Post the Pandemic, the beauty industry is poised to strike a purple patch sooner than the polish would dry on the nail. And chances are the industry will still keep up with 2025 estimates of $800+ billion, up from $523 billion in 2019, and register a CAGR of over 5%.
The beauty industry includes personal care products and services that address applications like skincare, baby care, hair, nails, and toiletries. Related areas include bath and shower products, oral care, and men’s grooming. Worldwide, services outweigh products in the ratio 2:1.
Traditionally, beauty products enjoy strong brand loyalties. The rationale is that customers are not buying cosmetics, they are buying hope. And hope takes the avatar of a specific brand.
So how have beauty brands performed over time?…
– The growth of skincare: Skincare as a segment has witnessed the highest growth rate. This is expected to continue. Rising pollution across the world and increased usage of makeup and other cosmetics are increasingly affecting people. Skincare is a direct corollary to this issue.
– Increasing appeal of the Indies: Korean and Japanese approaches to beauty have been appealing to Western audiences. Accordingly, products which are based on ingredients from the Indies have a distinct and growing following.
– Clean beauty is the future way: Clean beauty is akin to organic farming. It is all about creating products with wholesome ingredients with no abuse of the environment.
How Covid Has Affected the Beauty Industry
Covid has had a significant impact on several aspects of the industry.
Markets: There are distinctly 2 parts to the spending on cosmetics – the discretionary part and the staples part. Discretionary spending is seriously impacted with Covid. With more people working from home and many losing jobs, spending on personal care products like party makeup and special occasion grooming has taken a beating. Simply put, you don’t need to look good this evening: there’s no party after all. But there are other sets of beauty products that customers will use, whatever the situation. This consumption has not been affected by Covid.
Buying shifts to online: Supermarkets and convenience stores have reported a high decline in sales, thanks to social distancing and lockdowns. But expectedly, sales through online stores and platforms reported impressive growth numbers.
Supply chains disrupted: With most manufacturers having global sourcing models, lockdowns and/or trade barriers have disrupted their supply chains. As a result, the supply of raw materials to factories and the movement of finished products to the markets were put in jeopardy.
The industry players can be classified into pure-play beauty product manufacturers and diversified conglomerates, which have a significant presence in the beauty industry.
Dedicated firms in the beauty industry include Estée Lauder and Coty Labs in a long list of players with a presence in diverse segments.
Market Cap of Major Players in the Beauty Industry
Source: Yahoo! Finance
Estée Lauder (EL) is a $14.29 billion company having brands that include Aveda, MAC Cosmetics, Bumble and Bumble, and Clinique. Coty Labs (COTY) is a $9.4 billion (2018) company having a portfolio of more than 70 beauty and cosmetic brands. In fact, Coty was in the news through a $12 billion deal to acquire Procter and Gamble’s beauty business. Ulta (ULTA) is a $6.16 billion beauty store chain that sells products and provides services, at over 1,000 locations. Other niche players include Revlon (REV) and e.l.f. Beauty (ELF).
Beauty Stocks in ETFs
Interestingly, the beauty industry has a strong partaking in the Consumer Staples sector. Staples by nature comprise products that do not normally suffer demand decline because consumers buy these products despite fluctuations in their incomes. There are sections of beauty that are less demand elastic, which makes them staple consumption goods.
Elasticity Percentages of different Beauty Stocks in ETFs, 2021
A few of the top names in the beauty industry find a presence in popular staple and discretionary ETFs. Estee Lauder for instance is a part of ETFs like Consumer Staples Select Sector SPDR Fund (XLP) and Vanguard Consumer Staples ETF (VDC), while ULTA adds shine to Invesco S&P 500 Equal Weight Consumer Discretionary ETF (RCD) and SPDR S&P Retail ETF (XRT).
Percentage different Beauty Stocks in ETFs, 2021
Add Beauty Stocks to Your Portfolio
The end of the Covid gloom should mark a significant comeback for this industry. The cheer sounded by big beauties will set the bulls running again. Investors can expect markets to return to normalcy sometime in the near future. Experts believe the pent-up demand will explode and endure at elevated levels for the foreseeable future. As a result, stocks of movers and shakers in the beauty industry can be grand picks for your portfolio.
However, one thing can be said with certainty – if indications turn out right, the one colour you will not see at the bottom of this industry is red.