Lady Gaga chooses Amazon

On Tuesday, American pop singer Lady Gaga announced a line of beauty products that will be sold exclusively on Amazon (AMZN). Lady Gaga is a well-known celebrity and recently shared an Academy Award for the original song “Shallow.” The celebrity said she chose to partner with Amazon, as the company let her build her own brand according to her style and image, according to The Business of Fashion.

Lady Gaga’s beauty product brand, Haus Laboratories, is slated to be launched in September for shoppers in many countries, including the US, Germany, and Japan. The brand, Haus Laboratories, is expected to boost the retailer’s traffic, owing to Lady Gaga’s popularity. Amazon stock gained 1.84% on Tuesday and closed at $1,988.3. Like Amazon, cosmetic brand Sephora’s parent LVMH has also launched a beauty product line by Rihanna.

Amazon Bets on Cosmetics with Lady Gaga: Should Rivals Fear?

Amazon’s interest in cosmetics space

Amazon has been showing an interest in the cosmetics business recently. In March, Amazon launched its first skin-care line of products under the label Belei on its platform. The Belei brand features a collection of around 12 skin-care products, including cleansing wipes, moisturizers, masks, eye creams, and serums. The move to sell Lady Gaga’s beauty products’ line-up is likely to further boost the online e-commerce retailer’s presence in the cosmetics market, which is growing at a rapid pace.

According to eMarketer, Amazon’s sales of health, personal care, and beauty products reached $16 billion in 2018, around 38% higher on a year-over-year basis.

According to the reports of OrbisResearch.com published in Reuters, the global cosmetic products market, which was valued at $532.43 billion in 2017, is expected to grow at a CAGR of 7.14% during 2018-2023 and reach a market value of $805.61 billion by 2023, owing to the strong demand for anti-aging products for skin and hair.

Threatening to peers

Amazon’s expansion in the cosmetics business is likely to threaten cosmetics rivals including Ulta Beauty (ULTA) and Sally Beauty Holdings (SBH), as they might lose market share to the well-known industry disruptor Amazon. Notably, the shares of cosmetics and skincare companies Ulta Beauty and Sally Beauty dropped 1.19% and 2.77% on Tuesday to $348.48 and $11.93, respectively, after Lady Gaga chose Amazon to sell the beauty products under Haus Laboratories brand exclusively. At this price, Ulta Beauty and Sally Beauty have a market capitalization of $20.37 billion and $1.44 billion, respectively, as of July 9.

Notably, in the last week of June, beauty retailer companies’ stocks, including Sally Beauty and Ulta Beauty declined after Amazon announced its entry into the beauty space. According to Jefferies, as pointed out in a Reuters report, “We expect Amazon to quickly become an important enough channel for brands to carry their top offerings on the platform.” Meanwhile, DA Davidson analysts believe that Amazon’s expansion in the beauty industry would likely hit Sally Beauty more than Ulta Beauty.

Amazon’s diversified business

In the past, Amazon’s entry into any new sector has disrupted the whole industry. Amazon has already expanded into music and video streaming services, healthcare, smart home devices with Alexa, and producing original television shows and series to generate revenue. Amazon Prime’s subscriptions for audiobooks (Audible) and ebooks (Kindle Unlimited) are also gaining momentum. Amazon is also focusing on brick-and-mortar sales through its Whole Foods division.

Berkshire Hathaway (BRK.A) revealed in May that it had taken a stake in Amazon, which has been delivering profits from businesses like cloud, advertising, and third-party seller services. Amazon has also fully integrated Whole Foods and is expanding in newer markets. In Q1, even though Amazon reported sluggish revenue growth of 16.9%, the company posted higher profit margins.

Amazon has a market cap of $978.9 billion, which takes it to the second position after Microsoft (MSFT), which is worth $1.05 trillion as of July 9. Apple stands in the third position with a market cap of $925.9 billion.

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