I have often questioned the expression ‘a perfect storm’. When multiple factors combine to create a unique situation, the situation is often far from ‘perfect’. Such appears to be the case with today’s beauty industry, where times have rarely been more challenging due to pressures from all sides...

Historically envied for high margins and growth, it seems that traditional beauty brands and companies are in a fight for survival on multiple fronts.

The pandemic has driven a 24% reduced industry sales (source: NPD), L’Oreal has just reported a net profit drop of 5% and Shiseido an 87% fall in operating profit. Unsurprisingly, with so few in-person events, cosmetics have borne the brunt with a 40% decline. Skincare and fragrance lines held up better at around half this. 

Disruptive forces intensify pressures

What is interesting is how this disruption has accelerated and intensified a range of industry pressures which might previously have taken a years to play out.

Firstly, the imperative to keep up with increasing numbers of competing brands. Online beauty presents relatively low barriers to entry and brands like Charlotte Tilbury, Drunk Elephant and Rhianna’s diversity-positioned Fenty have been able to explode from seemingly nowhere. Launched only eight years ago, industry site Glossy reported last summer that Charlotte Tilbury was valued at £1bn.

Secondly, beauty retail has shifted seismically with an ever more complex mix of brands and retailers chasing the same increasingly informed and selective customers. 

UK online beauty sales doubled in 2020 through a mix of beauty e-tailers like Cultbeauty and Lookfantastic, online platforms from traditional department store channels, brand specific direct-to-consumer sites and the continued rise of specialist beauty stores like SpaceNK, Sephora and Ulta in the US. As an industry led heavily by influencers and social media, ‘social shopping’ opportunities on Instagram, YouTube, TikTok etc. are also likely to skyrocket.

The importance of differentiating digitally

Digital capability is fundamental for beauty companies to build and maintain the awareness, storytelling and engagement that a new generation of highly engaged beauty customers now expect. During 2020 brands and retailers had the imperative to innovate at an incredible rate, but slick search and navigation, loyalty programmes, live streamed content, bookable online consultations, celebrity endorsement and targeted social media campaigns are now seen as table stakes. 

Brands are coming up with innovative ways to differentiate digitally. For example, Givenchy’s adaptation of the videogame Animal Crossing where ‘players’ can customize the beauty look of their characters and Unilevers’ Murad branded content site ‘well connected’, which links science to wellness may be more than gimmicks. The world of social media and beauty influencers remains key to speeding and strengthening brands but is increasingly complex to navigate.

Notwithstanding the commercial landscape, the technical and new product innovation bar has risen several notches. As an example, Active or clinical skincare is expected to see some of the the highest growth in the next few years. The sole L’Oreal business unit to grow in 2020 was its Active Cosmetics business which saw 19% like-for-like sales growth in 2020 and recorded a 31% increase in Q4 alone. 

A spike in science-based products 

Consumer interest appears to be shifting from lighthearted and clean beauty brands to more medical-grade, science-based beauty products. German dermatologist Dr Barbara Sturm's medical-based brands company has grown 300% every year for the last 3 years. In response to this trend, Beiersdorf recently announced a €60m investment in technical centre investment to sharpen their competitive edge, while L’Oreal kicked off a major collaboration with several hundred healthcare professionals. 

While competing technically is challenging, there is also the complex path the industry needs to tread around increasing consumer consciousness around diversity and social justice. There is a genuine need to have different products to meet the needs of a diverse consumer base. 

In addition, brands need to be authentic investors to demonstrate their commitment, Ulta, Unilever and L’Oreal and many more have set up inclusivity funds to support diversity in their supplier and employee base and customer service. Beauty companies also need to add sustainability to the mix with a drive for ethically-sourced and sustainable ingredients and manufacturing, recyclable packaging and community building. Increased regulation is also looming - the list could go on and on…

This less than ‘perfect’ storm for many beauty companies means an increasingly complex and difficult to navigate landscape. While superior product, strong storytelling, integrated marketing and wide distribution will always be key for brands to be successful, having the agility to adapt to changed consumer demands in a post-pandemic world and differentiating through technical, digital, social and commercial leadership will require a new menu of skills and nerves of collagen-stimulating steel.