The beauty industry experienced deep pain over the past year as it saw some big shifts.

The makeup category suffered losses, especially among teens, with Piper Jaffray reporting a 21% year-over-year decrease in spending among that group. It’s unclear whether teens are wearing less makeup or just spending their money on experiences at the expense of fashion and cosmetics. Whatever the reason, the markets weren’t kind to industry stalwarts Estée Lauder and L’Oréal, while retailer Ulta also saw a dip. It’s clear the $532 billion global beauty industry is undergoing changes as skincare gains more prominence.

Why did the industry decline in 2019? The lack of innovation in color cosmetics was a big contributing factor. Meanwhile, the rise of skincare, with its anti-aging claims, also impacted the potential growth of color cosmetics. A lot of retailers, especially Sephora and Ulta, depend on new brands or products for growth. In the end, 2019 proved to be a lot more of the same, with new eyeshadow palettes seemingly launching almost every day.

Of course, beauty has been historically cyclical. For example, lipstick and lip liner declined when lip gloss became a subcategory. Change happens much faster now due to many factors, including social media, the magnitude of indie and new brands launching, and retailers’ focus on the beauty category.

Here are the biggest issues to look out for in the beauty industry.

1. The Retail Landscape Is Shifting

For years, Sephora led the incubation of new brands, but its position is now being challenged by mass retailers including Target, Walmart, and CVS. Within the color cosmetics industry, mass retailers are gaining, while prestige retailers are not. The reason? Younger consumers are savvier than ever, and they’re spending less on the category. They’re still buying, but they realize there’s far less quality differentiation among products, which is good news for mass retailers.

Amazon continues to be a formidable player. It doesn’t offer the same experience as other retailers, but it has increased editorial content with expert recommendations to help improve the beauty experience on the site. Recently, it had a big win when it became the exclusive distributor of Lady Gaga’s color brand, and it also launched its first private-label skincare line. The big question with Amazon is how many brands will partner with it. Direct-to-consumer brands must decide whether to partner with Amazon as the costs of doing business and marketing increase.

Where growth won’t be coming from is department stores. To younger consumers, they seem stodgy and outdated. While pockets of department stores are upgrading their beauty floors, they’re quiet. And if the fate of Macy’s, which announced the closing of 20 to 30 stores, is any indication, department stores aren’t doing well overall.

2. Ulta and Sephora Will Continue to Battle for the Top Spot

For the past few years, things looked bullish for Ulta versus Sephora.

Sephora is a marketing powerhouse and does quite well even beyond the beauty industry. Both its online experience and its ability to market across channels with personalized messaging are superior to those of Ulta. Another strength of Sephora is realizing or creating trends before they’re happening. It was the first retailer to take on labeling and the clean beauty trend. The company is also strong at incubating indie brands, but not so much at nurturing and growing them. Its services and classes get people through the door.

Ulta’s strength, meanwhile, is being an easier retail partner for brands to work with, while some brands have left Sephora because of difficulties working with it. Ulta’s biggest advantage is its combination of mass and prestige, and many prefer its shopping experience, considering it less intimidating and more inviting. It’s the top beauty destination for U.S. teens, according to Piper Jaffray (Sephora was a close second). However, Ulta has been slow to meet trends, such as skincare, or do enough to improve its marketing and online experience.

How this competition plays out depends on how each brand reacts and moves in the coming months. Both retailers need to focus on brand introductions and new products, as well as their online experience and in-store service.

3. The Rise and Fall of the Indies

Within the color category, growth is not coming from indie brands the way it is in the skincare category. Although there’s been a lot of softness in the color category at Ulta as consumers are more price sensitive, the two brands that are performing better there are Morphe and ColourPop, which come in at the less expensive end of prestige.

Glossier is a brand everyone focuses on, but it doesn’t show up in a lot of the data because of its distribution. The brand has been driven by marketing innovations that drive consumer love verses new product innovation. Even now, Glossier is focusing on its core star products, Boy Brow and Cloud Paint. The brand proves that innovation is not just around product but also around marketing and other elements, a lesson other brands should learn.

At the opposite end, there’s Urban Decay, which took the industry by storm a few years ago and had strong growth, starting with eyeshadow palettes and then moving into the lip category. But now it’s seeing significant declines.

It’s clear the explosion of indie brands has turned the whole industry upside down. But the danger lies in approaching a point of brand fatigue. The market is saturated. Consumers are confused. There are too many brands to follow. The burden will increasingly fall on retailers to incubate and elevate small brands.

4. The Growth of Skincare

Skincare will continue to grow, but given the level of growth we’ve seen, it will slow. A couple of factors have driven this growth. Of course, there’s all the new indie brands and the clean beauty trend, but then there’s also the ancillary product categories – including face and body rollers – used in multistep routines, like those popular in Asia. For years, Korean and Japanese people have maintained skincare routines that are 10 to 15 steps, and that’s spreading to the rest of the world.

Consumers have now been educated to expand their skincare routine, and we’re seeing growth in skincare products beyond moisturizer, cleanser, and “the three steps.” Retailers are dedicating more shelf space to skincare, which might help it maintain growth, but retailers will have to be agile.

5. Other Trends to Watch

Clean beauty is here to stay. As brands launch and innovate in this area, consumers will react and buy. The interesting thing about clean beauty is there’s no definition for it. While a loose definition would be products that are mindfully created and produced without any proven or suspected toxic ingredients, anyone can define it however they like. As a result, retailers and brands are really controlling this area. This past summer, Sephora launched a green icon so consumers could more easily identify clean brands. Target has also hopped on that bandwagon.

Men are also a rising segment for the beauty industry. The industry has seen more men purchasing color cosmetics, and in Japan, more young men are wearing makeup, a trend that may hit the U.S. Wellness and sustainability will also continue to trend.

The trend of minimalist makeup is on the outs. For example, there’s a lot of talk right now about the “no-makeup” look or “natural-looking” makeup because of the decline in color cosmetics. The past few months have shown a trend toward young girls with huge fake eyelashes, extreme fake nails, and bright eyeshadow, an indication that some of this cohort is not as interested in the natural look.

6. Social Media Will Move Toward Smaller-Scale Influencers

Even though acquisition costs continue to rise, social media remains a focus in the beauty space. Companies are pouring more resources into micro and even nano influencers, who have greater credibility and authenticity compared to mega influencers. Brands must work harder to identify these relationships and nurture them. Speaking of mega influencers, many are launching their own brands, so they aren’t viable partners for companies anymore.

Beauty brands should also keep an eye on the TikTok platform, which is increasing its capabilities for brands from an information and data metric standpoint and for brands to integrate with influencers. Teens are moving to TikTok, and some brands have had success there, particularly NARS and MAC.

As the beauty industry shifts, retailers, brands, and influencers will all adjust their strategies to rise above the fray. The opportunities may be smaller in terms of dollars but will be necessary for growth.

 

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About Laura Elkins

Laura Elkins is a global brand marketing professional with consumer-packaged goods, luxury fashion, and cosmetic brand expertise. Currently, she provides consulting services to startups and Fortune 500 companies. Laura’s expertise is derived from her more than 25 years of experience in brand marketing. She held leadership positions at Estée Lauder companies for over 10 years, most recently as Senior Vice President of Global Marketing for MAC Cosmetics, where she led the global and regional marketing teams.

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This article is adapted from the GLG Teleconference Beauty Outlook 2020. If you would like access to this teleconference or would like to speak with Laura, or any of our more than 700,000 experts, contact us.