Invest in the beauty industry as it takes on a new look
The beauty industry is proving resilient in troubled times, helped by its ability to shape new trends, says Maryam Cockar
The beauty industry continues to boom, despite the world economy being beset by doom and gloom. Global beauty retail sales hit $441 billion in 2024, with the sector expanding 7% annually from 2022 to 2024, according to a joint report by consultancy McKinsey and the Business of Fashion, a website analysing the fashion industry. They expect the sector to keep growing by 5% per year until 2030.
Ben Peters, portfolio manager of the Evenlode Global Income Fund, says beauty has been resilient in the recent downturn following the pandemic, and although growth has slowed, it remains in the mid-single digits, in contrast to other consumer-goods subsectors such as food or alcoholic beverages.
This may be due to some consumers splashing out on affordable luxuries in tough times, a phenomenon known as the “lipstick effect”. The term was coined by Leonard Lauder of Estée Lauder Companies (NYSE: EL) after the US make-up giant’s lipstick sales jumped 11% following the 9/11 attacks.
Start your trial of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Brook Harris, a global equity analyst at Sarasin & Partners, says consumers prioritising small discretionary purchases is also “evidenced by the resilience in the Chinese beauty market despite challenges faced by many luxury companies in that market”.
South Korea's beauty industry steps up
Some consumers have been trading down, turning to duplicates or cheaper alternatives to luxury products. They have also been buying more mass-market South Korean beauty brands brought to the fore by influencers and advertising on social-media platforms such as Instagram and TikTok. “As budgets came under more and more pressure... little luxuries had to prove they were worth it,” says Danni Hewson, head of financial analysis at AJ Bell.
“If there was a cheaper option that could deliver the same results, or almost the same results, a lot of shoppers were prepared to trade differently. In some cases, that meant trading down; in other cases, it meant seeking out a product that could do three things rather than one. Korean products became cult buys as platforms like [Instagram owner] Meta became better and better at filtering adverts our way.”
South Korea's beauty industry brands, known as “K-beauty”, are gaining traction among consumers thanks partly to their carefully curated subscription boxes. The country’s beauty market was worth $13 billion in 2024. AmorePacific (Seoul: 090430), the country’s largest beauty and cosmetics company behind brands such as Innisfree, Sulwhasoo, and Laneige, accounts for about half of the market.
“Consumers often seek out K-beauty for its emphasis on quality and skin compatibility,” says Olivia Houghton, head of beauty, health and wellness at strategic consultancy The Future Laboratory. “In places like India, where demand for science-backed beauty products is emerging, K-beauty’s alignment with these values positions it well for growth.”
The increase in beauty spending is being driven by pressure on social media to maintain beauty standards, as celebrities promote weight loss drugs, use injectables (products emulating the results of Botox and dermal fillers) and have cosmetic surgery.
DIY beauty treatments
Meanwhile, technology has become the next frontier in the beauty industry, with gadgets for use at home flourishing. This was notable in the initial public offering of The Beauty Tech Group (London: TBTG) last October, which raised £106.5 million. Its signature LED face masks from its CurrentBody brand make use of red-light therapy for anti-ageing benefits and are reportedly used by celebrities such as Kim Kardashian and Halle Berry.
“Devices and injectables are growing faster than the overall beauty market and are considered high-end treatments in many cases,” says Evenlode’s Peters. “Treatments may reduce use of other high-end products immediately afterward[s], but overall [the trend should help] solidify the growth of the sector.”
The beauty industry is also expanding to include men encouraged by the rise in male beauty influencers. This is driven by “shifting gender norms, increased self-care awareness and greater digital access to beauty knowledge”, as well as urban lifestyles and pollution spurring more men to adopt skincare routines, particularly among Millennials and Generation Z, notes Houghton. The male global grooming market is expected to reach $115.3 billion by 2028, according to global trend forecaster WGSN.
“Younger generations are increasingly seeing beauty as a form of personal expression rather than purely hygiene. This is supported by the growth in fragrance and skincare over the past few years, as men take a greater interest in the formulation and benefits of them, as opposed to just a one-size-fits-all approach that previous generations may have taken,” according to Sarasin’s Harris.
