NARS

NARS sells colour cosmetics at prestige prices through selective distribution. The economics are a beauty brand's, which is to say excellent: a powder blush costs a few dollars to make and package and retails for the mid-thirties. The brand keeps roughly half of that retail price when a retailer sells it, and closer to all of it on its own site. Nothing about this is unusual. What is unusual is how NARS built the demand that lets it charge those prices.

François Nars was a working makeup artist — Vogue covers, Marc Jacobs runways — before he was a founder. In 1994 he launched twelve lipsticks at Barneys New York and nowhere else. One door. The restriction was the marketing: a product available at exactly one address in America becomes something people tell each other about. The shade names did the rest. Orgasm, launched later in the nineties, is the most commercially successful joke in cosmetics, because a customer who wants it has to say the word to a stranger behind a counter, and that transaction is unforgettable in a way no advertisement is.

Since Shiseido acquired the brand in 2000, NARS has run on a conglomerate's chassis: Shiseido's manufacturing, regulatory and Asian distribution capabilities behind a brand whose creative direction never left its founder's hands. That arrangement is the case's central question — what a conglomerate can buy, and what it has to leave alone.

NARS's moat is a specific kind of brand equity: credibility borrowed from a real practitioner. François Nars did the work — the covers, the shows, the faces — before he sold the products, and that provenance cannot be manufactured by a marketing department. It is the same asset M.A.C. built from behind the counter, arrived at from a different direction.

Beneath that sits a genuine product moat of the narrowest kind. Orgasm, the Radiant Creamy Concealer and the Light Reflecting line are habitual repurchases with real shelf position at Sephora and Ulta. Habit in cosmetics is worth a great deal, because a customer who has matched her shade is reluctant to re-match it.

But the width has to be called honestly, and the honest call is narrow. Barriers to entry in colour cosmetics are close to nonexistent; a contract manufacturer will produce a blush in small volume, and every celebrity launch of the past decade has proved that distribution and attention can be bought faster than they can be earned. The founder is now the moat's load-bearing element and he is in his sixties. Shiseido has preserved the aesthetic carefully. What it has not demonstrated is that the aesthetic survives the person.

The allocation decisions that matter here belong to two different parties, and separating them is the analytical exercise.

François Nars's own capital allocation was almost perfectly disciplined for six years. He launched with twelve products in one store rather than a full range across a hundred, which is the opposite of what a venture-funded brand does and is why the launch worked. Then he sold the entire company to Shiseido in 2000 while keeping creative control — a trade of ownership for permanence that has to be judged on its results, and the results are that the brand still exists and still looks like him.

Shiseido's allocation record is mixed and worth setting beside it. NARS is the good deal: acquired cheaply, given global infrastructure, creative direction left alone. Drunk Elephant, bought for $845 million in 2019 and subsequently written down, is the bad one — a brand acquired at the top of a trend with no equivalent founder anchor. The comparison is instructive. Conglomerates are excellent at supplying manufacturing, regulatory scale and distribution. They are poor at manufacturing taste, and the acquisitions that work are the ones where taste came with the company and was permitted to stay.