Douglas Holding: Beauty Retail M&A Challenges

Former Managing Director and Board Member, LVMH Italy.

Why is this interview interesting?

  • What are the considerations to make when purchasing a retailer following a roll-up strategy?
  • What are some of the key integration challenges to consider when acquiring and integrating retail operations?
  • What drives Sephora’s higher sales per square foot versus Douglas?
  • What is the key synergy from rolling up beauty retailers?
  • What are the exit opportunities for CVC with Douglas?

Executive Bio

Antonio Ferreira de Almeida

Former Managing Director and Board Member, LVMH Italy.

Antonio has over 12 years experience in beauty retail after joining LVMH as General Manager of Sephora Portugal in 2008 where he had full P&L responsibility of 25 stores in the country. In 2011, he was then promoted to the board of LVMH Italy and was responsible for Sephora’s Italian division which was over 180 stores and 280m EUR turnover. During his time running Sephora Italy, Antonio carried out due diligence on Limoni which Douglas eventually purchased in 2015. Antonio left Sephora in 2015 and has worked for other leading beauty retailers in Switzerland and Alshaya in the Middle East and is now an independent consultant in the industry. Read more

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Interview Transcript

If we wind back to 2015, CVC purchased Douglas with a strategy of rolling up retailers across Europe. What was your view on this strategy? Do you think this broadly makes sense, given the fragmented nature of Europe and the different customer bases?

Sephora Italy initially started with three acquisitions, acquisitions of local/regional chains in Italy. The starting point of Sephora Italy was putting together these three beauty chains and transform them into the Sephora beauty retailer with a very specific concept. I saw all the limitations and difficulties of launching an operation through acquisition of other smaller beauty retailers. In the case of CVC and Douglas, it’s different. We’re talking about an investment fund that decides to buy a beauty retailer that has a very strong position in Europe. Where they want to make a financial operation and decide to buy Douglas to make a bunch of acquisitions in order to create Europe’s strongest beauty retailer.

The beauty industry has always attracted a lot of investors because it’s normally not cyclical. It goes against the tide. Very often, you have strong crisis that you don’t really feel on the consumer side in the beauty area. It’s a very particular and a very attractive business area. I understand why all of these investment funds decide to work and invest in this area. Today, there are two main principle areas where the investment funds are digging. One is beauty and the other one is food. These are the two retail areas where the margins are quite high. Definitely higher than in other areas such as textile or furniture. You have this situation where on traditional retail operations, the two most demanded areas are these ones, food and beauty. I understand that these investment funds looked at Douglas, but the situation was much more complex than what they thought. Later on, they got into an even more complicated scenario, when they started making further acquisition such as Limoni and La Gardenia in Italy, or Bodybell in Spain and so on. Nevertheless, we’re talking about a very strong beauty retailer, definitely the most important beauty retailer in Europe, if you consider only the European territory. Douglas is being totally relaunched. They’re developing their online activity. The online combined with the offline, a total 360-degrees omni channel approach, is something that is totally necessary, and the customer is definitely expecting to get that from the market.

The problem with Douglas since they were acquired by these investment funds was that they concentrated very much on external growth, instead of concentrating on their own core business. They forgot they needed to concentrate on the consumer. In the beauty retail world, the most important thing you have to do on a daily basis is concentrate on what the customer is looking for. You need to create innovation on the point of sale, you need to create this wow effect that you bring into your channels, both physical channel with the stores or the online channel. This is something that for quite a while, Douglas has left behind. I would say that between 2015-2018 Douglas was very much concentrated on acquiring market share across Europe, instead of concentrating on their core businesses.

Nevertheless, they’ve made a lot of progress this year in 2019. They are integrating their acquisitions, which is very good news. They are changing the store concepts. More importantly, they are innovating the product offer based on what the consumer is looking for. This is something that is extremely important for the future, it’s definitely something that is happening right now. I truly believe that they are on the right way. I believe it will be something that comes to a positive result. There’s still a long way to go. There’s still a lot to be worked on. They are still very far away from a perfect situation. They still have to do a lot of investment. They have done good work on the online channel, which is good. It’s there. I believe the company will come to a good success story.

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Douglas Holding: Beauty Retail M&A Challenges(October 31, 2019)

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