Post Your Comment
Jamie Kern Lima wants to turn IT into the world's largest beauty brand
Former news anchor Jamie Kern Lima began testing makeup a decade ago to help cover her red, blotchy skin. That experimentation led to the creation of IT Cosmetics, which L'Oréal snapped up in 2016 for $1.2 billion. Now she's plotting to turn IT into the largest beauty brand in the world
Image: Jamel Toppin for Forbes
Fifty women start lining up outside an Ulta Beauty store in northern New Jersey at 7.30 am on a winter Saturday, here for a two-hour workshop in makeup application taught by employees of IT Cosmetics. An hour and a half later, IT Cosmetics’ founder, 39-year-old Jamie Kern Lima, arrives. She’s wearing a bright-pink dress and pumps, and her light-brown hair is pulled back in a low ponytail, accentuating her flawless complexion. She points to her right cheek and then wipes off her makeup to reveal red blotches that “feel like sandpaper”. She pauses, then applies colour-correcting cream across her face. In seconds, the spots are undetectable. “For so long, we would never see real,” she says. At the end of the class, the participants—including a lupus patient whose brows and eyelashes have fallen out, an emergency-room nurse and a construction worker—line up to meet her and rave about her products.
Kern Lima, who has a skin condition called rosacea, which causes redness, has been putting on this show since 2010. That’s when she began peddling her corrective products—hybrids of skin care and makeup—live on the QVC home shopping channel. Since then, Kern Lima has appeared on TV hundreds of times, and IT Cosmetics, which stands for Innovative Technology, has been mentioned in 8.4 million YouTube videos. On Facebook, the brand is shared or commented on an average of 3,600 times a day, according to analytics firm ListenFirst Media. “When women find something that works, they tell somebody. That’s really how we grew,” Kern Lima says.
She calls her loyal customers “IT Girls”. But it’s Kern Lima who has become the IT girl of the $445 billion beauty industry. Her popularity has helped make IT Cosmetics one of the hottest beauty brands in the country. So hot that the world’s biggest beauty company, L’Oréal, paid $1.2 billion in cash for it in August 2016, the French conglomerate’s biggest acquisition in eight years. Kern Lima, the majority owner, pocketed an estimated $410 million after taxes. She is staying on to run IT, making her the first female CEO of any of L’Oréal’s brands (34 in the US alone) in its 108-year history.
The $28 billion global giant was drawn to IT (estimated 2016 sales of $300 million) by its charismatic founder and its popular products, but the deal illustrates a much larger trend. Right now, the beauty industry is growing at a tepid 3 percent a year. That has driven big players like L’Oréal, Coty and Estée Lauder into bidding wars for the fastest-growing, most fashionable brands, pushing them to pay high multiples. IT, for instance, received numerous offers and was sold for 6.6 times its previous 12 months revenue of $182 million. In all, 62 private beauty companies were acquired in 2016, 38 percent more than the previous year, according to the analytics firm CB Insights. Estée Lauder paid approximately $1.45 billion for Too Faced, an irreverent cosmetics brand known for edgy products like Better Than Sex mascara, and roughly $200 million for Becca Cosmetics, known for its shimmering bronzers, both in 2016. L’Oréal bought Toni Ko’s NYX Cosmetics for $500 million two years earlier.
“The organic growth is just not there for the established brands,” says Hana Ben-Shabat, a partner at the global consultancy AT Kearney and the lead author of the report Shop or Drop: The Inevitable Path for Growth in Beauty, which studied 214 beauty transactions over six years. Beauty conglomerates, she has said, “cannot afford to be inactive in the acquisition game if they want to succeed”.
Mirror, mirror: Kern Lima seated at her reflecting desk, in her glass office
Image: Jamel Toppin for Forbes
Small companies can easily create new products by working with makeup labs, but expanding overseas, with the differing regulations and the need to find local distributors, is nearly impossible. “There are a large number of brands that have to survive in a very competitive environment. The market is not growing fast enough—that’s made M&A almost inevitable,” Ben-Shabat explains.
