In 2020, Circana, the market research firm then called NPD, estimated prestige beauty sales dropped 19%. Since then, they’ve only risen, though at a lower rate each year. They increased 30% in 2021, 15% in 2022 and 14% in 2023. In the first half of this year, Circana reports prestige beauty sales climbed 8%, and mass beauty sales were flat.
Going forward, the firm forecasts continued growth for prestige beauty, but at a slower pace. Bloomberg opinion columnist Andrea Felsted is less sanguine about the fate of beauty industry sales. In a column published on Aug. 8, she writes the “lipstick index,” the term for people snapping up relatively affordable beauty products during economic downturns, “may not be so pronounced this time” if there’s a recession.
The reason Felsted gives for the possible deterioration of the lipstick index is that consumers have already stuffed their makeup bags and cabinets full of products like lip oils, body care creams and perfumes. She explains, “Years of blockbuster growth in the beauty industry means there may be less need to stock up…It’s hard not to think we’ve reached peak beauty.”
We were wondering whether beauty investors, investment bankers, suppliers, consultants and others agree with the forecasts made by Felsted or Circana—or if they have a completely different take on the beauty industry’s future sales performance. So, for the latest edition of our ongoing series posing questions relevant to indie beauty, we asked 17 of them to provide their takes and answer the following question: What are your predictions for the beauty business for the rest of the year?
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Emily Bullman Investor, JamJar Investments I’m not surprised growth has slowed in recent months. With an overwhelming array of options now available, consumers are becoming more discerning about their purchases. Instead of the indulgent bulk buying we witnessed post-pandemic, shoppers are now more focused on products they believe offer both efficacy and value for money.
I align more closely with Circana than Felsted on future growth. While I believe consumers are becoming more mindful in their purchasing habits, they will still invest in brands that deliver a strong experience and genuine value. This trend doesn’t necessarily mean consumers will gravitate toward cheaper products. On the contrary, I expect many will opt to trade up to more efficacious formulas in skincare and haircare or seek more artisanal, high-quality niche products in fragrance.
To Felsted’s observation, there is undeniably a much wider range of choices available to consumers today compared to when the “lipstick index” was first introduced, which I think will inevitably dampen the effect slightly.
However, I believe the core principles of it still hold true. During downturns, consumers still place value in affordable luxuries and self-care products, perhaps even more so now in the wake of the pandemic, where the lines between beauty and wellness have blurred.
I think fragrance will continue to see steady growth, especially within the premium niche category as we move into peak gifting season. Expect growth to be more in minis/discovery sets as consumers look to expand their scent library seeing fragrance as a form of self-expression and a reflection of mood.
I also expect we’ll see a heightened focus on scalp health, particularly as consumers become more aware of the vital connection between scalp health and overall hair condition. I predict this growing awareness will result in more consumers trading up to prestige or luxury haircare products.
- Anna Whiteman Partner, Coefficient Capital
We still have room to grow in beauty across the board. Beauty has historically been a category that fares well across economic cycles, and we’ve seen this persist through the pandemic years and into 2024. While it certainly feels as though there’s been tremendous brand proliferation and consumer optionality has peaked, we’re still seeing aggregate spend for the category tick up as new channels (TikTok Shop) open up and new routines (42% of Gen Zers using five-plus makeup brands in their daily routines) emerge, according to our Consumer Trends Report.
The analysis shows younger emerging brands are taking up market share in a certain prestige beauty retailer at a rapid clip, with brands founded after 2014 comprising around 40% of aggregate share in the second quarter of 2024, indicating that there’s high growth potential in the emerging prestige segment.
We’ve also seen that, even in a high inflation and challenged growth environment, gen Z has remained resilient, claiming to be trading up across beauty (skincare up 19%, haircare up 12%, and makeup up 5%), and millennials similarly claiming trading up in all categories except makeup. All of this data points to a strong consumer appetite for more, better in beauty in the coming years, and successful brands will be agile in taking advantage of the evolving growth landscape.
- Andrew Shore Founder and Former Managing Director, Shore Companies and Moelis
“Peak” connotes that next move is down, and while there certainly are some markets and categories that have declined (mass market beauty in Western Europe is down 2% to 3%, U.S. mass-market cosmetics and skincare are down 5%), for example, the prestige markets have still held up well, although they are not growing as robustly as in previous months.
