will our key asset — the face of the brand — continue to be an asset in our marketing?
e.l.f. is making a 1 billion dollar bet that the answer is yes.
