Hi, and welcome back to Line Sheet. Thanks for all the Fashion People love: We made it pretty far up the Apple Podcasts Arts Top 10 chart, which seems good since Fresh Air is No. 1? If you haven’t listened to the inaugural ep with special guest Jacob Gallagher, WSJ men’s fashion columnist, please do so here. (He’s the best.)

Also, huge thanks to everyone involved with Fashion People, from Isabella Lichauco for the fun and funny artwork, to the Puck sales team for commercializing it, to Audacy’s Bob Tabaddor, our producer, for making it sound fantastic, to Ben Landy for managing everything gracefully, and to Jon Kelly for being Jon Kelly. I’ll be back with a new episode on Friday!

Today, one of the great loves of my professional life, Rachel “[email protected]” Strugatz, is here with the real story of what happened with Beautycounter, which founder Gregg Renfrew transformed from Avon for rich millennials into one of the biggest clean beauty brands on the planet, with backing from the Wertheimer family office, The Carlyle Group, and other serious investors. That is, until it all went to the dogs. Now, Renfrew, who was pushed out of the business a few years ago, is back to save her baby, and Rachel has the details you won’t read anywhere else. I’ve tacked on some stuff, too: YNAP layoff news, an analysis of Kering’s bad day, and some thoughts on Tapestry’s worse day. At least we can all toast to the Lyst Index.

One programming note: Yes, I am well aware of the speculation that none other than Michael Freaking Rider (I’m a fan) might be headed to Celine. I heard conflicting reports yesterday, but one source was pretty insistent it was happening. More on this tomorrow—and Hedi Slimane’s destiny, too.

Finally, Puck just announced that Big Deal Journalist John Heilemann has joined the partnership as our chief political columnist. Reminder: If you still haven’t subscribed because you’re nothing but a baby, quit it and sign up immediately. Puck is a thing! But above all, it is necessary in these times.

Mentioned in this issue: Beautycounter, Gregg Renfrew, The Carlyle Group, Michael Rider, Celine, Hedi Slimane, the Lyst Index, John Heilemann, YNAP, Lina Khan, the Wertheimers, Tapestry, Capri, Kering, François-Henri Pinault, Francesca Bellettini, Gucci, Sabato de Sarno, Gwyneth Paltrow, Kim Kardashian, Phoebe Philo, and many more.

• There were layoffs at YNAP on Tuesday: I’m told Mr. Porter—which is still in business, despite rumors that it may be shut down—was hit. Were you on the list? I’m sorry. Also, call me. +1 646-241-3902.
• Eek, so Lina Khan did sue to stop the Tapestry-Capri deal: On Monday, the Federal Trade Commission said that the deal “threatens to deprive millions of American consumers of the benefits of Tapestry and Capri’s head-to-head competition, which includes competition on price, discounts and promotions, innovation, design, marketing, and advertising.” Umm, “deprive” is a strong word, and I see what they’re saying on the innovation piece, but again… this is a heavy way to describe what’s happening inside the walls of these companies. The F.T.C. also noted that the deal would make it harder to get a raise for the 33,000 people who would work at the combined group. That, at least, seems like a fairer argument.

  The F.T.C. also suggested that Tapestry coined the term “accessible luxury.” Really? Who at Tapestry? Reed Krakoff, when it was still Coach? I want the backstory. Anyway, Tapestry and Capri plan to fight the case in court. If they lose, I laid out some scenarios on Monday for what could happen next. But there is, my friends, a chance that they won’t. Eriq Gardner, my Puck partner and our legal correspondent, explained to me that Tapestry and Capri are “aided by the fact that the F.T.C. had to go to a federal court to get an injunction on the deal closing.” In other words, the F.T.C. does not appear to be on its favored footing here, and the anti-competitive argument is not the strongest. Stay tuned!

• Kering, Gucci, and the brave new world: Kering’s first-quarter 2024 earnings came out, and the headlines were not good. The group is now projecting that year-over-year profits will be down by 40-45 percent in the first half of 2024, well beyond analyst expectations of a 25-30 percent drop. I went through the presentation and also read my guy Luca Solca’s note to Bernstein investors. (There are other analysts who cover the luxury market, but Luca is the smartest.)

  The bad news is that all the macro issues (post-ZIRP malaise, the Chinese recession, etcetera) are dragging on Kering. Luca was surprised at how far the profits are dropping off, although he commended François-Henri Pinault and deputy group C.E.O. Francesca Bellettini for reducing reliance on the wholesale channel by 20 percent, even though it would have boosted overall sales in the short term. But the major issue here is Gucci, the group’s profit center. Management insists that direct retail, which accounts for 90 percent of the brand’s sales, is suffering because there just isn’t enough new Sabato de Sarno product in stores. (It represented less than 7 percent of overall sales. By the second half of the year, the offering will be 100 percent Sabato.) The company is certainly sticking with De Sarno, underscoring that “further investments to support the new chapter” are planned.

  Sure, sure, sure, but… there are two things Gucci needs to look out for. First, even if De Sarno’s vision of mod minis and platform loafers is a hit in the West, the Chinese might be slower to adapt. As one executive said to me recently, the archetypal Chinese consumer gloms on to trends with the same fervor that they hold on to styles they previously loved. And the Alessandro Gucci style is still prevalent in the market. Again, no one is shorting De Sarno, but it seems like the company knows adoption will be a gradual process.

