Johnson & Johnson’s (J&J) statement last week that it would separate its operations into two companies, one focused on pharmaceuticals and medical devices and the other on consumer products, is a strategic acknowledgment that the direct-to-consumer (D2C) market is a niche that demands its attention. The company is splitting up its household products division, which will happen over the next 18 to 24 months and result in two separate publicly traded firms. It’s a means for Wall Street and investors to wager on different company lines, momentum, and profitability in general.
The yet-to-be-named consumer offshoot will be home to companies expected to produce up to $15 billion in revenue this year. In addition, there are four $1 billion “megabrands” (based on yearly sales) and 20 brands with annual sales of $150 million. Neutrogena, Aveeno, and Band-Aid are among the names included in the release announcing the separation. Although these businesses account for a small portion of the top line, the current digital transition may excite investor interest in consumer-facing solutions.
According to investor materials presented in conjunction with the announcement, the new consumer health company would be 35 percent devoted to over-the-counter and self-care products, 33 percent to essential health and specialty items, and 32 percent to skin health and beauty products. Compound annual growth rates for those main categories range from the mid-single digits to the high-single numbers.