The global beauty market, particularly in brick-and-mortar channels, faced significant challenges in the past two years, particularly due to the global COVID-19 pandemic. But this industry is resilient and has seen a radical transformation. The sector has grown through expansion through digital channels and a shift to premium and specialty products. Globally around 25% of sales of beauty products are online, but more importantly, the development of online sales has changed the potential market reach of brands that once were considered as selective.

Now any brands can be accessed by unlimited numbers of consumers. Luxury brands are no longer limited by selective distribution; professional hair care brands are expanding beyond the barriers of salons; derma-cosmetics brands have found new social media ambassadors/influencers beyond dermatologist and are now talking to a wider consumer base.

Beauty Industry: Skin Care

The skin care segment transformed in the last two years, with the explosive growth in “medicalized,” or derma-cosmetics. This will likely continue in the year ahead. Derma-cosmetics accelerated despite the pandemic, perhaps because people wanted to take better care of themselves. It was mainly a European market in the past, but it has become a global market, with brands like CeraVe, Cetaphil, Eucerin, and La Roche-Posay booming in the U.S., with approximately 15% growth. This sector is growing by double digits in Europe as well, and in China, growth is between 30% and 40%. One key difference is customers are increasingly buying online versus in drugstores.

These derma-cosmetic brands answer three important needs that induce consumers to pay a premium for them:

1. They’re recommended by dermatologists, which makes their use feel prescribed.
2. Because they are certified by dermatologists, consumers feel they are safe and efficient to use.
3. They don’t overpromise, which lends authenticity.

They also mostly eschew fancy packaging and lengthy ingredient lists. It’s not surprising that this is the fastest-growing and most profitable sector in skin care, and it has a lot of speed to gain because it’s still a relatively small market in volume.

L’Oréal was previously dominated by its mass-market-product footprint, while medicalized skin care, which they call “active” cosmetics, was a small division — about 6% of sales. In 2019, this business grew by 15%. In 2020, when the whole market was collapsing, active cosmetics grew by 19%. By the end of September 2021, active cosmetics grew by close to 33%. Not only has the Active Cosmetics Division of L’Oréal been the fastest growing in 2021 but it is also the most profitable. It’s a nearly €4B business unit that should reach €5B by 2023 if not in 2022.

The growth in premium products will continue to outpace mass market in 2022.

All companies want to reinforce their skin care business right now. It is a growing, profitable category. All large groups have recently invested: Beiersdorf with Chantecaille; P&G with Farmacy and TULA; L’Oréal with Youth to the People; Unilever with Paula’s Choice; Puig with Charlotte Tilbury; Estée Lauder with Deciem. This is impressive activity that will continue.

Beauty Industry: Hair Care

The second market is hair care, especially professional/premium hair care. For a long time, the premium market was limited to salons — brands such as Kérastase, Olaplex, and Wella Professionals. When salons closed in 2020, manufacturers realized they needed to carry on, and they opened their doors to online and retail sales. These brands have seen incredible growth. Retailers such as Sephora and Ulta are investing in the segment, significantly expanding their shelf space and online roster for premium hair care brands.

Since it moved online, Kérastase has grown in Europe, the U.S., and even more in China. The brand was recently being listed by L’Oréal as a soon-to-be billon dollar brand.

Perhaps the hair care market’s premium story is best illustrated by Olaplex’s successful IPO. The premium brand, which is sold through professional and direct-to-consumer channels, was valued at $15 billion post-IPO. Not only is it a great market, but it’s a market that is going to be transformed.

Beauty Industry: Fragrance/Makeup

Fragrance has also bounced back and shown growth. In 2021 we saw a surprising rebound of the fragrance market. But one market that is taking longer to return to pre-pandemic levels is the makeup segment, which has been softening in the past few years. The numbers don’t measure up to the strong growth of other segments. In many countries, people are still working from home in significant numbers or they’re wearing masks that cover a portion of their face. That could be translating to less demand for makeup. In 2022, we’re likely to see this area begin to bounce back.

Beauty Industry: Digital Growth

All these segments have had explosive growth in digital sales. L’Oréal had a 62% growth in digital in 2020. In the first three quarters of 2021, 29% of its sales took place online. That kind of change impacts the organization, and they’ve responded by beginning to think about the consumer experience online. They’re developing facial recognition and color recognition tools to tailor the experience for consumers and differentiate their brands.

What is very interesting is, 20 years ago, some people were saying that the beauty market would one day be dominated by the mass market. Not at all. The market is fragmenting, with more and more creative brands. The digital transformation is revolutionizing the kind of experience consumers have in the beauty market. It’s a fascinating market that we’ll see evolve and grow for many more years.

Read Our Earlier Beauty Industry Article

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About Didier Tisserand

Didier Tisserand is an independent consultant and was most recently Managing Director, Brand Portfolio Management, at L’Oréal. In this role, Didier was responsible for integration efforts of all global smaller brands acquired. Prior to this, he was President and Chief Executive Officer at L’Oréal, Brazil, L’Oréal, Spain and L’Oréal, Italy. Before this, he was Managing Director of the Professional Product Division at L’Oréal, Japan, and Managing Director of the Professional Product Division at L’Oréal France, U.K., and Ireland.

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This beauty industry article was adapted from the GLG Roundtable “Beauty Industry: 2022 Outlook.” If you would like access to events like this or would like to speak with beauty industry experts like Didier Tisserand or any of our approximately 1 million industry experts, please contact us.