Add Space NK to the growing group of beauty companies looking to sell.
According to British news outlet Sky News, the prestige beauty specialty retailer owned by venture capital firm Manzanita Capital aims to fetch between 300 million and 400 million pounds or approximately $379 million and $505 million in a deal, an amount that would give it a multiple of roughly 2X to 3X based on its revenues of 146 million pounds or approximately $185 million in the year ended March 25 or roughly 50X to 67X based on earnings before interest, taxes, depreciation and amortization (EBITDA) of almost 6 million pounds or approximately $7.6 million for the same period.
With a deep bench of beauty brands under its control, Manzanita Capital, the owner of Diptyque, Susanne Kaufmann and Malin + Goetz that sold Byredo to Puig for $1 billion in 2022 and recently purchased a majority stake in D.S. & Durga, is betting potential acquirers could be hungry for an asset like Space NK that exposes them to a beauty industry that’s generally been economically resilient and is driven by consumers with disposable income. In 2018, Manzanita had considered offloading Space NK, but decided back then keep it. At the time, Unilever was rumored to be interested in buying it.
Space NK CEO Andy Lightfoot stopped short of confirming Space NK is on the market, but told the publication Cosmetics Business on Friday, “Having just closed our financial year with record results, up 32% year on year (following 23% the prior year) it would be a surprise if we didn’t retain advisors to input on our next phase of growth. We are setting exciting plans for the future which will continue to raise the bar in UK beauty retail.”
Space NK has 76 standalone stores throughout the United Kingdom. It stocks over 170 prestige beauty brands such as Nars, Hourglass, Roeme, Tata Harper, Sunday Riley, Milk Makeup and K18. Nicky Kinnaird founded Space NK (the NK in its name comes from her initials) in 1993 and sold it to Manzanita in 2002. She departed the chain in 2014. In 2022, Space NK teamed up with Walmart in the United States to introduce BeautyspaceNK prestige beauty installations currently in 275 Walmart stores. Space NK shuttered eight standalone U.S. stores in 2020.
With beauty dealmaking revving up—Summer Fridays, Glossier, Rare Beauty, Merit Beauty, Kosas and OSEA are a few of the brands that could trade hands—Fiona Glen, director of projects at London beauty consultancy The Red Tree, understands why Manzanita thinks it could be a good moment to exit Space NK. She says, “Space NK has experienced fantastic growth in its 20 years with Manzanita, and there is a perspective for getting out at the top of the curve.”
Assuming Manzanita pursues a deal, Glen lists international retailers such as Sephora, Mecca, Douglas and Ulta Beauty as possible buyers for Space NK. She identifies The Hut Group and Frasers Group as possible buyers, too, but pegs sales to them as less likely. She mentions that Frasers Group owner Michael Ashley aspires to swing his business upmarket.
Frasers Group owns British retailers House of Fraser, Jack Wills, Flannels and Missguided and has stakes in online retailers Asos and Boohoo. It bought the online luxury fashion e-tailer Matches two months before shuttering it this year. Last year, the publication Bloomberg estimated Frasers Group’s total holdings in the British retail industry at 295 million pounds or around $376 million.
“Both House of Fraser and Flannels have done some great things in beauty, but I don’t believe they have had the cut-through they deserved for numerous reasons,” says Glen. “The Space NK name and store footprint could be what is required to succeed.”
The Hut Group, owner of e-tailers and brands Cult Beauty, Lookfantastic, Dermstore, Skinstore, Glossybox, Eyeko, Ameliorate, Christophe Robin, Perricone MD and Biossance, has been plagued by slowing sales and rising costs. Its pre-tax losses were 133 million pounds or approximately $167.9 million for the period ending June 30, up from 108 million pounds or approximately $136.3 million from the same period a year ago, and revenues were down 9.3% to about 969 million pounds or approximately $1.2 billion.
JJ Walsh, founder and CEO of facial bar Formula Fig, theorizes that there are several eligible buyers willing to plonk down for a profitable and proven asset like Space NK. “The obvious culprits would be later stage private equity firms with experience in this sector,” she says. “It could also be a nice opportunity for a luxury house like Kering or Richemont to snap up a viable competitor to LVMH-owned Sephora.”
Glen isn’t sure that private equity firms would chomp at the bit to acquire a multi-location retailer with high overhead. She explains, “Private equity overall are cautious regarding retail as a sector at the moment, and there is the additional risk specifically with Sephora having entered the market in the UK.”
Sephora might be drawn to Space NK to quickly heighten its profile in the U.K. After buying beauty e-commerce website Feelunique in 2021—17 years after ending an early foray into the U.K.—Sephora has opened two London stores. It’s set to open a third location in Manchester this summer. Despite Sephora’s position as a prestige beauty titan, Walsh maintains that the specialty beauty retailer and Space NK aren’t necessarily head-to-head competitors.
She says, “I believe that consumers will always want choice and that there is room in the market for a number of players to reach meaningful scale alongside Sephora as long as they have a unique offering and a distinct brand point of view.”
Last year, Space NK opened its largest location to date, a 2,500-square-foot flagship in the Westfield London shopping center. In 2022, it unveiled a new experiential concept format at Battersea Power Station and upsized its Covent Garden store. On average, it’s opened four to five stores every year for the past two years.
Glen points to Space NK’s store strategy as evidence that the retailer isn’t snoozing on Sephora’s U.K. advancement. Space NK has deepened its selection of products at accessible prices to draw young consumers and expand into urban centers and malls. Previously, it focused on affluent neighborhoods for locations.
“This movement into mall distribution is a great example of playing Sephora at their own game and meeting the consumers where they are,” says Glen. “The Ordinary was a ground-breaking launch that pushed down their average retail prices. New brand choices are made on new customer acquisition as well as pure revenue and category value.”
In addition, Glen notes Space NK has “exceptional launch activation skills” and referenced a recent campaign for Sol de Janeiro’s body butter and the exclusive launch of Rare Beauty’s body care line. She says, “They launch new and exclusive brands frequently across all categories and have a great ability to run 360-degree launch campaigns.”
Undoubtedly, Sephora’s U.K. march is making business trickier for Space NK, perhaps another motivator for Manzanita to sell it. Glen predicts Space NK is due to lose out on exclusivity arrangements in the future as Sephora boosts its U.K. presence. “Sephora global exclusive brands will now naturally lie with Sephora UK, which may have previously been earmarked for Space NK,” she says. “I think it will make it increasingly difficult for Space NK to secure groundbreakingly exclusives.”
Regardless of market competition, Walsh describes Space NK as “a true pioneer in the British beauty space. It always had an energy and elegance, which carved out a unique position,” she says. “I feel in recent years the competition has increased in various ways, but I never underestimate the power of established distribution. It is often easier to evolve than build from scratch.”
Speaking about the larger retail landscape in the U.K., Glen highlights Boots, Superdrug, Harrods and Liberty as strong performers in beauty. However, she says no single retailer is delivering on discovery or experience, although indie retail concepts like Dover Street Market, Big Beauty and Goodhood are coming close.
“The saturation of the industry has led to a lot of parity in range and execution as well as retailers waiting for brands to be big enough before taking the plunge in listing them,” says Glen. “There is a huge gap in store expertise and innovation between pop-ups and standalone retail. If you were to take the best parts from many of the leading beauty retailers, you could have a really impressive retailer.”