This bifurcation is expected. In the U.S., unemployment is on the rise, real wage growth remains tepid, and inflation, while down significantly, still acts as a tax on paychecks. The economic outlook is equally mixed in Europe, and China has yet to recover to pre-COVID levels.
Still, growth is idiosyncratic. Prestige fragrances continue to grow double digits as does hair care. In fact, growth in these categories has been led by higher prices items.
Skincare has nothing to apologize for, with upper single digit growth, and color is comparing against massive 18% growth in the first half of 2023, having led to the category “only” up 5% in the first half of 2024, when some categories within color have exploded (i.e., most subcategories with lip). Consumer health and wellness continues to be strong.
Do these trends portend that things are likely to get worse? I suspect the near term could remain soft given the economic conditions. Even parts of the luxury market are softening, whether in beauty or in luxury goods. The consumer seems tired after several years of pent-up demand post-COVID, and those who received COVID relief funds have likely exhausted them. Walmart and Ulta have expounded on impending softness.
Long turn, I am still an unabashed bull on the industry. Beauty is a playground of discovery, and the industry is blessed with some of the smartest and most creative folks in business. Newness will never end, and consumers love to spend. But the real reason to remain bullish is beauty is simply the cheapest way to make you feel good about yourself.
This industry is malleable and will be shaped by several key trends:
- Technological integration: The use of AI and AR will transform product ideation, personalization and transparency in the beauty supply chain, allowing consumers to make informed choices.
- Personalization and wellness: With the help of AI, products will become more personalized, with a focus on wellness that includes both physical and psychological benefits. The question is whether or not personalization can become scalable and profitable.
- Demographic shifts: As populations age, marketers would be wise to focus on the pro-ageing movement, targeting older demographics and promoting inclusivity. Don’t forget who has all the money!
- Jon Tenan Managing Director, Beauty and Wellness, Baird
There is important color driving the decreases and increases historically. The 2020 prestige sales drop was driven by the onset of COVID, and, as such, was one-time in nature.
While the latter half of that year and the years that followed benefited from stimulus checks and a booming economy. Headwinds from COVID ultimately caused that decline, including retail shutdowns entirely for a large portion of 2020, unemployment spiked (before coming abruptly back down), and consumers tightened their wallets. We furthermore see the adjustment from this one-time drop in the substantial 30% increase in 2021.
In terms of the outlook, there are credible points for growth or stagnation, but Baird’s Global Investment Banking practice believes there remains growth ahead. There are many factors influencing both sides of this debate, ranging from evolving channel distribution strategies, increased competition, inflation, unemployment and the before-noted demand pull-forward thesis (to name a few).
While we certainly witnessed demand pull forward across discretionary consumer, the nature of many of the beauty purchases helps offset that impact. For example, facial cleansers, serums, shampoo and conditioners are not typically purchased in bulk, and, as such, are not typically "pull forward" purchases.
The growth witnessed within the sector was driven by a variety of factors, including price, consumers graduating to prestige and a handful trends such as the expansion of the press-on nail category, creation of the acne patch category, the skinification of hair. We have also seen a new age cohort enter the market—gen Z and gen alpha.
While generations age into consumer sets, this is an example of the addressable market broadening to include age cohorts never before seen. Elementary school children are making prestige beauty purchases (or their parents are purchasing these items for them). This is a major shift in the total addressable market, and we are in the early innings.
While we understand the concerns and headwinds facing the sector, we still believe there are ample tailwinds to maintain solid industry growth.
- Tina Bou-Saba Investor
There is no question that prestige beauty has been booming for the past few years! It’s incredible. Like Circana, I expect that growth will normalize over the next few years. That will likely mean low to mid-single digit-digit average annual growth, which I still consider very healthy and sustainable.
However, aggregate growth rates do not reflect significant share shifts across brands and categories. This is what makes beauty so vibrant and exciting. In makeup, for example, newer brands including Rare, Fenty, Kosas, Makeup by Mario and Saie are driving growth and excitement among consumers.
Similarly, we see categories like fragrance grow above the prestige average driven in part by social media, which is pretty amazing. And then we have products like lip balms and oils that are spiking as well. Beauty is so much fun! There is so much going on underneath the aggregate numbers.
