What Went Wrong at Coty?

When Coty went public in New York on June 13, 2013, at a share price of $17.50, the initial public offering was one of the largest for a consumer products company at the time.

What a difference a decade-plus makes.

As of presstime, the company’s stock closed at $2.51, battered by questionable business decisions, an almost continual churn in the C-suite and a multibillion-dollar transaction that never quite took root.

Now all eyes are on Markus Strobel, the former president of Procter & Gamble’s skin care and personal care business, who assumed the role of executive chairman of the board and interim chief executive officer of Coty Inc. on Jan. 1, succeeding former L’Oréal executive Sue Nabi, whose tenure started off strong but soon went south. One of the more notable aspects of her tenure was her stratospheric pay package, with the executive earning an estimated $463.7 million during her five-year tenure.

In his first earnings call on Feb. 5 since being appointed, Strobel was forthright about the challenges facing the storied beauty company — and hinted at the underlying issues left behind by Nabi. He unveiled a turnaround plan he called “Coty Curated,” which calls for sharper priorities, more focused investments, improved execution and increased support behind its core businesses. The company also stressed that it has deleveraged by over four times since 2021.

“This leadership transition marks a fresh chapter grounded in realism, discipline and focus,” Strobel said. “Going forward, we will be transparent about what works and what does not. We’re going to set balanced near- and long-term targets. We’re going to concentrate our resources where they matter most, and we’ll continuously review our portfolio to unlock value. Consumer demand is our North Star, and we have a clear emphasis on focus, execution, sharper priorities.

“I’m confident that Coty will improve,” Strobel continued. “It will take time, but progress is already underway. As I said in my prepared remarks, it will not happen overnight, but it will happen.”

It’s a tall order. Much needs to be done to restore the luster. At its peak in 2015, Coty’s stock price rose to $32.70. When Nabi stepped into the CEO role on Sept. 1, 2020, that figure was closer to $3.70.

“The stock has also been hovering around $3 for several months, which I see as a signal that investors are skeptical about Coty’s long-term ability to compete in beauty, sustain fair market share and deliver consistent, profitable growth,” said Strobel. “Both things are true: Coty has outstanding assets and capabilities, and we have not been delivering at the level we should.”

Despite Strobel’s reassurances — and a 10 percent increase in revenues in Coty’s core prestige fragrance category from 2021 to 2025 — analysts are still fairly skeptical, needing to see proof that the turnaround strategy is working in order to regain confidence in the company.

In an unusually frank note, Barclays analyst Lauren Lieberman wrote: “For the better part of the past 2+ years we’ve found it difficult, quite frankly, to listen to Coty’s prepared remarks and Q&A calls, as it has felt like the company was so out of touch with its challenges, let alone the notion that forward guidance each quarter felt unattainable.” 

Robert Ottenstein, an analyst at Evercore, wrote: “While Coty’s valuation provides downside support, buying the shares requires conviction that operational efficiencies can coexist with — not crowd out — the creativity and speed required to compete in makeup and fragrances. In our view, this remains the central debate around Coty 4.0 and the key uncertainty underpinning the equity story.”

“While exiting unproductive activity is constructive and management recognizes past missteps, we maintain a cautious stance, as the company continues to lean heavily into fragrance despite persistent category-level share challenges. Consumer beauty remains the primary drag, though the turnaround plan is now fully activated under new leadership,” added Sydney Wagner, an equities analyst at Jefferies. “Our Hold thesis is based on slowing fragrance growth, mass beauty underperformance and lack of visibility for return to growth.”

What Went Wrong?

Not long after Nabi became CEO, the company looked to have a new recipe for success. But behind the scenes prior decisions continued to weigh massively on the business, while many future choices would only prove to weaken it further.

“It is one of the biggest apocalypses of the rise and fall of a [beauty] company in such a short period of time,” said one industry source, of Coty’s trajectory. “It’s very unusual. It grew, then it was dismantled. It’s shocking.”

To truly understand the beginnings of Coty’s current struggles, industry sources point to 2016. That was when Coty acquired 41 beauty brands from Procter & Gamble, including color cosmetics lines CoverGirl and Max Factor, plus a slew of professional hair brands, in a transaction valued at $11.6 billion. The deal was engineered by then-interim CEO Bart Becht, and former CEO and chairmen Peter Harf, chairman and managing partner at JAB Holding Co., Coty’s majority shareholder. Harf retired as managing partner at JAB last August, and in December left as chairman of Coty.

As part of the deal, Coty — which was at its apex thanks to the company’s expansion in the prestige fragrance category through acquisitions or net organic growth and licensed deals — assumed $1.9 billion in debt for the specialty beauty business. At the time, analysts stressed that it would take much investment in marketing and innovation to revive the declining brands. It soon became clear that the debt load made those tasks difficult. 

WWD also understands that since the sale was structured as a Reverse Morris Trust, P&G continued to oversee the brands for around 18 months, during which many of their top executives were moved to other parts of P&G’s remaining business and investments were low.

Stepping in as interim Coty CEO as the merger was underway and soon after Coty went public in 2013 was Becht, formerly CEO of consumer goods company Reckitt Benckiser. “He tried to commoditize beauty, and that was the death knell,” the industry source said. “Another part of his misread of the category was he got rid of all the people who created the success of the company.”

Instead, Becht brought in more Reckitt executives. “There was a cultural disconnect,” the source said.

“The fundamental issue is that Coty never should have acquired the [P&G] mass-market division because most of the brands, especially CoverGirl and Clairol, were really run down and the brands had lost appeal,” said another industry source, adding that the way in which the sale was structured was hugely detrimental to Coty. Moreover, P&G brands’ integration into Coty was not smooth going. Each company had its own corporate culture, which added to the complications.