According to AT Kearney’s concept of “Merger End Game”, based on the analysis of hundreds of mergers, an industry typically approaches a merger tipping point when the top three companies have a combined market share of 45 percent or more, making increased M&A activity likely. The beauty and personal care industry arrived there by the end of last year, explaining the current wave. The beer and telecom sectors similarly went through a period of consolidation about a decade ago.
L’Oréal has high hopes for IT Cosmetics, planning to build it into the most popular makeup brand on the planet. For now, it ranks 35th in the world, according to Euromonitor, well below L’Oréal’s top brands: Maybelline (No. 1; 2016 sales of $4.9 billion), L’Oréal Paris (No. 2; $3.2 billion) and Lancôme (No. 5; $1.6 billion).
Kern Lima is a big part of its gamble. “I’m still driven at this moment the way I was even before the L’Oréal acquisition,” she says. “I’m just scratching the surface of what I have to give and what I have to do.”
The beauty industry has long been a beacon for female entrepreneurs. In the 1940s Queens-born Estée Lauder was selling pots of cream in beauty parlours around New York City. Her heirs are worth $18 billion. In 1995, Bobbi Brown, a makeup artiste-turned-entrepreneur, sold her company for about $70 million, roughly $115 million today. There are now at least 40 prominent beauty businesses founded by women. In part, that’s because the barriers are quite low, says Kern Lima. “I feel like what I’ve done, any woman can do.”
The makeup mogul began honing her drive at an early age. Given up at birth and adopted as a newborn, she grew up in Seattle and at 15 started doing odd jobs such as bagging groceries and coaching gymnastics. The first in her family to go to college, she worked as a waitress at Denny’s to pay her way through Washington State. She graduated as valedictorian.
In 1999, she won a competition to appear on a Baywatch episode and was crowned Miss Washington USA, which led to a stint on the first season of the reality show Big Brother. She changed gears and headed to Columbia University in 2002 to earn an MBA. Kern Lima met her husband, Paulo, in statistics class and began writing for the student newspaper. After graduation she took a job back in Washington at a TV station for $23,000 a year and quickly moved to a Fox affiliate in Portland, Oregon.
Kern Lima left the TV station in 2008, and the couple began bootstrapping in their Los Angeles living room. “If you want something, you figure out how to make it happen,” she recalls from her glassy office in Jersey City, which looks across the Hudson River at Manhattan. Putting her reporting skills to use, she cold-called beauty companies to find manufacturers. An actress who lived in their spare bedroom rent-free spent 20 hours a week putting products in boxes and getting them ready to ship. A graphic designer from her former news station worked with her remotely on packaging.
IT’s first products were contouring kits that included concealers, highlighting creams and bronzers. QVC told her it wasn’t interested.
Just a few months later, shopping channel HSN agreed to feature her dark-circle concealer, which uses a proprietary ‘3D Skin Flex’ technology to allow the foundation to move with facial expressions without creasing.
With ample on-air experience, Kern Lima thought pitching her wares on TV would be fun. But the products didn’t sell, and she wasn’t asked back at the end of her contract. Shopping Channel Canada did see her segment, though, and gave her another chance a year later.
All the while, she was hounding QVC, nearly four times the size of HSN in 2010, to give her another shot at the American market. Allen Burke had been building QVC Beauty since 1997, when the channel started featuring high-end brands like Bobbi Brown and Clinique. After saying no several times, he gave her a chance in the fall of 2010. “Did she go call me after every Canada visit and tell me how she did? Yes,” Burke says, who retired in late 2011 and was hired by IT as a paid consultant in January 2012. To prepare, Kern Lima watched her competitors’ past segments and started figuring out how to connect better with her customers. She wiped the concealer off her cheek (yes, she used under-eye concealer on her face) on TV for the first time. She also hired a 66-year-old woman to appear with her. The products sold out in 10 minutes.