As for predictions for the rest of the year, I expect a few more sizable M&A deals. Of course, I don’t have a crystal ball. But I expect that we see a few before year-end, strategic and/or sponsor led. IPOs are unlikely, 2025 at the earliest.
Unfortunately, I also expect that we will see continued brand closures, reflecting the challenging fundraising environment and high capital requirements needed to scale. This makes me sad, but it’s where we are in the indie brand cycle.
Lastly, we should watch what’s happening among senior leadership at the large strategics. There has been significant recent movement and may be more. This typically has some impact on strategic priorities, including M&A.
- Ashleigh Barker Head of Beauty and Personal Care, Lincoln International
You can’t ignore the effects of the broader macroeconomy on consumer behaviors when it comes to spending, but I disagree with the notion that we’ve reached “peak beauty.” While it’s true that the beauty industry has experienced notable fluctuations, there have always been ebbs and flows across both channel dynamics (prestige versus mass) as well as the core categories (color, skin, hair, fragrance and broader personal care).
However, while mainstream consumers may finally be starting to think about saving more in the near future, we’re still prioritizing our self and personal care needs, even during downturns. The beauty of the beauty industry is the consumer’s inherent desire to invest in their well-being, whether that is in the form of a lipstick, a new skincare serum, hair growth supplement or facial device.
Even in categories such as skin and hair that are increasingly crowded, there’s been a sustained demand for premium products in particular, but, more importantly, products that offer perceived value and quality in the form of efficacy. Even as data may point to softer growth for the remainder of this year, I think it’s a factor of consumers becoming more selective with where and how they invest their dollars in beauty versus turning away from the industry altogether.
Looking ahead with the lens of an investment banking advisor, I predict the remainder of 2024 will be guided by the following themes:
- From a positioning perspective, companies that continue to stay focused on owning their core and strategically find ways to capture customer trust and loyalty will prevail. Innovating on new delivery systems or formats, being able to demonstrate tangible results and back claims with clinical evidence, essentially proving products deliver on their promises, will be most successful in capturing market share.
- Across M&A, Q2 and the first half of Q3 saw the market pick up with several notable deals in play, albeit at a slower pace than initially anticipated at the start of the year. However, we may not see every deal that’s currently in the market close before year-end with longer diligence periods playing out, and I expect more “out of process” proprietary deal flow to take center stage.
- Omnichannel distribution has become increasingly important, both in terms of a brand’s ability to get in front of more consumers to drive discovery and trial and to being able to demonstrate proof points around their viability to survive in a noisy retail market. Brands that are strategic and thoughtful in how they execute their retail strategies will also stand out among crowded shelves of colorful packaging in the eyes of investors.
- Jeremy Triefenbach Founder, DFN Ventures
While the “lipstick effect” gets tied to beauty growth during periods of macro growth changes such as recessions, it really is a broad industry concept of how consumers choose to allocate their purchasing when their income gets disrupted. The concept is simple. When individual consumers income declines in short term, they tend to put holds on large luxury purchases (i.e., a new car), but continue to spend on small luxuries (i.e., prestige lipstick). Clearly beauty products industry benefits from this trend, but relevant to all discretionary consumer purchasing.
That said, there may be another consumer trend that could be having a bigger impact on consumer purchasing decisions in the next few years, which is allocating money towards services/experiences as opposed to product. Coming off one of the greatest periods of self-loving at home with products during COVID, I think the impact of the lipstick effect will be less impactful to consumers psychology as compared to allocating resources to a blowout or a concert.
That said, gen Z and alpha have been and continue to be big anomalies in beauty spend patterns that could continue to drive growth for years to come.
- Matt Stearn VP of Sales and Commercialization, Cosmopak
Everyone stay calm and moisturize on. This is particular slowdown was inevitable and is a little more pronounced than previous downturns. We witnessed the post-COVID splurge combined with the new tween/teen market. Then, add in a new generation of digitally native brands that seem to be taking over the world.
If my house is a microcosm of what’s going on in the beauty industry, the customer is heavily stocked up at home. It’s possible that my 11- and 13-year-old have a combined $58,000 in Bum Bum Cream. They could open a retail store.
