Introduction
Carlyle, a global private equity firm, manages $425 billion in investments across diverse sectors, including aerospace, renewable energy, and infrastructure. However, one of its significant investment failures this year centered around a skincare company. This blog explores the rise and fall of Beautycounter, a skincare brand Carlyle invested in, detailing the challenges and setbacks faced by the company and its investors.
Carlyle’s Investment in Beautycounter
Initial Investment and Expectations
In May 2021, Carlyle invested approximately $600 million in Beautycounter (Valued at $ 1 Billion in 2021), a skincare company founded by Gregg Renfrew. Renfrew's mission was to create cosmetic products free from commonly used chemicals, distributing them through a multilevel marketing (MLM) model. Carlyle, having seen success with other consumer products, aimed to raise Beautycounter’s annual sales from $400 million to $1 billion and eventually take the company public.
Strategic Vision
Beautycounter, based in Santa Monica, California, became known for its "clean beauty" ethos, promising to avoid using harmful additives. The company leveraged a network of independent sellers, mainly women, who promoted and sold the products. This model drew comparisons to Mary Kay, but with a modern twist focusing on clean beauty.
Challenges and Setbacks
Decline in Sales and Seller Enthusiasm
Shortly after Carlyle's acquisition, Beautycounter began to experience a decline in sales and a drop in seller enthusiasm. Carlyle attributed this to post-pandemic changes and increased competition. In response, the firm brought in Marc Rey, a seasoned executive from the mainstream beauty industry, to replace Renfrew as CEO.
Controversial Compensation Changes
One of the pivotal changes under Rey’s leadership was a new compensation plan that significantly reduced commissions for top sellers. This move was aimed at making the company more profitable but led to widespread dissatisfaction among sellers, many of whom saw drastic reductions in their income. The backlash was swift, with sellers feeling betrayed and the open dialogue with Renfrew disappearing.
Legal and Operational Issues
The company also faced legal challenges, including lawsuits from sellers over changes to compensation and non-solicitation agreements. Additionally, technological upgrades to Beautycounter's website, intended to enhance the user experience, resulted in frequent crashes and functionality issues, further exacerbating the company’s problems.
The Final Stages
Leadership Changes and Financial Struggles
By the end of 2022, Renfrew had left the company, and Carlyle infused an additional $65 million to stabilize operations. Despite efforts to revive sales, including a partnership with a major beauty retailer, sales continued to decline. In May 2023, Rey was asked to resign, and Mindy Mackenzie, a Carlyle executive, took over as interim CEO, implementing staff cuts and cost-saving measures.
Carlyle’s Exit
In March 2024, Carlyle handed over Beautycounter to its lenders, Bank of America and JPMorgan Chase, effectively writing off a $700 million investment. This marked one of the worst investments in Carlyle's history, highlighting the challenges of managing an MLM-based business in the evolving beauty industry.
Conclusion
Carlyle’s investment in Beautycounter serves as a cautionary tale about the complexities and risks associated with multilevel marketing models and the clean beauty industry. Despite initial optimism and substantial financial backing, the company faced insurmountable challenges that led to its downfall. As Carlyle exits the U.S. consumer and retail sectors under new leadership, the experience with Beautycounter underscores the importance of aligning strategic vision with market realities and maintaining strong relationships with key stakeholders.
Sources: The New York Times + Bloomberg
