World Reimagined: The Rise of Cosmetics in Post-Pandemic Life

A collection of cosmetics on a slate surface
Credit: Luca Fabbian / stock.adobe.com

As the world emerges from the pandemic, several sectors are experiencing a meaningful acceleration in demand as businesses and consumers emerge from the lockdown life, and we get to celebrate the joy of seeing a person’s entire face. Who could have guessed back in 2019 that would become a rarity? One area that is enjoying particularly robust growth is beauty and, with that, an acceleration in the pre-pandemic trend towards healthier products.

Now that we can finally get out and see one another, the desire to look and feel one’s best is stronger than ever, which is a powerful tailwind for those companies selling products that promise to do just that. Add on the push evident across much of social media towards embracing self-love and self-acceptance, combined with a growing preference for those products that are better for your body, inside and out, and you have a double-whammy tailwind for beauty products.

Cosmetics and Fragrances

According to Nielsen (NLSN), cosmetics sales for the four weeks ended May 22 surged 16.7% year over year and over the trailing 12-week period were up almost 25% year over year. That makes them the fastest growing category inside the beauty products category, with fragrance sales a distant second, with sales up 15.5% year over year.

We also hear this from companies directly. For example, when Ulta Beauty (ULTA) reported its recent quarterly results, it noted its comp-store sales increased a whopping 65.9% year over year with “the relaxation of restrictions, increasing consumer confidence and a desire for newness are positively impacting consumer spending in the beauty category.” Compared to the same quarter in 2019, total sales increased 11.2%, and comp-store sales increased 7%. Strong categories for the company include skincare and fragrance and noted solid momentum in haircare. As the re-opening continues, Ulta sees its comp store growth in the high 40s to low 50s for the first half of 2021 and then moderate to high single-digit growth for the second half of the year.

This likely means that companies such as Estee Lauder (EL), International Parfums (IPAR), e.l.f Beauty (ELF), and of course Sephora-parent LVMH Moet Hennessy Louis Vuitton (LVMH) as well as private company Chanel and L’Oréal SA (LRLCF) are likely to enjoy robust growth in demand, but that isn’t the end of the story.

Cleaner Living

There is a clear and powerful shift in consumer buying preferences towards products and services that are better for their bodies, homes, workplaces, and the environment. Consumers are increasingly switching to those beauty products containing natural and organic ingredients as well as ones that are free of chemical preservatives, better known as parabens. A recent survey from Nielsen found that 73% of consumers would likely make purchases based on whether there would be a reduced impact on the environment, and 41% are willing to pay more to do so by buying all-natural and organic goods. Other findings show 77% of consumers are looking for clean products that are sustainable and environmentally friendly.

It isn’t just consumers that are looking at cosmetics differently. On Tuesday, the “No PFAS in Cosmetics Act” was introduced in the House and Senate after a new study was released that found high levels of a marker to toxic PFAS substances in 52% of 231 makeup products purchased in the U.S. and Canada. Congress taking action follows in the footsteps of nonprofits that have been bringing attention to potentially dangerous ingredients. For example, the nonprofit “Mind the Store” campaign was launched in back 2013 with its first “Retailer Report Card – ranking retailers on toxic chemicals” published in 2016.

The report “highlights a growing sustainability trend among the largest retailers of the U.S. and Canada over the past year: major retailers are increasingly adopting and implementing policies that restrict classes of toxic chemicals such as PFAS in the products and packaging they buy and sell. This is helping to bring safer products into the hands of consumers all across these countries and catalyze the development of safer chemicals and green chemistry solutions.”

When facing such a powerful shift in consumer psychographics, companies can either tilt their business into those tailwinds or ignore them. In the case of e.l.f, it is pivoting its product offering to tap into the consumer shift toward Cleaner Living. During its recent earnings conference call, e.l.f. shared its plant-powered clean beauty brand W3LL PEOPLE is gaining momentum, and it sees a growth year for that product line. Similarly, Coty’s relatively new management team is leaning into clean innovation across its product line, which is focused not only on the products but on packaging as well. LVMH’s Sephora has created “Clean at Sephora,” where consumers can find “The beauty you want, minus the ingredients you might not.”

If we go one step lower in the beauty products ecosystem to examine key suppliers, a move that is in keeping with our “buy the bullets, not the guns” investment strategy, International Flavors & Fragrances (IFF) acquired LMR Naturals to expand its in-house natural and sustainable ingredient offering for the fragrance market. This implies, at least to us, that other beauty companies in IFF’s customer roster are also focused on bringing cleaner products to market. Why? In a word – growth. According to Brandessence Research, the global clean beauty market is expected to reach $11.6 billion by 2027, up from $5.4 billion in 2020.

The bottom line is that consumers, corporations, and governments are pushing beauty products and services towards solutions that not only make you look and feel better but that are also better for you and the environment, and that is something to put a smile on anyone’s mask-less face.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Lenore Elle Hawkins

Lenore Elle Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, her focus is on macroeconomic influences that create investing headwinds or tailwinds. Lenore co-authored the book Cocktail Investing and in addition to her Tematica work, provides M&A consulting services for companies in Europe looking to expand globally. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

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