A few years ago, we had a big spike in purchasing post-COVID. The consumer had more discretionary income and spent it. The initial surge of buying lead to erroneous forecasting across the board. In 2021, retailers and brands all over-forecasted for the following year. In 2022, over-ordering up and down the supply chain led to overproduction. All the over-production showed up as excess inventory.
Excess inventory at retail and brands brings everything to a halt in the supply side of the industry. To deal with the mismatch in supply and demand, brands and retailers needed to increase demand in order get rid of all the excess inventory. Today at Target, I saw a “buy 3, get 1 free” offer on a freestanding display. This offer will increase sales, but also keep the customer out of the market for an extended period of time.
In addition to all the economic activity, we’ve also had a new generation of tween consumers entering the beauty industry and that drove an additional level of purchasing at retail. The tween customers, driven to retail by social media and a slew of new brands, are contributing to new growth. The rate of their consumption patterns I watched my own children over the past eight months is simply not sustainable over the long term.
Over the next six months, replenishment for the customer at home will slow down. It’s time for everyone (like my daughters) to stop buying and start using all the products they have been purchasing over the last year.
For brands with a sound distribution and good mix of product offerings, it is not a time to panic. Keep plugging away at new content and community engagement. The customers have enough inventory at home, but their demand for new products will never be satisfied. We will see them back during holiday season 2024.
- Odile Roujol Founder, Fab Co-Creation Studio Ventures
I believe that price increases did help some brands, especially global ones, in the post-COVID period. Retailers are also closing some points of sale as there are too many of them in the U.S. market, which mechanically does not help the beauty business for 2024.
If we look three to years out, I’m bullish on the space if the definition is closer to health and well-being. There are five trends that make me feel we could reach a plateau in beauty figures if we keep the traditional definition in the future.
Customers have been investing in:
- A holistic approach to beauty to address root causes. See the success of Veracity’s metabolic health approach and its Metabolism Ignite as an alternative to Ozempic, Yina’s gua sha tool sold with its exceptional décolleté cream, and Shaz & Kiks scalp care for beautiful hair.
- New services like Luum’s lash extensions powered by computer vision and now at Ulta.
- Measuring what they do to know how to better their skin. Look at the rise of HelloBiome, which is used by iconic brands, measuring the microbiome to inform skincare and haircare choices, the epigenetic test by Novos labs in addition to their longevity and wellness supplements, and FunctionHealth’s platform tracking biomarkers and progress.
- Simplified routines. GoodLight has one serum, one lip product, one product for acne.
- Founders with authentic voices. BrownGirlJane’s scents reflect the mood of the day; Bubble believes in the power of its gen Z community; Thirteen Lune puts forward indie brands and mixes stores with pop-up invests and its online marketplace; and The Folklore is a new inclusive initiative. Even in the competitive context with higher costs of acquisition, emerging brands will be disruptors in the industry.
- Qasim Mohammad Director, Wittington Ventures
Historically, the beauty industry has displayed a remarkable mix of resilience and adaptability over various market cycles, with some segments outperforming others in the face of financial adversity. The concept of the "lipstick effect," first observed during the Great Depression, is a testament to this resilience. Even when the economy faltered, consumers found solace in small luxuries like an affordable lipstick that offered a boost to their morale.
The Great Recession of 2007 to 2009 brought about a noticeable shift in consumer behavior. While high-end brands faced a dip in sales, mass-market and drugstore brands saw a rise as consumers traded down to more affordable options without completely giving up on beauty products. More recently, the COVID-19 pandemic, although not a traditional recession, caused significant economic disruption, further testing the industry's resilience. Skincare and self-care products surged as consumers turned their attention to wellness at home, while color cosmetics and fragrances took a hit due to the reduction in social activities.
The experiences from the past teach us that context matters. Beauty will respond to the circumstances most significantly reflecting people’s current lives. And, right now, we are in an inflationary period, and higher interest rates have affected household affordability for discretionary consumer products. But beauty has demonstrated resilience at the upper end of the market, suggesting that consumers are still chasing aspirational experiences and purchases when they aren’t as concerned about the state of their wallets.