With social-media platforms sparking beauty fads and influencers promoting trends, consumers are increasingly shopping online. But physical shops are still the preferred places to buy cosmetics for most shoppers; key names include Boots, Superdrug and Sephora, owned by French conglomerate LVMH (Paris: MC). Beauty brands are therefore now taking a more omnichannel approach blending online and in-person shopping.
“It’s hard to visualise how a shade of lipstick might look without trying it on or feel how a moisturiser plumps up our skin without testing it out on the back of your hand,” says AJ Bell’s Hewson. “But many brands have developed tools to help us replicate that bricks-and-mortar experience on our screens, and AI will simply supercharge that.”
Omnichannel selling, “supported by e-commerce, live selling, and AI tools, provides beauty brands with significant benefits by fostering a personalised... shopping experience”, and loyalty from consumers, says Houghton.
Measuring the beauty industry's success
But in a saturated beauty market, there have been winners and losers. Successful brands are those that can deliver “genuine product innovation to consumers”, combined with effective marketing campaigns, according to Harris, such as e.l.f. Beauty (NYSE: ELF).
Upstarts launched online and sometimes helmed by celebrities – such as Rare Beauty, majority-owned and promoted by actress Selena Gomez, and Fenty Beauty, of which singer Rihanna owns 50%– have nimbly used social media rather than invest in traditional marketing to outpace established firms that have been slow to respond to consumers’ preferences. “Marketing has always been a significant operating expense for beauty brands, with L’Oréal spending over €14 billion a year on advertising and promotion,” says Harris. “However, the way marketing is delivered has evolved considerably. Digital platforms can offer more targeted and measurable returns than traditional channels.” Estée Lauder, whose brands also include Clinique, M·A·C, and Jo Malone London, has struggled to keep pace with new upstarts.
“They have not been connecting with consumers in the distribution channels that have been growing the most. Only recently have they launched on the Amazon Premium Beauty Store in the US, for example, while also retaining considerable exposure to underperforming channels such as department store beauty counters.” Estée Lauder has also been hampered by its reliance on the Chinese market, where domestic brands have upped their game in recent years.
The success of upstarts has led to a bout of dealmaking in the industry as large companies bid to stay competitive: e.l.f. Beauty purchased Rhode for $1 billion, Estée Lauder acquired The Ordinary, and consumer-goods giant Unilever (LSE: ULVR) bought men’s natural personal-care brand Dr. Squatch for $1.5 billion.
L’Oréal scooped up a majority stake in Medik8, increased its stake in injectables maker Galderma (Zurich: GALD) and is to buy Kering’s beauty division for €4 billion, which includes licences for the Gucci, Bottega Veneta and Balenciaga fashion brands.
The star of the beauty industry
“It’s impossible to talk about beauty success stories and not immediately talk about L’Oréal,” says Hewson. “The company has consistently delivered... adding new brands to its stable to capitalise on emerging trends and leveraging its size to enable it to invest heavily in both product development and beauty tech. It learns from the companies it acquires. It doesn’t try to change them to fit into its current portfolio but constantly evolves... to fit with today’s user.”
There is “selective value” in the beauty industry, according to Peters, with L’Oréal a core holding for the Evenlode Global Income Fund. It also holds a position in LVMH. The sector looks “well placed to grow for the medium term, with innovation being driven by key players and startup brands alike”.
Given the overall state of the beauty industry, however, it will be a year for stock picking rather than gaining broad sector exposure. L’Oréal will to remain the market leader, as it is well placed to continue investing in research and development (R&D), and marketing to support the generation of income, although its shares trade at a “fairly challenging multiple”, suggesting the market appreciates its strong business model.
Estée Lauder is addressing some of its challenges, reckons Harris, but turnarounds can take time and could result in a volatile share price performance. Shiseido is facing “structural challenges” owing to its overexposure to Japanese department stores and the loss of Chinese tourism to Japan, a result of a stronger yen. LVMH’s stock performance is more closely linked to its Louis Vuitton and Dior luxury fashion houses.
Although consumers’ shaky confidence remains a headwind for the beauty industry, particularly in the US, a large market where lower-income consumers’ disposable income is being squeezed, the longer-term outlook is more auspicious. Beauty is expected to benefit from expanding middle classes in emerging markets, more product innovation, greater exposure online and the growth of at-home technology devices and injectables. More dealmaking is also likely to be on the cards. The sector remains a resilient performer in an uncertain world.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.