QVC brought her back another four times before the end of 2010, and sales topped an estimated $1 million. “It took us a while to say, ‘Let’s give this a shot’, but it was an instant success from the beginning,” Burke says. In 2011, Kern Lima and her husband, who is co-CEO and largely handles the operations and finances, moved to Bayonne, New Jersey, from California to be within driving distance of the network’s studios in eastern Pennsylvania.
Investors began calling. “You’re so tempted, especially if you were a poor entrepreneur like I was,” Kern Lima recalls. “You’re just hoping for someone to help you grow your infrastructure beyond what you can do yourself.” But she hesitated and did due diligence, ringing up every entrepreneur and CEO who had previously worked with the suitors.
She focussed on a couple: TSG Consumer Partners, a $5 billion private equity firm best known for investments in Planet Fitness and Glacéau Vitaminwater, and Guthy-Renker, the direct-marketing powerhouse that built Proactiv into a billion-dollar acne-treatment brand. Both said no. She waited. “You have to hold your gut and your own belief on a pedestal,” Kern Lima says. “All the ones that had said no finally said yes.”
It wasn’t until 2012, after Ulta Beauty signed a deal to sell the brand, that TSG invested an undisclosed sum. A year later Guthy-Renker followed suit; it got an estimated 20 percent stake in return for the right to package and market discounted kits to be sold on infomercials. Guthy-Renker has spent about $50 million a year buying infomercial spots, according to co-founder Greg Renker.
In 2013, IT Cosmetics rolled out what became its top seller, CC Cream, which took four years and more than 200 attempts to perfect. By 2014 sales hit an estimated $117 million. Another top seller took even longer: Superhero Mascara, which lifts even the shortest lashes by catching hairs through a proprietary elastic-stretch technology and has anti-ageing ingredients in the tint. Launched in February 2016, it took three years and 275 tries to formulate.
Interested in re-creating that success outside the US, Kern Lima began thinking about a buyer early on: “We could [go internationally] on our own for sure—it would just be so much slower. Every entrepreneur learns at some point that you don’t know what you don’t know. From a capacity and infrastructure situation, it would be decades longer if we did it internally” (though she did bring IT to Australia in 2014).
After meeting Carol Hamilton, the head of L’Oréal’s Luxe Division, at an industry conference in 2013, Kern Lima followed up with a handwritten thank-you note, which is currently on display in Hamilton’s office. Hamilton visited IT later that year and walked out the door thinking it was the most powerful brand she’d seen in a long time. “I realised the connection that Jamie had with women was authentic,” Hamilton recalls. “She absolutely has a fierce desire to make every woman realise her best self. A lot of women might say that, but her commitment was what made me really convinced that her brand was going to continue to be on fire.”
While both parties were smitten, there were several false starts. After talks fell apart one time, Hamilton called Kern Lima to give her the bad news and told her not to give up. Kern Lima’s response: “I am certain someday we’re going to be part of the L’Oréal family.”
Kern Lima considered taking the company public and also went ahead with plans to expand into Southeast Asia, the industry’s fastest-growing region. One week before that launch, the sale to L’Oréal finally went through. TSG founder and CEO Chuck Esserman recalls Kern Lima telling him IT would be the best investment he ever made. “Every entrepreneur tells me that. In Jamie’s case, she did it,” says Esserman. Forbes estimates his firm made 25 times its money on the sale, while Guthy-Renker pocketed approximately $150 million.
Under the L’Oréal umbrella, IT Cosmetics will have the resources to ramp up quickly. In addition to international expansion, there will likely be stand-alone stores and more products, such as its first face wash, called Confidence in a Cleanser.
Days after the sale, Kern Lima and Hamilton got on a plane for Singapore, followed by Thailand and Malaysia. Hamilton admits she was anxious to see how IT would translate in Asia. She got quick relief inside Singapore’s biggest mall, where women who had just met Kern Lima were suddenly crying. Back at L’Oréal’s headquarters, Hamilton smiles, promising the deal was well worth it: “She allows herself to be vulnerable in front of women. She knows how to tap into that and make us believe in ourselves. Confidence is not something that is defined by national boundaries.”