I suspect the prestige beauty will continue with strong sales for the remainder of the year, reflecting ongoing consumer demand for premium, high-quality products. The masstige segment is also expected to see steady growth as it captures consumers seeking a balance of affordability and luxury amidst inflationary pressures.
Meanwhile, the mass beauty market has recorded more modest growth of or the year, highlighting the economic challenges faced by price-sensitive consumers who are prioritizing value-driven purchases in essential categories like skincare and haircare.
- Nadia Lau Founder and Strategic Business Advisor, Aria Business Advisory
I agree that the “lipstick index’s” relevance has been diminished, but not for the reason mentioned. The lipstick index was created as an informal indicator to measure where and how consumers continue to spend during an economic slowdown and downturn. It is not a fear-based stocking up on inventory because of a slowdown.
It was also not a measure of stocking up on sectors of the beauty industry such as affordable beauty products, but an overall measurement of consumer confidence, spending behavior and the tendency of spending.
When Leonard Lauder coined the term after 9/11 in 2001, the industry was very different. The market was not saturated with new beauty brands coming onto the market at such a rapid pace as today. There were fewer categories than there are now. Self-care, health and wellness, which did not play a factor in the beauty industry, now takes market share away from beauty.
Spending habits have drastically changed, where quality, value and efficacy drive purchasing power, and consumer and cultural behavior is very different than before. Customers are more knowledgeable than ever before, and the importance of ethos and purpose are deciding factors that did not play a deciding factor as it does today.
Thus, all of these compounding factors dilute the effectiveness and clarity of the lipstick index as an informal measure of consumer behavior and the tendency to spend during an economic downturn.
Real wages, real inflation, the election year, volatility in the stock market, home sales and geopolitics with war in many regions of the world all have an effect on beauty sales in one way or another. If we see continual volatility in the stock market, with major selloffs in the global markets, and real estate assets continue to drop in equity value, the projected economic downturn will affect those in a higher income bracket where it didn’t before.
For the foreseeable future, the cost of living will remain high, and with continual high interest rates thus affecting home sales, those outside the higher income bracket will remain vigilant in their spending habits.
Prestige beauty will need to continue to innovate, excite their customer base to keep them engaged and adapt when there is an opportunity to do so. Despite a slowdown in mass beauty, there is an opening to capture a potential gap in a market share shift from consumers who may reduce their tendency for prestige beauty purchases.
To take advantage of this window of opportunity, mass beauty will need to access technological advances that are available for innovation, deliver a higher value proposition than what prestige offers and clarify their unique selling propositions while ensuring they meet their margin goal posts.
Open-to-buy for most retailers may be tightening up. However, this is the opportunity for brands to revisit their own channels with a fine-tooth comb and seek out opportunities and risks to mitigate, get very clear in strengthening and deepening brand equity, tighten up offerings, and ensure marketing strategies are aligned to short- and mid-term goals.
The increasing cost of customer acquisition will require brands to be creative, think outside the box, and utilize a white glove approach in nurturing and growing its community and customer base, all in full alignment to their financial models.
Looking ahead for the remainder of 2024, the high-level outlook is that beauty will remain resilient. Warren Buffet’s recent disclosure of taking a stake in Ulta Beauty is an indication that there are still opportunities for growth in the beauty industry despite the short- to mid-term softening.
The industry will need to continue to remain focused on innovation, cater to an evolving consumer base, and stay nimble and on their toes to pivot to buffer any potential economic challenges that change consumer behavior and habits.
- Manica Blain Founder, Top Knot Ventures
I think it depends on what you define as “beauty." For me, the definition has extended into wellness, and I think we will see continued strength and growth in the beauty category overall if our definition of beauty includes wellness.
That said, I do think consumers are becoming more discerning on just what they are stocking up on. Less is more is a real thing, and I think will continue to be a real thing for a while.
That’s why I've focused my recent early-stage beauty investing in categories in need-to-haves like sun care, and Dune Suncare is an example of that in my portfolio.
I think we’ll also see strong growth in brands that are truly innovating in categories that are necessity-based like haircare staples, and Everist is an example of that in my portfolio. They created the first-ever shampoo, conditioner and body wash concentrates made in a base of skincare instead of water.
