According to Maryam Cockar, the beauty industry's capacity to create new trends is helping it endure difficult times
The global economy is plagued by gloom, but the beauty industry is still booming. According to a joint report by consultancy McKinsey and the Business of Fashion, a website that analyzes the fashion industry, global beauty retail sales reached £441 billion in 2024, with the sector growing by 7% annually between 2022 and 2024. They predict that until 2030, the industry will continue to grow at a rate of 5% annually.
In contrast to other consumer-goods subsectors like food or alcoholic beverages, beauty has fared well during the recent pandemic downturn, according to Ben Peters, portfolio manager of the Evenlode Global Income Fund. Growth has slowed, but it is still in the mid-single digits.
This might be the result of some customers indulging in reasonably priced luxuries during hard timesa phenomenon called the "lipstick effect." Leonard Lauder of Este Lauder Companies (NYSE: EL) came up with the phrase after lipstick sales at the US cosmetics giant increased by 11% in the wake of the 9/11 attacks.
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Start your trial According to Brook Harris, a global equity analyst at Sarasin and Partners, the Chinese beauty market's "resilience despite challenges faced by many luxury companies in that market" is another indication that consumers prioritize small discretionary purchases.
The beauty industry in South Korea rises.
Some buyers have been cutting back on their purchases, switching to less expensive alternatives or replicas of luxury goods. Additionally, they have been purchasing more mass-market South Korean beauty brands that have gained popularity due to influencers and advertisements on social media sites like Instagram and TikTok. "As pressure on budgets increased. According to Danni Hewson, head of financial analysis at AJ Bell, "small luxuries had to prove they were worth it."
"Many customers were willing to switch to a different supplier if there was a less expensive option that could produce the same, or nearly the same, results. In certain situations, this meant making a trade-down; in other situations, it meant looking for a product that had three functions instead of just one. With the increasing ability of platforms like Instagram owner Meta to filter advertisements for us, Korean products became cult favorites. A "
Customers are becoming more interested in South Korean beauty brands, or "K-beauty," in part because of their well-chosen subscription boxes. In 2024, the value of the beauty market in the nation was £13 billion. Approximately half of the market is held by AmorePacific (Seoul: 090430), the biggest cosmetics and beauty company in the nation, which owns brands like Laneige, Sulwhasoo, and Innisfree.
Olivia Houghton, head of beauty, health, and wellness at strategic consultancy The Future Laboratory, states that "consumers often seek out K-beauty for its emphasis on quality and skin compatibility." "K-beauty's alignment with these values positions it well for growth in places like India, where demand for science-backed beauty products is emerging. The "
Social media pressure to uphold beauty standards is driving the rise in beauty spending, as celebrities use injectables (products that mimic the effects of Botox and dermal fillers), promote weight loss medications, and undergo cosmetic surgery.
Make your own cosmetics.
In the meantime, home-use devices are thriving, and technology has emerged as the next frontier in the beauty industry. This was evident in The Beauty Tech Group's (London: TBTG) October IPO, which raised £106.5 million. According to reports, celebrities like Halle Berry and Kim Kardashian use its signature LED face masks from its CurrentBody brand, which use red light therapy for anti-aging effects.
According to Evenlodes Peters, "devices and injectables are considered high-end treatments in many cases and are growing faster than the overall beauty market." "The trend should help solidify the sector's growth, even though treatments may immediately reduce the use of other high-end products. A "
Inspired by the growing number of male beauty influencers, the beauty industry is also growing to include men. According to Houghton, this is caused by "shifting gender norms, increased self-care awareness and greater digital access to beauty knowledge" as well as urban lifestyles and pollution, which encourage more menespecially Millennials and Generation Zto adopt skincare routines. Global trend forecaster WGSN projects that the male grooming market will reach £115.3 billion by 2028.
As opposed to just being hygienic, younger generations are beginning to view beauty as a means of self-expression. This is bolstered by the rise in fragrance and skincare products in recent years, as men are becoming more interested in their formulation and advantages rather than a one-size-fits-all strategy that may have been used by earlier generations, according to Sarasins Harris.
