February 4, 2015
Macy’s to acquire luxury beauty products retailer
Macy’s has reached an agreement to acquire Bluemercury, a luxury beauty products and spa services retailer, for $210 million in cash.
Bluemercury, which currently operates about 60 stores, many with in-house spas, as well as an online business, is led by co-founders Marla Malcolm Beck and Barry Beck. The Becks will continue in their respective roles as the CEO and COO of the Bluemercury following the close of the deal, which is expected to take place by May 2.
"Beauty is a core signature business for Macy’s and Bloomingdale’s and a continued platform for our company’s profitable sales growth," said Terry Lundgren, Macy’s chairman and chief executive officer, in a statement. "With Bluemercury, our company can access a new channel to reach additional customers, add new dimensions to our product offering and apply our expertise in omni-channel retailing."
Macy’s plans to continue operating Bluemercury as a standalone business while adding the brand’s boutiques inside the chain’s department stores.
Macy’s, Inc., which operates 825 stores under the Macy’s and Bloomingdale’s banners, announced yesterday that it expects its full-year profits to top its previous guidance. The company is now looking to report earnings per share between $4.35 and $4.37. On Jan. 8, the company offered guidance in the $4.25 to $4.35 range.
Discussion Questions
What is your assessment of Macy’s deal to acquire Bluemercury? What will Macy’s do for Bluemercury and what will Bluemercury do for Macy’s?
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Macy’s leadership has made some exceptionally great calls, and this is probably one of them. Now Macy’s will have its own private label beauty brand with significant expansion potential. Smart.
As usual, this seems like a smart move for Macy’s. In today’s market where interest is concentrated at two opposite ends of the spectrum—large scale one-stop shopping or small, specialty experience with expert consulting—this allows Macy’s to have the best of both worlds.
Keeping Bluemercury’s CEO and COO in place and operating as a stand-alone business is a thoughtful choice which will allow the perks of a specialty experience to still be felt, but they will now have the might of Macy’s, Inc. behind them, helping them to operate with the most efficiency and profit.
This category management move provides incremental growth for Macy’s. It should also boost Bluemercury brand recognition, product movement and revenues, particularly from the online side.
Based on the November Prosper Monthly Consumer Survey of 6,500-plus adults, the Macy’s shopper spends, on average, $41.72 per month on health and beauty aids. That’s a 23.4 percent higher figure than the average consumer who spends $33.81 per month. The Macy’s shopper who chooses that department store to shop MOST often, has a monthly spend on HBA of $60.55.
Both the Macy’s HBA shoppers who frequent Macy’s MOST often, and the Macy’s shopper provide a solid net promoter score for Macy’s—an increase of 22.8 percent for the former and 9.3 percent for the latter. Important to keep in mind that the vanity of beauty products takes women to many channels. Fully 75.5 percent of Macy’s core shoppers choose to shop discount and drug Stores MOST often for HBA. Bluemercury will help hold shoppers in-store for longer periods of time, and with greater frequency.
Smart move on Lundgren and team’s part.
It’s a good one. Macy’s has seen in-store concessions work well with other categories and with the beauty category’s popularity it just makes sense to put a stake in the ground.
The beauty product market has always been a boon. I seem to recall that during the recession, beauty and guns were the two hottest markets.
Department stores have always taken a back seat in this market and as far back as I can remember, the cosmetic departments were largely subsidized by the vendors.
So I say kudos to Terry Lundgren, once again! This is a very smart and likely very profitable market. Can’t wait to see where it goes. BTW, I love the cruise ship and hotel foray, Joan.
And that’s my 2 cents
The challenge will be the same as when any small company is swallowed up by a larger one (or even when a small company wishes to grow larger): expanding the brand, but not so much as to eliminate its aura of exclusivity. I suspect this will be much more for the Bloomingdale’s side of Macy’s, Inc. than the Macy’s side.
Macy’s is smart, smart, smart. They stand to gain huge credibility among an affluent group of female shoppers,while building beauty chops. Great move!
Bluemercury is now captive…hopefully the brand experience will remain high.
The problem(s) associated with bringing chemical formulas requiring a stringent repeat accuracy in any or all performance parameter(s) is the inability to project production timing and costs accurately. The single largest contributor to failed attempts of this kind is the company’s inability to meet market production needs with same product. The purchase of a boutique small/medium business like this is likely to be about one third of the total front-end sunk costs of an investment like this.
The rewards for success are always extremely appetizing for investors with the ability and practice in making deals like this. The downside of making assumptions or having faith in others abilities is and will be the cause of death for many a healthy company. The second and third chapter of this investment story will make good reading for those that make time to follow this story, no matter what the results are.
Great Deal! Penney’s benefits from its close relationship with Sephora and now Macy’s has its own high-end beauty brand! Macy’s will be able to keep a high-end experience with Bluemercury if they set their minds to it. It has great potential.