The same source pointed out that when those brands were part of P&G, retailers stocked them because they needed to protect their relationship with the CPG giant. But after the sale to Coty, retailers dropped some of the brands.

During the most recent earnings call, one analyst pointed to the P&G deal, asking what’s changed and what gives management confidence that Coty can still win with those brands. 

For his part, Strobel, who spent his career at P&G, said: “I cannot comment on what went down 10 years ago. I was running the SK-II brand at that time in Asia far away. If you look at, for example, the history of CoverGirl in the last few years, there has been a lot of back and forth on the positioning on the equity, right? A brand for all the consumers and then suddenly tried to make it a full Gen-Z brand, which obviously did not work, and then back again and back and forth.”

In turn, Coty’s luxury business had to financially support the consumer business, sources close to the company said.

In addition, prior to Nabi’s appointment, sources pointed to the fact that Coty was weighed down by two other factors. First, in-house manufacturing meant that its product development process took around 18 months, while competitors using third-party manufacturers could move at a much quicker pace. Second, when the color boom of 2015-’16 switched to skin care, Coty was not positioned to compete in that key category.

Then there’s Coty’s revolving door of CEOs: Between 2010 and the present day, the company has had eight of them.

Adding to the complexity and focus of the business, it was announced in November 2019 that Coty had forged a long-term partnership with Kylie Jenner for a 51 percent stake in her Kylie Cosmetics and Kylie Skin brands, for $600 million. 

Then the Nabi years began.

“They brought in Sue Nabi, who I believe was the best of them,” one source said. “She resuscitated the culture pretty well with some marketing wins.”

The source said Nabi, who inherited a financially stressed company, is strong in innovation and marketing. 

“I think she was valiantly trying to rebuild the company, but she wasn’t a structural CEO,” said the source. This person suggested a good move would have been to restructure Coty so it did not have so many small brands, to sharpen the focus.

Others questioned Nabi’s main focuses while leading Coty, particularly the atypical tie-in with Orveda. After leaving L’Oréal, Nabi and her partner Nicolas Vu cofounded the prestige, vegan skin care brand, which was launched in 2017.

When Nabi joined Coty as CEO, she no longer had any ownership of the brand and played no formal role in it, with Vu listed as sole owner. But then, in late 2021, Coty entered into a licensing agreement with Orveda, at which Vu served as CEO. 

Coty said in a press release at the time: “Nabi’s deep understanding of the Orveda brand coupled with her vision for Coty’s long-term skin care strategy makes Coty the ideal partner to accelerate Orveda’s growth.”

Coty invested heavily in the brand — with multiple sources saying that tens of millions of dollars were spent. There were openings of numerous freestanding Orveda stores in prime locations, including in Paris, New York and Shanghai. But the brand is understood only to have generated sales of $5 million in 2024.

Coty last week revealed it has terminated its license with Orveda.

Resources were also poured into Infiniment Coty Paris, the high-end niche perfumery brand — with a full collection, freestanding boutique and various corners — which Nabi created with Vu. It was launched to celebrate Coty’s 120th anniversary in 2024 and marked the rebirth of the Coty Paris brand. It was an integral part of Nabi’s overriding strategy for Coty — to “undefine” the notion of beauty. 

Despite the growth of the niche fragrance market, Infiniment was not a commercial success.

Most damaging, though, both from a perception point of view in the short term and a revenue perspective in the longer run, was the news that L’Oréal will be taking over Coty’s crown jewel license of Gucci when its license ends in 2028. The beauty giant signed a partnership with Gucci’s parent, Kering, in which it agreed to a 50-year partnership with Kering once Coty’s rights end.

The move came around the time that rumors swirled that the company was considering divestitures. In September, Coty revealed that it’s started a strategic review of its mass color cosmetics business and its operations in Brazil, assessing a full range of alternatives including partnerships, divestitures and spin-offs.  This is understood to still be underway.

What Now?

As for the question of whether Strobel can revive Coty and regain investor confidence, Susan Anderson, managing director for Canaccord Genuity, believes it’s possible, but stressed that investors need certainty, which an interim CEO does not necessarily provide.

“The question is, is he going to be there permanently or not?” said Anderson. “There’s no permanent CEO so investors don’t want to invest into a company with no permanent CEO, where a month later or three months later, the strategy could change, right? So they need to figure out something more permanent, whether it’s going to be him or someone else to give investors more stability into the future.”

TD Cowen’s Oliver Chen agreed. “Other competitors have been able to make decisions faster,” he said. “And at Coty, as with all companies, you really need leadership consistency.”

Still, there are glimmers of hope, given the strength of Coty’s fragrance business and the fact that it now has more cash for investment, having sold its remaining stake in Wella. Anderson believes the task can be done, but it’s going to take time.

“They have some great brands, and a lot of them, when you look at the sell-out data, particularly the prestige fragrance brands, most of them are still doing pretty well,” she said. “There’s been that mismatch between sell-ins and sell-outs, as the retailers destock and bring down inventory. But in general, their brands are still pretty strong.

“But investors really want to see the sales turn on the top line,” continued Anderson. “So it’s hard to say how long before we get there.”

Then there’s the consumer side of the business, particularly Cover Girl, now a perennial thorn in Coty’s side. “That’s the part that they really need to revitalize,” said Anderson. “It’s not usually a one-year fix. Usually it would take a couple years to get it back on track so it’s not going to be an overnight fix.”

The Coty chronicles, it seems, continue.