Kylie Jenner: the spiral of lies of a false billionaire
Earlier this year, Kylie Jenner sold half of her company but it emerged that she has been inflating the size and success of her business. During years.
After more than a decade of fame, the Kardashian-Jenners are beginning to produce disgust among media consumers. But when it comes to his wealth, even the most critical of the first reality TV family are intrigued; The Kardashian-Jenner machine - and the money it generates - has been the subject of articles, podcasts, even books. But no one cares more about the issue than the family itself, which has spent years fighting for the top spots on the Forbes lists of celebrity wealth and earnings.
So when the youngest of the clan, Kylie Jenner, sold 51% of her Kylie cosmetics to the beauty giant Coty in a $ 1.2 billion deal this January, it was a watershed moment for the family. One of the biggest celebrity payouts of all time, the transaction seemed to confirm what Kylie had been saying the entire time and what Forbes had stated in March 2019: that Kylie Jenner was, in fact, a billionaire, at least before. of the coronavirus.
"Kylie is an icon of today, with an incredible consumer sense of beauty," Coty Chairman Peter Harf gushed upon announcing the acquisition in November.
But in the fine print of the deal, a less flattering truth emerged. Documents released by Coty in the past six months revealed one of the family's best-kept secrets: Kylie's business is significantly smaller, and less profitable, than the family has spent years leading the cosmetics industry to believe. and the media, including Forbes.
Of course, lies, omissions and falsehoods are expected from the family that she perfected and then monetized the concept of "famous for being famous." But, similar to Donald Trump's decades-long obsession with his estate, the unusual extremes the Jenners have been willing to go to - including inviting Forbes into their mansions and CPA offices, and even creating tax returns that they were probably faked - they reveal how desperate some of the ultra-rich are to look even richer.
"It's fair to say that everything the Kardashian-Jenner family does is oversized," says Stephanie Wissink, a securities analyst who covers consumer products at Jefferies. "To stay on the brand, it has to be bigger than it is."
Based on this new information, in addition to the impact of COVID-19 on beauty stocks and consumer spending, Forbes now considers that Kylie Jenner, even after pocketing about $ 340 million after sales tax, did not She is a billionaire or 'billionaire'.
Like other Kardashian ventures, Kylie's business began as a way to cash in on a minor scandal. The youngest of the family spent more than a year denying tabloid speculation that she was using lip filler injections before finally confessing in May 2015. Far from being ashamed of being caught in a lie, she and her cunning mother Kris seized it as a marketing opportunity.
With $ 250,000 from her modeling earnings and Keeping Up With The Kardashians appearances, Kylie released her first batch of 15,000 lip kits, consisting of a matching lip liner and lipstick, in November 2015. Thanks to a clever Instagram marketing, the $ 29 of the kits disappeared in less than a minute. "Before I even refreshed the page, everything was sold," she later told Forbes.
By the end of 2016, Kylie had dozens of new products and a reputation as a new entrant in the cosmetics industry. A few months after her sister Kim Kardashian West landed a Forbes cover in July 2016, Jenner's publicists began a campaign to "get Kylie a Forbes cover."
Revenue was $ 400 million in the first 18 months of the business, they said, with a personal gain of $ 250 million for Kylie. Pressed by the evidence, they opened their books. During meetings at Kris Jenner's palace in Hidden Hills, California, and at the family's nearby accountant's office, Forbes was shown tax returns detailing $ 307 million in 2016 income and personal income of more. $ 110 million for Kylie that year. It would have been enough to put her at number two on the famous 100 list, behind Taylor Swift, the accountant was quick to point out. But the documents, despite looking authentic and bearing Kylie Jenner's signature, weren't exactly convincing as the story they told of the e-commerce brand Kylie Cosmetics growing out of thin air to $ 300 million in sales in a single year. It was hard to believe.
After speaking with a handful of analysts and industry insiders who also found Jenner's claims implausible, we settled on a more reasonable estimate for our 2017 Celebrity 100 list: $ 41 million in total earnings for Kylie, which it took her to No. 59. Kris was "so frustrated" that the Jenners' PR ad was retracted.
Two months later, a story appeared in WWD, a trade publication known as "the fashion bible," using the exact numbers the Jenners tried to give Forbes. "There has been heavy speculation about the size of his business, with estimates ranging from $ 50 million to $ 300 million," the story goes. “Well, here's the bad news for established beauty gamers: Jenner has beaten the highest number with ease. Kylie Cosmetics has made $ 420 million in retail sales in just 18 months. revealed Kris Jenner… ”. It was the first time the Jenners publicly revealed the size of the business, the boasted story - "and provided WWD with the documentation."
That sky-high income number was repeated everywhere from People to CNBC to Fortune. In the summer of 2018, when Forbes set out to calculate Kylie's net worth for our list of the richest self-made women, the industry opinion of Kylie's business had changed. That huge revenue was "entirely possible," said one analyst, adding that she had heard similar figures herself. Another suggested that the revenue was around $ 350 million. Estimates kept going up. Revenue was $ 400 million, according to a Piper Jaffray research note in 2018. An Oppenheimer report projected that sales would exceed $ 700 million in 2020.
A cover in Forbes
The Jenners offered Forbes their own number: 2017 revenue increased 7%, they said, to $ 330 million. "No other influencer has reached the volume or had the rabid fans and consistency that Kylie has had in the last two and a half years," said an executive at e-commerce platform Shopify, which runs Kylie's online store, to Forbes at the time. Building on the quick success of her - certified by industry sources and those 2016 tax returns - Kylie appeared on the cover of Forbes magazine in July 2018, ranking 27th on our list of the richest women made to. themselves. At the age of 20, she had $ 900 million, we estimate, and
"Thank you for this article and the recognition," Instagrammed Kylie. Kim Kardashian West tweeted her congratulations twice. "I'm SO proud," Kris Jenner wrote, finally pleased.
