Henkel AG, the German maker of Schwarzkopf, Dial and Diadermine products, has been reassessing its business model, but a fix stays elusive — especially for its beauty retail activity.

The Düsseldorf-based company holds a top rank worldwide within the skilled hair care category, but has been underperforming against its cohorts resembling L’Oréal, Unilever and Proctor & Gamble in the massive and dynamic beauty space.

Henkel placed sixteenth in WWD Beauty Inc’s Top 100 Global Beauty Manufacturer rating for 2021, which estimated the group’s beauty sales hit 3.49 billion euros that 12 months, down 1.9 percent versus 2020 and 5.2 percent against 2019.

During the last five years, Henkel’s organic top-line beauty growth was minus 0.7 percent. The previous five years it was plus 2.5 percent, and the five years prior to that plus 4.8 percent, in response to Eva Quiroga, managing director of European Consumer Staples at Bank of America.

So why this persistent downward trajectory? And what could be done to reverse the slide?

Henkel is a rare breed — the one top 20 beauty company with beauty as a minor activity. In 2021, the category rang up just 18 percent of Henkel’s total sales of 20.07 billion euros, versus adhesive technologies with 48 percent and laundry and residential care combined with 33 percent.

Looking back some 10 to fifteen years ago, Quiroga shined a light-weight on Henkel’s heyday in beauty. That was when Tina Müller — now chief executive officer of Douglas — was running the firm’s hair care business, and Hans Van Bylen was the chief vp for the Beauty Care division.

“They principally did innovation, but in a focused way,” said Quiroga, who explained Van Bylen had a table in his office, and whatever Henkel was launching needed to fit on that table — otherwise, it was an excessive amount of.

“Which meant there was definitely much greater give attention to greater ideas,” she said. “He also took the view that if a product doesn’t work quickly, it’s not going to work. And so they were also super smart with their marketing. It was a shift from being boring to being quite funky. That made a large difference.”

Müller launched the Syoss hair care brand just after the financial crisis, in 2008 and 2009.

“Syoss resonated unbelievably well with the German consumer, since it was perceived as an expert brand in an enormous bottle and at an inexpensive price. It was just perfectly executed,” Quiroga said. “It was essentially the most successful hair care launch in years. Since then, nevertheless, momentum has been slowing.”

That’s partly as a consequence of other players ramping up competition once they saw Henkel as a threat, especially in hair care. Also, Müller left the group.

Henkel has been acquisitive in skilled hair care, especially within the U.S., and have become strong within the category that way. In 2014, it bought Sexy Hair, Alterna and Kenra, followed by Nattura Laboratorios and the North American Hair Skilled business from Shiseido three years later.

In North America last 12 months, Henkel ranked second after L’Oréal within the category, and worldwide it placed third, following L’Oréal and Wella, in response to Kline & Co.’s Salon Hair Care global series.

This February, Henkel announced it could buy Shiseido’s skilled hair business within the Asia Pacific region, a deal that CEO Carsten Knobel on the time called “a step-change” for the corporate’s skilled activity. That’s because it could significantly increase the group’s market position in Japan and China, the world’s top-two and -three skilled hair markets, and key centers of trends and innovations. Moreover, it could elevate Henkel to the number-two worldwide rank within the segment.

Last 12 months, about 70 percent of Henkel’s beauty sales were from hair care, and of that, one-third was skilled and the rest retail, including care, color and styling. Roughly one-quarter got here from body care, resembling deodorants, shower gels and soaps, after which some 5 percent from oral care.

By geographic region, most of Henkel’s business is rung up in developed markets, resembling Europe and North America.

Henkel ranks eleventh within the U.S. market in overall beauty, which include the fragrance, hair care, makeup, skincare and toiletries categories, Kline data shows.

“They play in just two,” said Carrie Mellage, head of beauty and private care at Kline, referring to hair care and toiletries. “There’s a number of things they’re not doing, like participating in some key sectors of beauty that almost all of the opposite leaders are doing. They’re not as diversified.”

She identified the highest five beauty players trade in every or almost each product class. Yet even in those two, Henkel just isn’t leading in either. Kline rankings show Henkel is fifth within the U.S. hair care and U.S. toiletries markets, where Dial is a force in personal cleansing.

“But they really struggled last 12 months with the brand,” Mellage said. “That they had a slowdown in 2021 relative to the remainder of the category. A few of the brands that were performing higher were like Dove or Olay —  more skincare oriented. Bath & Body Works is one other key player that did rather well in that space and more fragrant body care. Dial is basically none of those things.”

As compared, Henkel’s skilled hair care business fared well, outperforming the U.S. market. But the identical didn’t hold true for its beauty activity. Based on Kline’s Cosmetics and Toiletries USA 2021 program, the country’s total beauty market grew 9.5 percent, whereas Henkel’s beauty sales there, consolidating consumer purchases only, declined 5.4 percent.

“While the skilled business has been doing quite well over the previous couple of years, the retail business has been struggling, consistently underperforming its peers for years now,” Quiroga said.

In late January, Henkel announced plans to merge its Laundry and Home Care and Beauty Care divisions to form a latest Consumer Brands business, and expects to divest or discontinue non-core brands and activities, while making acquisitions within the consumer-goods space.

The corporate said the brand new organization, designed to create more scale, capture synergies and grant further agility, needs to be operational by early 2023 at the newest. The group anticipates from it leaner structures, faster decision-making and attractive opportunities.

Nonetheless, some industry experts imagine that combining two underperforming businesses won’t be one of the best fix. Nor would selling Henkel’s skincare holdings, resembling Diadermine, which is powerful in countries resembling Germany and France.

“Skincare is clearly structurally essentially the most attractive a part of the sweetness industry in the long run,” Quiroga said.

Mellage agreed, noting: “They’ve been very successful growing by the use of acquisition, and I do see that could possibly be a path forward for them in the opposite areas.”

Skincare is the most important product class, and Henkel doesn’t trade in it.

“A lot of opportunity there,” she said.