Customers are increasingly shopping online as influencers promote trends and social media platforms ignite beauty fads. However, the majority of consumers still prefer to purchase cosmetics from physical stores; LVMH (Paris: MC) owns Boots, Superdrug, and Sephora. Consequently, a more omnichannel strategy that combines online and in-store shopping is being adopted by beauty brands.
"It's difficult to imagine how a lipstick shade would appear without putting it on, or to experience how a moisturizer plumps up our skin without trying it out on the back of your hand," says AJ Bells Hewson. However, a lot of companies have created tools to help us replicate that in-person experience on our screens, and AI will only make it better.
By promoting a personalized experience, omnichannel selling, "supported by e-commerce, live selling, and AI tools, offers beauty brands significant benefits." consumer loyalty and the "shopping experience," according to Houghton.
Evaluating the success of the beauty sector.
However, there have been winners and losers in a crowded beauty market. According to Harris, successful brands are those that can offer "genuine product innovation to consumers" along with successful marketing campaigns, like e. I. (f). Elegance (NYSE: ELF).
In order to outperform established companies that have been slow to adapt to consumer preferences, upstarts that were started online and occasionally led by celebrities, like Rare Beauty, which is primarily owned and promoted by actress Selena Gomez, and Fenty Beauty, of which singer Rihanna owns 50%, have swiftly used social media instead of investing in traditional marketing. "With LOral spending over 14 billion a year on advertising and promotion, marketing has always been a significant operating expense for beauty brands," says Harris. But the delivery of marketing has changed significantly over time. Compared to traditional channels, digital platforms can provide more precise and quantifiable results. Este Lauder has had difficulty keeping up with new competitors. Other brands owned by the company include Clinique, MAC, and Jo Malone London.
In the distribution channels that have been expanding the fastest, they have not been establishing a connection with customers. For instance, they only recently made their debut on the US Amazon Premium Beauty Store, but they still have a lot of exposure in underperforming channels like department store beauty counters. Este Lauder has also been hindered by its dependence on the Chinese market, where local brands have improved recently.
As big businesses try to remain competitive, the industry is experiencing a wave of dealmaking as a result of the success of upstarts: e. One. F. The Ordinary was acquired by Este Lauder, Beauty paid £1 billion for Rhode, and Unilever (LSE: ULVR), a major player in the consumer goods industry, paid £1.5 billion for the men's natural personal care brand Dr. Squatch.
LOral increased its ownership of injectables manufacturer Galderma (Zurich: GALD), acquired a majority stake in Medik8, and plans to pay £4 billion to acquire Kerings' beauty division, which includes licenses for the fashion labels Gucci, Bottega Veneta, and Balenciaga.
The beauty industry's biggest star.
Hewson asserts, "It is impossible to discuss beauty success stories without mentioning Loral right away." "The business regularly delivers. bringing on new brands to capitalize on current trends and using its size to make significant investments in beauty technology and product development. It gains knowledge from the businesses it purchases. Instead of trying to alter them to fit into its present portfolio, it is always changing. to suit the modern user. A "
According to Peters, the beauty industry offers "selective value," and LOral is a key holding for the Evenlode Global Income Fund. It has a position in LVMH as well. The industry appears "well positioned to grow for the medium term, with key players and startup brands alike driving innovation."
It will be a year for stock picking instead of broad sector exposure, though, given the state of the beauty industry as a whole. Even though its shares trade at a "fairly challenging multiple," indicating that the market values its robust business model, LOral will continue to be the market leader because it is well-positioned to continue investing in R&D and marketing to support the generation of income.
While Harris believes Este Lauder is making progress in resolving some of its issues, turnarounds can be lengthy and may lead to erratic share price movements. Due to its overexposure to Japanese department stores and the decline in Chinese travel to Japan as a result of a stronger yen, Shiseido is experiencing "structural challenges." The performance of LVMH's stock is more strongly correlated with its luxury fashion houses, Dior and Louis Vuitton.
The long-term outlook is more promising, even though consumers' lack of confidence continues to be a challenge for the beauty industry, especially in the US, a sizable market where lower-income consumers' disposable income is being squeezed. Growing middle classes in emerging markets, increased product innovation, increased online visibility, and the expansion of injectables and at-home technology devices are all predicted to benefit the beauty industry. There is also probably going to be more dealmaking. In an unpredictable world, the industry continues to perform well.
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