Finally, I think the consumer is becoming more adventurous about scent and fragrance, and is also exploring and embracing beauty beyond their own borders. Categories like Ayurvedic beauty and wellness will see strong lifts, and brands like Sahajan, Ranavat and Fable & Mane are doing a great job of bringing ancient and proven hair and skincare rituals/formulations to the masses. So, I’m very excited about that in the next few years.
At the time of my initial investment in Sahajan last year, even before the Sephora Canada launch, I was most drawn to Sahajan’s extreme customer loyalty, and the mainstream nature of its growing customer base. Specifically, 70% of Sahajan’s top direct-to-consumer customers are not South Asian, and I think that speaks to the mass appeal of the brand, and the overall efficacy and allure of Ayurvedic beauty.
- Cristina Nuñez Co-Founder and General Partner, True Beauty Ventures
Let me start by saying beauty is not immune to macroeconomic conditions nor is beauty resistant to a pullback in consumer spending, but it is resilient. Beauty outperformed the broader consumer industry during the last U.S. economic downturn in 2008. It was one of the quickest to bounce back after the pandemic in 2020.
And it continues to significantly beat most other consumer categories even while growth moderated in 2024. We know consumers will cut back on other purchases before cutting back on beauty. In absolute and relative terms, beauty has shown remarkable resilience, and I do not anticipate this innate quality to change.
While I understand Andrea Felsted’s concern, I disagree with her cautionary tale on the peak saturation of beauty. I do not believe the future of the beauty industry points to plateau or stagnation. I think we have entered a phase of moderated, but sustained growth driven by 1). the remarkable resilience of prestige beauty, 2). ever evolving and shifting consumer preferences, and 3). significant global market opportunities.
- Prestige beauty’s resilience: Prestige beauty being up 8% in the first half of 2024, as reported by Circana, is impressive coming off of three consecutive years of unprecedented growth from 2021 to 2023 (30%, 15% and 14%, respectively). In addition, the gap has not closed between the growth rates of prestige (up 8% in Q2) and mass (flat), where prestige beauty’s growth has consistently surpassed mass by six to eight points. Consumers are not trading down to mass the way we would see in other consumer categories during challenging economic times. While they are increasingly searching for value, how value is defined goes far beyond price. Efficacy, quality and experience can demonstrate meaningful value to a consumer and prestige beauty brands continue to benefit from their innovative, unique and premium offerings.
- Shifting consumer preferences: Have we reached peak beauty as Felsted posits? A resounding no. Why? Because the beauty industry is dynamic and ever evolving and beauty consumers’ needs and wants are constantly influenced and changing. Brands that can tap into consumer trends and values will continue to drive growth and have for decades. Emerging and niche categories (clean beauty, wellness, sustainability, personalization, etc.) still have significant room for expansion and adoption. These segments could see growth rates that significantly exceed the industry average as consumers become more discerning and try to align their product choices with their lifestyle and values.
- Global market opportunities: Beauty is global. If the U.S. market faces future challenges or even a recessionary environment, there are international markets that are thriving. The expansion of beauty globally and the opportunities in emerging markets with a rising middle class can help compensate for potential slowdowns in the U.S. and China. The global market dynamics are another way for beauty brands to sustain growth.
For the rest of the year, even a moderating or slowing beauty industry can still present a significant growth opportunity for young indie brands who have proven over and over again that they can take share from larger legacy brands and drive outsized growth. Indie beauty brands have nearly doubled their market share in the last two years and are significantly contributing to the beauty category’s growth. I expect this to continue and believe we will see the best indie brands (many of them in prestige) put up outstanding growth numbers in the second half of 2024.
In summary, no one expected beauty’s double-digit growth rates post the pandemic rebound to sustain indefinitely, but I do predict that the industry will continue to thrive. In my experience (and my bathroom shelf can attest to this), there is no such thing as fully “stocking up” on beauty products so long as trends, needs and newness abide.
- Rachel Fenlon Wholesale Financing Lead, Wayflyer
The prestige beauty market continues to face intense competition, particularly with the influx of celebrity-backed brands entering the high-end and pro-summer segments. This trend is increasing competition and eroding the market share of long-established brands.
