Stylists, nail care, tanning centers, aesthetic treatments to fight aging… In recent years everything related to personal care and the image we project has skyrocketed and the data shows it. According to CB Insights, in 2023 the cosmetics industry will generate 800,000 million dollars, 50% more than in 2017, when turnover reached 530,000 million. This evolution has two main catalysts: the increase in life expectancy and the new generations.
In this regard, if two decades ago we were expected to live an average of 67.4 years globally, today this forecast already exceeds 72 years. “The rapid aging of the population has led to a strong demand for products to prevent the passage of time, driving the growth of the industry,” they indicate from the consulting firm Orbis Research. In fact, skin care has been and will continue to be the most profitable business line in the industry, with a market share of over 35%, according to data compiled by Statista.
On the other hand, the new generations and their way of consuming are causing an unprecedented change in the industry. The access channels to these products have multiplied exponentially thanks to the Internet. Now, customers do not have to go to a store, but have an infinite catalog at their disposal at the click of a button. Already in 2017 those known as millennials (born between 1980 and 2000) consumed 25% more cosmetics than two years before. This increase is not surprising considering that they usually use 6 or more beauty products a day, according to NPD.
The ‘millennial’ generation uses 6 or more beauty products a day
If millennials, who make up more than 2 billion people worldwide compared to 1.4 billion Generation X (1965-1980) and 1,200 baby boomers (1945-1964), are a crucial growth engine, subsequent generations are not far behind. Generation Z and generation T are digital natives, so their consumption habits are highly marked by this circumstance.
To sample a button: More than 1 million beauty videos were viewed on YouTube every day last year, while, as Ernst & Young reports, almost 70% of purchases are digitally influenced. Added to this is the fact that more and more men consume cosmetics. EY forecasts growth of 6.4% between 2017 and 2021 in this segment.
“Since Unilever’s acquisition of Dollar Shave Club in 2016, M&A of men’s grooming brands have skyrocketed. In late 2018, P&G bought Walker & Company Brands, in May 2019 Edgewell acquired Harry’s Razor Company and Recently, SC Johnson bought the men’s skincare brand Oar + Alps,” they argue from CB Insights.
The great beneficiaries
As it could not be otherwise, the main beneficiaries of these trends are the companies in the industry. According to expert forecasts, the ten largest companies in the sector will jointly earn almost 51,000 million dollars in 2021, 6% more than last year.
The S&P Global Luxury, made up of the 80 largest listed companies whose businesses are related to the production or distribution of luxury goods or that offer services in this field, includes four cosmetic firms among its ranks. These are Estée Lauder, Shiseido, AmorePacific and Interparfums. Among them, the experts’ favorite is undoubtedly the company founded by Josephine Esther Mentzer, better known as Estée Lauder, and her husband Joseph Lauder in 1946.
Influenced by her pharmacist uncle, Estée Lauder, who handled creativity, product development, and sales while her husband managed finance and operations, she started her small business with four products that she began selling in hair salons. Manhattan beauty. 73 years later, the Estee Lauder Companies is one of the largest conglomerates in the industry.
It is worth more than 70,000 million dollars on the stock market, earns more than 1,700 million and invoices almost 15,000 million in the more than 150 countries in which it is present. Among its more than twenty brands are some such as Bobbi Brown, M·A·C, Too Faced or Tom Ford Beauty. For Deborah Aitken and Maxime Boucher, Bloomberg industry analysts, the firm is confirming with its figures “the profitable improvements in models from China, Asia and skin care. With almost 50% of revenue and more than 80% of the profits, skincare drives your success.”
The importance that the North American group gives to this line of business has been demonstrated with its latest purchase, its first of K-Beauty (it is a general term for skin care products derived from South Korea). Thus, Estée Lauder has taken over the two-thirds that she did not have of the firm Have and Be, owner of Do The Rigth Thing and Dr. Jart +, and valued at 1,700 million dollars. The goal is to expand in Asia/Pacific, which currently accounts for 25% of its turnover, North America and the United Kingdom.
“We like that Estée Lauder chose to walk over run to acquire its first Asia-based beauty brand. In 2015, during the height of the K-Beauty craze, as others clamored to take advantage of this emerging trend, the firm decided to try first by acquiring a minority investment in Dr. Jart+, known as the “BB cream pioneer” but also prized for its innovative formulations.Four years later, while K-Beauty isn’t generating as much buzz as it had in that At the moment, we believe that Dr. Jart+ is one of the fastest growing skin care brands globally and appeals to a wide range of consumers in Asia and the United States,” they say from Barclays.
For fiscal year 2020, which will close next August, estimates suggest that the US company would earn close to 2.2 billion dollars, 22.3% more than in the previous period.
One month before 2019 ends, the firm rises more than 50% on the stock market, which would be its best stock market year since 2010. In fact, in September it set all-time highs by reaching $207.03 per share. Analysts who follow it, who recommend buying its titles by more than 60%, believe that it still has a way to reach $208.18, of which it is more than 6% away.
Another of the companies that has gone shopping to strengthen its business has been Shiseido. The Japanese brand announced in October that it was acquiring one hundred percent of the American company Drunk Elephant for 845 million dollars. For this, he has had to battle, precisely, with Estée Lauder. The fight for Drunk Elephant is not surprising considering that its main audience is the millennial generation.
In addition to opening a window to this social group, Shiseido has bought into the concept of “clean beauty” as Drunk Elephant is known for its formulas free of disreputable ingredients and for its sustainable philosophy. Hence, it connects so well with this part of the population. This move fits into the vision of its CEO, Masahiko Uotani, who arrived in 2014. Uotani, who is the first in his role to come from outside the firm in its more than 140 years, wants to make Shiseido a global brand. . Therefore, he appointed five non-Japanese CEOs. “Investing in Shiseido lies in creating new brand value under the strong leadership of Masahiko Uotani,” they argue from JP Morgan.
If the forecasts are correct, this year Shiseido will improve its profit by 31%, up to 730 million dollars, a record figure. “We believe that the long-term prospects for earnings growth are bright thanks to the acceleration of strategic investments,” they add from JP Morgan. According to EY data, in both 2017 and 2018 cosmetics M&A activity reached all-time highs. “Despite an increasingly saturated market, beauty has proven to be a solid investment category thanks to its high margins, recurring buying patterns, and general resilience to macroeconomic events such as recessions,” they explain from CB Insights.
For its part, the South Korean Amorepacific, a beauty and cosmetics conglomerate, defends one of the highest gross margins in the sector. For 2019 it is expected to be 72.8%, that is, for every 100 dollars entered, 72.8 dollars would be gross profit. Only South Korea accounts for more than 60% of its turnover.
In the case of the French Interparfums, one of the large multinational perfume companies, although it has a recommendation for sale, it counts in its favor on the importance of this segment. According to Stanpa, the National Association of Perfumery and Cosmetics, “perfume consumption represents 20% of the total beauty industry.”
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