Opinion: is this the end of the big dream for Brazil’s Natura &Co?

By Graziella Valenti

(Opinion) The reality is slowly becoming clear.

Gradually the market is realizing, with hard work and unnecessary surprises, that the departure of Roberto Marques and the arrival of Fabio Barbosa as CEO of Natura &Co is a change of strategy and not just of CEO.

The direction of the ship has changed.

To make it clear once and for all: Natura &Co’s “big dream” of being the fourth largest cosmetics company in the world is now behind us.

Being big is no longer so important; being efficient is.

The expected synergies from managing four brands with interaction potential have not yet translated into profits.

Pursuing the global brand platform model has shown that the benefits of this position may not be as attractive as its challenges.

Yesterday, the 13th, the papers dropped 6.5% on the B3.

Once valued at around R$80 (US$16) billion on the stock market, the company cannot get away from the R$20 (US$4) billion mark today.

Barbosa hasn’t come to restructure manufacturing or commerce and strive for efficiency.

He didn’t come to save the big dream. He came, like any banker, to define the best capital allocation for the holding company.

The task is to shrink it, make it less important, and focus on capital efficiency.

Thus, João Paulo Ferreira, already Latin America’s CEO, increasingly became the company’s, strategic man.

Investors must keep these two “proper names” in mind: João Paulo Ferreira and Latin America.

Why?

Latin America is now the heart of Natura & Co. It accounts for more than 60% of total net income or more than US$10 billion of the US$17 billion in consolidated earnings from January through June.

While Ferreira executes the plan for this region, Barbosa has free rein to determine what is more efficient for the holding company and its shareholders.

All options will be considered.

Avon Internacional, Aesop, and The Body Shop need a new direction.

But these definitions depend not only on Natura &Co but also on market conditions, business cycles, and the like.

In the next two days, the turnaround’s first initiatives that symbolize Barbosa’s arrival begin to win bodies.

Natura & Co’s Board of Directors will meet to evaluate an important step, the only one that has been on the horizon since the beginning of this turnaround because it depends solely on the company: greater integration between Natura and Avon in Latin America.

The production and logistics activities have already been integrated into the region; what will happen now is the unification of the sales force and resellers.

This is a painful initiative that has the potential to significantly reduce the overall number of consultants (and even affect sales for a while).

Still, it is necessary from all points of view that it can be evaluated in the long term.

How far this integration will progress into the product portfolio, beyond the sales force, time will be a little slower to answer. But it will.

Latin America will be added today to the balance sheet of Natura & Co, which Ferreira already runs, and includes The Body Shop and Aesop businesses (smaller here).

Despite the challenges for Avon, the region was the only one of the giant holdings created for the sector, along with Australia’s Aesop, to post growth in the first half of this year at constant exchange rates.

The peak was symbolic, 2%, compared to 23% for the Oceania flagship.

SMALLER AND BETTER

Natura or Natura &Co, which will emerge from this strategy revision carried out by Barbosa with the support of the founding partners of the Brazilian brand Luiz Seabra, Pedro Passos, and Guilherme Leal, is smaller.

Probably much smaller.

Information from EXAME