  The other, potentially more existential issue, is pricing. Many luxury brands, including Gucci, have increased their prices significantly over the past few years—partly to cover the rising cost of raw materials, partly to remain in step with their competitors, and partly to make up for the fact that they’re selling fewer bags. Gucci’s pricing is not crazy—the small shoulder bag is $3,200—but it’s tough to get the price-value equation exactly right. Just something to watch.

  As for the other brands, Saint Laurent was relatively steady (especially when accounting for the wholesale pullback in the U.S.), and Bottega Veneta was downright promising, with overall sales up 2 percent on a comparable basis, and direct sales up 9 percent. Another note: Balenciaga sales were up in North America, and sales at Brioni were up by double digits. On Thursday, Kering will hold its annual company meeting, where I imagine that Pinault will directly address the situation.

• And now, for some good news: The Q1 Lyst Index, fashion’s favorite barometer for the brands that people are actually buying, was released today. (Also, yes, Lyst is a sponsor of this newsletter. This item is not sponcon.) In the first quarter of the year, Miu Miu was unsurprisingly the hottest brand, with sales up 89.4 percent. The top five was rounded out by Prada, Loewe, Bottega Veneta, and Saint Laurent. (Not gonna tell you how many of those brands I bought items from in Q1.)

  Balenciaga is climbing back up the ranks, reflective of its sales bouncing back in the U.S. New Balance, fashion’s favorite collaborator, made the list for the first time, coming in at 15 out of 20. Alaïa made its Lyst debut at 19. (The rankings are determined by looking at searches on and off Lyst, as well as product views, and, of course, sales. They consider social media mentions and engagement, too.)

  Other tidbits: There was a 31 percent increase in searches for Dries Van Noten after the designer announced his retirement, and interest in Area increased after Tay Tay wore those jeans with the crystal-studded splits at the knees. The top-five hottest products, by ranking, were Miu Miu x New Balance 530 SL sneaker, Khaite’s Julius panel earnings, Miu Miu’s swim briefs (!), the Alaïa jeweled Mary Janes (naturally), and Carhartt’s Detroit jacket (I’ll take the Prada version).

As she lobbied in Washington for more stringent cosmetic safety standards, Renfrew also modernized the direct-selling category. Meanwhile, investors like TPG and Mousse Partners, the family office of the Wertheimers, who own Chanel, put in close to $100 million to scale Renfrew’s vision. (Disclosure: TPG is an investor in Puck.) Then Beautycounter caught the attention of The Carlyle Group, which acquired a majority stake in the brand in 2021 at a $1 billion valuation.

Under Carlyle control, industry veteran Marc Rey replaced Renfrew as C.E.O. and moved into brick-and-mortar. There’s plenty of disagreement about what happened next. Some industry insiders have suggested that a traditional beauty executive might not have fully appreciated the structure of the MLM model. In any case, in March 2023, Beautycounter entered 500 doors, which some suggest both alienated sellers and loyal users. “Yes, Sephora and Ulta are sexy, but you’re completely throwing away the core constituency that’s driving your business today,” said one source from the financial sector.

Others have noted that the company’s core business was vulnerable regardless. Beautycounter “was in decline virtually from the moment Carlyle acquired it,” according to a person with knowledge of the deal. “They saw declines in the business year over year from the first month they invested virtually through the time they exited last week,” this person said, citing “channel headwinds”—or sellers who were stuck at home during the peak of Covid. Anyway, Rey left the business in May 2023.

Last week, Counter Brands LLC, Beautycounter’s holding company, closed down “due to various circumstances,” according to a statement. “We undertook every effort to support the brand, including by increasing marketing spend, driving innovation to broaden the product portfolio, and enhancing the omnichannel strategy—and investing additional capital into the business to support these initiatives along the way. However, the business continued to lose ground,” a Carlyle spokesperson told me in a statement. “With the backdrop of significant near-term capital needs, we determined that exiting the business through a sale back to Gregg was in the best interest of all parties and ensured business continuity.”

In exactly three years, Beautycounter went from being a $1 billion company to its founder having to buy back its assets. Sure, maybe some of this can be chalked up to mismanagement and strategy misfires, but it’s not a broader representation of the marketplace. I heard that Mary Kay, which has been using millennial pink to sell beauty to baby boomers for 61 years, is still around a $5 billion business in the U.S. Since inception, the brand has stuck to an MLM sales model that engages its network. The company never talks about going to Target, Walmart, etcetera.

Like other pioneers in the space who face challenges as the rest of the industry catches up (Fenty Beauty, Kylie Cosmetics, and Glossier), Renfrew has her work cut out for her. I appreciate her commitment to cosmetic safety, but there has to be another way to message this without fearmongering. “It’ll be a tough rebuild for her, but if anyone can do it, she can,” said a longtime beauty executive. Others I talked to are also pretty optimistic about Renfrew being back in charge; she knows the business model inside and out, and if she can figure out how to do retail without alienating Beautycounter’s network of sellers, the brand stands a chance.

Until tomorrow,
Lauren