The following month Kylie celebrated her 21st birthday at West Hollywood's Delilah nightclub, at a Barbie-themed party, featuring a pool of pink balls, performances by Travis Scott and Dave Chappelle, and waiters in black T-shirts with the Kylie FORBES cover printed on them. on them, her face pasted next to the words "America's Women Billionaires". At the beginning of the following year, sh e officially crossed the ten-digit threshold.
Any doubt that Kylie was not a billionaire was apparently erased in November 2019, when Coty announced that it was buying 51% of Kylie Cosmetics for $ 600 million, effectively valuing the business at about $ 1.2 billion. The deal gave Coty, a 116-year-old company, a social media savvy fashion brand to help change its balance sheet. It gave Kylie a huge opportunity for expansion, plus loads of cash and seemingly clear proof of her millionaire status.
In a call to stock analysts, Coty's CFO announced the deal as "a compelling financial equation" that would help "turn Coty into a modern, growing and profitable beauty payer." Analysts were immediately skeptical. It seemed like Coty was paying too much for a celebrity brand that might turn out to be just a fad. Another asked how Coty could be sure that Kylie would remain committed to promoting the business for years to come.
Then there were Kylie's finances. Income in a 12-month period before the deal: $ 177 million according to Coty's filing, much lower than estimates published at the time. But there was something more problematic: Coty said sales were up 40% from 2018, meaning the business only generated about $ 125 million that year, nowhere near the $ 360 million the Jenners had led to believe. to Forbes. Launched in May 2019, Kylie's skincare line of products generated $ 100 million in revenue in its first month and a half, Kylie's reps told us. Records show the line was actually "on track" to end the year with just $ 25 million in sales.
"I think everyone was shocked," says Wissink, the Jefferies analyst, who was on the call. "The downside of that announcement was that the business was much smaller than everyone expected."
So small, in fact, that it's virtually impossible that the numbers the Jenners were selling in previous years could be true either. If Kylie Cosmetics made $ 125 million in sales in 2018, how could she have made $ 307 million in 2016 (as the company's alleged tax returns say) or $ 330 million in 2017?
One explanation: Kylie's business quietly fell by more than half in a single year. If so, Coty paid for a "high growth" brand that is actually a much smaller business than it was a few years ago. (Coty has declined to answer any questions about Kylie Cosmetics for this story.) Data from e-commerce firm Rakuten, which tracks a select number of receipts, suggests that there was a 62% decrease in Kylie's online sales among 2016 and 2018.
Still, virtually all of the industry experts Forbes surveyed think the business couldn't have collapsed so quickly. "It seems unlikely that much revenue will have evaporated overnight," says Evercore analyst Omar Saad. "There doesn't seem to be any evidence that the business has collapsed," adds cosmetics veteran Jeffrey Ten, who has run companies like Note Cosmetics, Nyx and Calvin Klein Beauty. "If so, why would Coty buy it?"
It's more likely: The business was never that big to start with, and the Jenners have lied about it every year since 2016 - including that their accountant wrote up their tax returns with false numbers - to help draw conclusions from Forbes' estimates of tax returns. Kylie's earnings and net worth. Although we cannot prove that those documents were false (although it is probable), it is clear that Kylie has been lying.
There's also the issue of profits: Forbes estimated that its business, which has few overhead expenses, had net margins of 44%. But Coty's files indicate that Kylie's earnings are probably lower than we thought, since her EBITDA margin, which influences some, but not all, of her expenses, is only about 25%.
For years the Jenners insisted that all of those benefits went directly to Kylie because she owned the business. But Coty's purchase agreement specifically lists a "KMJ 2018 Irrevocable Trust," controlled by Kristen M. Jenner, as the owner of an earning interest in Kylie Cosmetics. In the sale, the document says that the trust would obtain capital, or ownership, of the company. The Jenners initially told Forbes that the trust holds the money that Kylie Jenner earned before her 18th birthday and that Kylie is the beneficiary of it. But the trust appears to have been created long after Kylie turned 18 and the Jenners refused to offer any evidence to back up their claims. Given the lack of clarity, and the history of lies, we are erring on the side of caution and assuming that the trust belongs to Kris Jenner. That means Kylie Jenner owns an estimated 44.1% of Kylie Cosmetics, down from 49%.
"You have to remember that they are in the entertainment business," says Ten. "Everything in entertainment has to be over the top to get attention."
Given all this new information and with the pandemic in mind, Forbes has recalculated Kylie's net worth and concluded that she is not a billionaire. A more realistic estimate of her personal fortune puts her at just under $ 900 million, despite the headlines surrounding the Coty deal that appear to confirm her status as her billionaire. More than a third of that is the estimated $ 340 million in after-tax cash that would have been pocketed from the sale of most of her company. The remainder is made up of revised earnings based on the smaller size of your business and a more conservative estimate of your profitability, plus the value of your remaining share of Kylie Cosmetics, which is not only smaller than the Jenners led us to believe. But it is also worth less now than it was when the deal was announced in November, given the economic effects of the coronavirus.
Coty's stock price has fallen more than 60% since the deal was closed, and even top-performing competitors like Ulta Beauty and Estee Lauder are still slipping in single digits. Add that to the fact that Wall Street tends to think that Coty paid too much to begin with and there is no way to realistically set Kylie's net worth above $ 1 billion, despite her massive cash on hers. .
As usual, Forbes has asked the Jenners for their numbers. But pressured by the answers to the many discrepancies, the typical chattering family did something out of the ordinary: They stopped answering our questions.