However, there are tailwinds supporting the prestige sector. Mass market players are struggling as consumers trade up to more premium products. These customers are generally more responsive to marketing efforts and generate higher returns on investment. Many brands such as Sculpted by Aimee are also investing significant amounts in experiential brick-and-mortar retail stores, driving revenue and acting as an extension of their online brand identity.
Overall, we expect continued robust growth in prestige beauty. We are anticipating another record-breaking Black Friday this year, fueling this expansion. With sales online and in store beginning earlier each year, many beauty brands are securing inventory financing earlier than planned to ensure they receive their inventory order several weeks out from the main event and capitalize on pre-Thanksgiving sales.
- Christine Conway VP, Cult Capital
The beauty industry has demonstrated a remarkable recovery following the significant downturn during the COVID-19 pandemic. In 2020, prestige beauty sales dropped by 19%, but the sector has rebounded robustly, with sales growth of 30% in 2021, 15% in 2022, and 14% in 2023. Circana projects continued growth, albeit at a slower pace, as the market stabilizes post-pandemic.
I agree with Circana’s forecast, and I believe that beauty products will remain a critical avenue for consumers seeking affordable luxury during economic uncertainty. Traditionally, the "lipstick index" has described how consumers purchase small luxury items like lipsticks during tough times.
However, today’s landscape suggests that other beauty categories such as haircare and fragrance could take center stage in the future. For example, prestige haircare saw double-digit growth in various care and styling segments, while the fragrance category recorded a 13% increase in sales revenue, driven by the rising popularity of travel-sized and discovery sets.
Social media plays a significant role in driving these trends. Platforms like Instagram and TikTok have become powerful tools for launching and popularizing beauty product categories, keeping consumers engaged with the latest offerings and ensuring that beauty remains a relevant and growing industry.
- Michele Miyakawa Co-Founder and Managing Director, Moelis
Regarding the lipstick effect, the difference between historical recessions and today is that beauty products are no longer just connected in the consumer’s mind to small luxuries and happiness.
Today, the consumer turns to beauty products for health and well-being, which is why we believe the industry will continue to be resilient even in downturns. In many ways, the value proposition of beauty is changing from a look good/feel good to a need/solution-based use case.
Given the consumer is looking for effective beauty products that address a problem, the intersection of beauty and science will continue to be an area of focus, and any future prediction needs to also take into account how technology will quicken the pace of innovation within this intersection.
Historically, there has not been much innovation in aesthetics with many ingredients like retinol and hyaluronic acid having been discovered during the first half of the twentieth century.
However, going forward, given the focus on dermaceuticals from both the beauty and life science players, we believe that molecular discovery, with the help of technology, will begin to move faster and change the industry by creating more effective aesthetic solutions for the consumer and resulting competitive moats for brands around new ingredients.
- Rose Fernandez
Overall, I agree with industry experts that there has been a tempering of beauty growth, and I expect that the consumers will continue to be very mindful of their purchases, but still investing in their favorite or innovative higher priced items while trading down to lesser priced items with similar performance.
The economy and rising costs for everyday necessities have placed a strain on the consumer, and this coupled with the “buy less” movement is driving lesser growth than we have seen in previous years.
As a consultant working across categories and price brands, I can share that I observe mixed consumer behavior when it comes to beauty purchases. I do see that value remains, but not necessarily price related.
Consumers want more information—clinicals, studies, education to back up their skincare investments—and aspirational and artisanal-like creations in fragrance or body care serving as rituals and escape in some ways. In the fragrance and non-performance body care segments, the consumer sees these purchases as part of their wardrobe, personalization or wellness routines, and, as such, they are necessary.
I do see opportunities ahead for beauty in hair care, especially in two categories. The first is driven by the skinification sector, scalp in particular, and in the embracing age segment, the silver hair category is primed to take off, in my view, making it almost aspirational not a fix for gray hair, rather it is more about how to have glamorous gray locks.
There continues to be an opportunity to serve the 50-plus consumer through speaking to this consumer addressing real life changes—menopause, hormonal changes and imbalances that can be addressed through topical and ingestible formats across beauty and wellness.
Brands and retailers are messaging more to this crowd and recognize their ability to purchase and loyalty when their needs are met, though there is not a standout brand or brick-and-mortar retailer that has nailed this, and the customer is there. I predict a leader will emerge that can authentically deliver in a relatable and premium way.
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