Across categories, prestige has suffered the most, a former executive at Pacifica Beauty told Forum, with growth dropping about 20% in 2020. However, according to NPD Group, it is back on track and growing at +30% vs 2019, which is higher than pre-COVID-19, our specialist noted. “Of course they’re going to be anniversarying the 2021 huge year, but I would see that still continuing at about a +10-15% growth.”
Due to pent-up demand, cosmetics growth was also up about 20% in 2021, driven by innovation and price increases, we were told. “I would guess it’s going to be another good year of +15% growth,” the expert said. Skincare also continues to be “on fire”, with 15-20% growth in 2021, they added, although fragrance was the star of the show, at about 50%. However, fragrance could fall into single-digit territory in light of 2022’s challenges. “If there are any economic headwinds, prestige fragrance is probably an area that will turn negative and suffer a bit,” the executive at Pacifica Beauty said. Haircare also had a good two-year run, the expert said, with 47% growth last year. “This year, I can clearly see it’s hit Q1 also, out of the gate, it’s very strong, and I can see this being in the 15-20% growth phase as well.”
Interviews also highlighted the trend of “skinimalisation” – the desire for fewer products with greater impact. Ingredient-led products, including those with SPF, vitamin C and retinol, as well as “clean beauty” and microbiomes, are part of this shift, we were told. Another example is marine ingredients, with sea plasma and algae now used to protect against the damaging effects of blue light.
Turning to retail competition, several observations were made. Target continues to win market share in the mass space, we learned, while Walmart is doubling down on beauty as a strategic category. “The one that I probably don’t see sparking is Kohl’s,” the expert said. “Basically, they wiped out their entire beauty department, plopped in Sephora, but it just doesn’t seem like traffic is there, but time will tell.” We also heard that Nordstrom has “bounced back” and Macy’s is continuing to “reinvent” itself. However, the specialist believes that “it’s still a Target-Ulta show at this point”, with Ulta also “humming right along”. Although Amazon will “always be lurking through sheer girth”, our specialist views the tech giant as “more of a replenishment” player. While it is clearly a threat, brick-and-mortar is “such an important piece in this day and age, and we’ve seen it bounce back”, they said.

Meanwhile, we were reminded of the increasing importance of sustainability and transparency to consumers. “Creating products that can be recycled and upcycled within beauty is almost a rite of passage now, so you’re going to see more products that have better refills, that are waterless, that take sustainability to a whole new level, and I think you’re going to see many more products that don’t look like your typical beauty product, moving forward,” a former VP at L’Oréal said.
On the topic of supply chain risk from COVID-19, we heard that brands are increasingly opting for multiple contracts. “It’s not like one size fits all anymore, and you can’t put all your eggs in one basket. Almost dual sourcing and dual logistics from a 3PL standpoint is really what’s going to help companies achieve the growth,” a divisional leader at Guthy-Renker Ventures said. Incumbents including L’Oréal and Estée Lauder are well positioned to weather the storm, we were told, as they have more negotiating power. “The brands that will suffer will be the smaller start-ups, indie brands that don’t have any financial backing behind them.”
Overall, our experts are bullish about the beauty industry, although across Interviews supply chain disruption and inflation were flagged as potential roadblocks in 2022 and beyond. Sustainability is now table stakes, we also learned, and specialists also noted that wellness is now a fundamental theme across categories.
Appetite for clean and ethical products is at an all-time high, with diversity also increasingly on brands’ agendas. More products catering for BIPOC and Latinx consumers are expected to fill shelves. Facial device companies could also be a strong growth area and ripe for M&A “for the next four or five years” as legacy brands try to develop a presence here. Another point raised was the role of social media in driving success, with one expert remarking that there are only so many formulators, scientists and ingredients available for products. “It’s how you combine it and how you market it,” they said.
We also heard that global supply chain misallocations have resulted in some launches being pushed back during Q1 2022. While Q1 is therefore expected to be “a little choppy”, our expert nonetheless expects robust growth across the entire beauty segment in 2022. “Obviously, 2020, horrible, 2021, a bit of a rally, and the Q1 early reads appear to be broad beauty at about a +15-20% growth rate.” However, this could slip to 10% as inflation and geopolitical tensions bite, they said.
The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.
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