Is Makeup ‘over’ in the US?

When it comes to recession-proof product categories, makeup is often considered a safe bet. There’s even a phenomenon describing this: the Lipstick Effect, the theory that affordable luxuries – like lipstick or perfume – appeal to consumers during economically straitened times.

Makeup is deeply embedded in consumers’ everyday lives. For American women (and an increasing number of men), applying makeup is one of the first tasks of the day, something that alongside hair styling, shaving and other regular maintenance, adds up to two weeks of every year. There’s a financial cost too, with makeup wearers spending an average $1,380 per year on cosmetics, according to a 2017 survey by Groupon.

With consumer spending so high, the last five years have been a real boom for the US cosmetics industry. We can put part of this growth down to the burgeoning online beauty ecosystem, led by Instagram influencers – often with lucrative brand deals – and dedicated beauty channels on YouTube, which dish out advice, tutorials and reviews of the latest hot products. There’s never been so much access to information on beauty, resulting in a savvy generation of consumers who like to experiment with fresh styles and application techniques.

New technology has also brought new motivations for looking great. Giving good face on social media is now a key reason to invest in makeup, as selfies – with more than a little help from filters – demand a flawless complexion. A number of brands even reference this in their product names, including Smashbox’s best-selling Photo Finish Primer and Photography Fluid serum by NIOD.

Boom and Bust

However, all good things must come to an end: for the first time in several years, the US cosmetics market has begun to stagnate. L’Oréal missed estimates for Q2 sales growth earlier this year, caused by a downturn in US demand for cosmetics, while North American sales dipped 2% at Estee Lauder.

Meanwhile at Coty – which recently paid for a 51% stake in Kylie Cosmetics (itself seeing a 62% decline in online sales through the end of May from its 2016 peak) – there was a 13.5% drop in sales across the company’s consumer beauty segment. Analysis by NPD uncovered a similar story across many prestige brands during the first half of 2019, with only Benefit and Charlotte Tilbury left unscathed.Consumer spending data clearly reflects this decline, particularly among younger audiences. The proportion of US women aged 25-34 who had purchased cosmetics during the previous month fell four percentage points in Q3 compared to the same period last year, according to GlobalWebIndex statistics, while sales among the 16-24 demographic were down by five percentage points.

So what is causing this slowdown? Some have argued that consumer priorities are simply shifting from cosmetics to skincare, a topic of increasing interest among the under 34s – who are also the largest makeup consumers in the US. Writing in The Cut in 2018, journalist Ashley Weatherford observed“Seemingly overnight, everyone I follow has morphed into a skin-care obsessive…millennial women want to talk about their routines, their acids, their one go-to serum”.

But beyond the anecdotal, this growing passion for skincare is also supported by figures from NPD Group, revealing that prestige skincare grew 13% and accounted for 60% of the industry’s total gains in the US during 2018. By contrast, makeup was up by just 1%.

An increasing preoccupation with wellness – which promotes a more holistic approach to health and beauty – could be what’s motivating young consumers to step away from their contouring brushes and focus on fixing the underlying health issues and skin problems that prompt some to wear heavy makeup. Creating an optimal canvas is key.

Talking to Vogue Business, Melanie Bender, General Manager at Versed, a sustainable skincare brand from Clique (the parent company behind the fashion blog Who What Wear), echoed this sentiment: “Whereas makeup is temporary and feels like something you put on for others, skincare is an investment in yourself”. This was underlined by a survey of Clique’s audience, which saw 63% of women treating skincare as an investment in their wellness, with 37% wearing less makeup as a result.

2019: The Year of Skincare?

As US skincare sales take off, there’s evidence that the category is also beginning to outstrip makeup in terms of consumer buzz online. On Reddit – a key community for those curious about skincare – these products started to generate more conversation than makeup for the first time in March 2019. By October, there was 37% more discussion around skin-focused products than cosmetics, illustrating how the topic has grown in importance.

Online communities reveal consumers’ appetite for information on skincare as well as innovative products. Advice on establishing an optimal skincare routine was the top ask between March – October for Reddit users, driving 12% of conversation and many brand recommendations from passionate enthusiasts.

However, in many cases, independent beauty brands attracted greater advocacy from users, representing eight of the 15 most discussed brands during this period. A third were Asian entrants (COSRX, Hada Labo, Innisfree, Etude House and Dear, Klairs), who were joined by Paula’s Choice, Murad and Peter Thomas Roth in the indie bracket.

Paula’s Choice earned more recommendations than both Kiehl’s and Estee Lauder, signalling a gradual shift away from mainstream brands towards newer players who are able to be more responsive to consumer needs. Shorter development cycles, for example – as little as 13 weeks from concept to launch at e.l.f. Cosmetics – are a significant improvement on the industry benchmark of around two years, a lifetime for the online beauty community.

If you can’t beat them, buy them

Shiseido – the world’s oldest cosmetics company – took matters into its own hands in October, acquiring buzzy challenger brand Drunk Elephant for $845m. The sale was considered by many to be an attempt to reach the Millennial consumers deserting veteran makeup brands in its North American portfolio, such as Nars and Laura Mercier.

Drunk Elephant bills itself as a ‘clean’ skincare brand, creating natural products free of what it calls the ‘suspicious 6’ (essential oils, drying alcohols, silicones, chemical sunscreens, fragrance and SLS). This philosophy is particularly appealing to consumers under 34: in fact, according to a survey from management consultants AlixPartners, buying beauty products containing all-natural, high quality ingredients was the biggest priority for this age demographic.

However, almost two thirds of US consumers overall want to buy healthy or ‘clean’ beauty products, illustrating how concerns about transparency aren’t limited to Millennials alone. As such, the acquisition was a good call by Shiseido, and one that more beauty conglomerates will need to consider in order to stay afloat.

Fortunately, there are many up-and-coming skincare brands to whet investors’ appetites, several of whom (e.g. Milk Makeup, e.l.f.) also produce cosmetics. Looking at a selection of top challenger beauty brands, Glossier has been by far the most discussed online by US consumers in 2019. The Millennial pink-loving company, which describes its objective as “skin first, makeup second”, accounted for 39% of challenger brand conversation, thanks to its ubiquity in selfies, and hero products like the Balm Dotcom lip balm and Cloud Paint blush.

A further three independent beauty brands have attracted more than 50K online mentions in the US this year to date: E.l.f, Milk Makeup and The Ordinary. While e.l.f’s success hung on a coveted recommendation from Jeffree Star in March, Milk Makeup channelled some of Glossier’s Instagrammable minimalism to sell products like its Hydro Grip primer throughout the year.

In fact, product design is one of the key USPs of these challenger brands, who create items designed to be shared on social media – in ‘shelfies’ or flat-lays. For Milk Makeup, the visual link is even clearer, as the line comes from the founders of Milk photography Studios in New York. Only The Ordinary eschews this approach, opting for pared-down packaging that enables consumers to buy a serum for $7 compared to $30 at Paula’s Choice.

Is makeup facing its final days in the US? Not just yet, but the category is evolving. Thinking about beauty in a more holistic way – encompassing health and beauty, internal and external – is essential if legacy brands are to survive. Whether companies do this through acquisitions or by overhauling product formulations and packaging, the Lipstick Effect (perhaps Glossier’s Generation G?) will endure for another economic cycle.

Originally published on the EntSight blog.


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