The New Era of Beauty Products
The beauty industry is currently valued at just over $511 billion and is expected to exceed $716 billion by 2025. Throughout COVID-19, a period of time where many retailers have been struggling, launching a beauty brand has become one of the most popular and profitable business opportunities.
However, the beauty industry is not the same collection of conglomerates it once was. Key trends, driven by a drastic shift to digital, are defining beauty’s growth and creating new entrant opportunities.
1. Non-Cyclical Qualities: The Rise of Indie Brands and Focus on Quality Ingredients
The “Lipstick Effect”, a term originally coined by Leonard Lauder of Estée Lauder, is the general trend for cosmetic purchases to increase during times of economic downturn, since attainable luxury purchases help fulfill the need for self actualization when disposable income is scarce.
The “Lipstick Index” is an alternative economic indicator that has historically been used to connect customer confidence to economic times. During the Great Depression, while inflation was at almost 30% and industrial production in the US halved, the sale of cosmetics rose. During the time of the 9/11 terrorist attack, the sale of expensive lipsticks soared.
During COVID-19, aggregate industry for traditional makeup purchases, such as lipstick and foundation, were down by over 70%, while skincare sales increased. Cult Beauty, leading online beauty marketplace, reported that lipstick sales were down 8% in 2020 while its skincare sales increased by over 50%.
The unprecedented shift in consumer demand toward skincare is one that shapes the industry’s overarching growth in all things natural and self-care. More customers are wearing less makeup and there is an increased interest in the quality and ingredients. Skincare, self-care, and no-makeup trends were already growing before COVID-19, but the pandemic only reinforced and accelerated the fact.
2. Democratization of Beauty: Sephora and Ulta
This trend was driven by large French retailer, Sephora, and its US competitor, Ulta, that identified the market opportunity amongst outdated shopping mall and pharmacy cosmetic stores. From luxury brands to small indie startups, Sephora has brought large and small brands under one roof, thus creating a massive customer base for thousands of products and brands.
Not only have they aggregated small and big brands, but they have created a customer retention loop that entices customers to purchase new items that they would not usually try. Sephora’s loyalty and rewards program excites customers, making them increasingly willing to try new products and services and win prizes, while creating a pipeline for recruiting new brands to sell. Sephora’s free samples, gifts, and product bundles generate interest in never-before-seen brands and products to create constant interest and curiosity from customers, new brands, luxury cosmetic companies, and large conglomerates.
3. The Rise of Subscription Boxes
The subscription model was initially driven by startups such as Dollar Shave Club (Razors), HelloFresh (Meal kits), and Stitch Fix (Personal Styling), just to name a few. Not long after, various large firms took advantage of this trend: Amazon’s Save and Subscribe, Walmart Beauty Box, and P&G Gillette on Demand.
Similar to how Sephora rewards excite customers with new options, subscription boxes drive recurring revenue and encourage both customers and brands to try new products. In beauty specifically, Ipsy’s subscription service was ranked first for annual revenue and growth by 2PM Inc’s Direct-to-Consumer (DTC) Beauty Power List, followed by a variety of new digital-based brands such as Fenty and Kylie Cosmetics. Consumers are willing to incorporate new products and trends into their routine when they are readily available through a subscription model.
4. Social Media: Instagram Influencers and Viral TikTok Content
The rise of key social media trends have also been a key component of growth for all competitors - from subscription services, to luxury brands and indie startups. Instagram’s visual use interface allows customers to interact and learn about new products like never before. While social media and online marketing are not new, today’s creator economy and access to visually driven content is unprecedented.
Explosive growth of viral media app, TikTok, combined with the boom of the $104.2 Billion 'Creator Economy' featuring over 50 Million creators in 2020, has created an ecosystem where brands can use a combination of visual media platforms, viral video platforms, as well as micro and macro influencers to quickly reach their target audience. Notably, Kylie Jenner became the world’s youngest self-made billionaire after launching Kylie cosmetics through an influencer-driven strategy.
5. Democratization of E-Commerce: The B2B App Ecosystem
“As a new generation of consumers grows up, they’re more empowered to purchase “quick-to-market” products found via social media from brands that are growing right alongside them.” - The Common Thread Collective
Weather it’s the allure of the subscription box variety, the customer’s newfound interest in skincare and natural beauty, the influence of their favourite online personality, or the ease of new product discovery through marketplaces such as Sephora, one thing is clear: customers are taking the chance on new products more than ever before. Not only that, but customers expect fast and experiential customer service to keep them coming back. To keep up with demand, and of course due to the lack of brick-and-mortar in 2020 due to COVID-19, the DTC model has taken flight.
Companies such as Bonobos and Glossier were first entrants in this fast-growing category in the mid-2010s, but are now facing fierce competition from new entrants in the space. Since 2013, e-commerce’s total share of retail sales has more than doubled. In fact, over half of North American internet users have purchased from a DTC beauty brand in the past year.
DTC growth created an influx of not only new brands and companies with new beauty products, but B2B tools to support the starting and scaling of new e-commerce businesses. From equity-free venture capital tools such as Clearco’s ClearAngel and WayFlyer, to the integration of Shopify with TikTok, Klaviyo, and hundreds of other apps to help DTC business owners sell their products online, the barrier to entry for new brands is lower than ever before. While conglomerates still control the largest market share of beauty and CPG products, the market has grown and diversified over time.
6. Diversity and Inclusion
Dating as far back as the 1800s, the beauty and fashion industries have been extremely susceptible to portraying euro-centric beauty standards. While there is no doubt that representation continues to be severely skewed in media and in the beauty industry, the BIPOC community, young gen-z and millennial advocates, and the overall democratization of information sharing, there has been an increasingly positive trends towards diversity and inclusion.
From Fenty’s whopping 50 shades of foundation for every skin tone, to Topicals, the brand changing the narrative around having imperfect skin, diversity and inclusion is considered the norm for successful cosmetics brands today. Even large brands, such as Dior and Estée Lauder, have adapted their marketing and product variety to support a wider range of ethnicities and skin types. An increase in diversity and inclusion has further democratized beauty and created a larger ecosystem of beauty enthusiasts and product options.
What's Next For Beauty?
Whether it is the customer's new found interest in organic skincare and subscription boxes, or the rise of online shopping and representation in media, one thing is clear: the industry has more products, services, and solutions than ever before. This has been a positive accelerator in many regards, as it has created more jobs and entrepreneurs, room for non-euro centric beauty standards, and innovative product breakthroughs.
On the other hand, many new products are rarely used up and have a designated lifespan ruled by planned obsolescence. It will be paramount to navigate circularity to create a sustainable model for an industry that is largely reliant on plastic and non-renewable ingredients.
Innovation and sustainability are clearly tied here: “How might businesses and consumers address the short product lifespan of millions of beauty products?”. Read our interview with Laura Burget, Co-Founder of Three Ships Beauty, as we discuss the implications of the newest and most pressing industry-wide challenge: sustainability.