2021: Beauty Business Trends In A COVID World
Strategic growth opportunities for beauty brands continue to be available heading into 2021. Despite the disruption in the economy during 2020, beauty and personal care brands continue to acquire companies and look for other opportunities to grow in the coming years. What beauty business trends are affecting these strategic decisions heading into 2021? How can beauty businesses survive, and indeed thrive, in a COVID-19 world?
At Summit Capital, we continue to see opportunities for growth in this industry. We spoke with several beauty and personal care industry leaders to identify what beauty business trends they see in a COVID-19 economy. We’ve also scoured the beauty business journals to see how brands, both large and small, are reacting to the current environment, particularly concerning acquisitions and strategic growth strategies.
Consumer Trends Affecting Beauty Brands
One thing that continuously affects beauty and personal care brands is trying to identify consumers' desires before the consumers themselves do. Since the pandemic outbreak, though, consumer behavior is changing in ways we could not have anticipated.
First, despite leaving the house less, personal care consumers are spending more time seeing what they look like on video. This means people are probably more focused on their looks and how to improve their presence. Even so, consumers are less focused on being “done up.” That means fewer color cosmetics and a focus on quality skin as a baseline.
Second, there is a renewed focus not only on clean beauty products but on their effectiveness. Before COVID-19, there was an ever-growing focus on clean beauty. The clean beauty trend expanded to the point that products started to lose their effectiveness in an attempt to satisfy the definition of clean. It’s exciting to see where technology and innovation will take the industry in trying to make clean beauty products more effective.
Key Beauty Acquisition: e.l.f. Cosmetics Acquisition Of W3LL People
In one of the most significant acquisitions of the first half of 2020, e.l.f. Cosmetics acquired clean beauty brand W3LL PEOPLE for $25.9mm. Shortly after e.l.f. announced a partnership with singer Alicia Keys. Strategic growth acquisitions and celebrity partnerships are both trends in the industry. See our complete case study of e.l.f. Cosmetics growth strategy.
Third, there is an overall shift to e-commerce sales, a trend that started well before COVID-19. In the long term, how will this shift affect demographics not accustomed to shopping online? Older consumers traditionally prefer retail shopping. They may want to return to retail and might not feel comfortable shopping online. How will beauty brands in the future be able to efficiently reach into the retail segment after the massive shift in the industry in 2020?
In the end, COVID-19 will lead to a long-term change in how people purchase products. Like 9/11, the world will never be the same as it was before COVID-19. There will always be an element of technology in purchasing decisions. The way people interact in the retail space will be forever changed and the types of products they are buying will continue to evolve.
Back To Basics In Beauty And Skincare
Part of the consumer drive towards clean beauty and quality skin means that personal care brands are returning to a back-to-basics business model.
DR.AV SKINCARE, for example, is a luxury skincare product that caters to an older demographic. It's a minimalist product line, with only a few products. They were an early leader in clean beauty but went beyond just looking at natural and organic products. DR.AV works directly with farmers and producers who share their values, including a focus on sustainability. Their focus has been on quality products rather than flashy branding and packaging. Other companies may start following suit by focusing on strengthening their core product line in a sustainable way.
Similarly, brands like RECESS found that companies were eco-friendly and clean but started to lose sight of the fact that beauty and skincare are personal. It’s not a one-size-fits-all approach. What works for one person might not work for another. RECESS offers personal body wipes that met a need not satisfied by the industry.
At its most basic level, though, is that even all-natural and clean beauty products need to work. There is a growing trend now that is focused not just on beauty but on hygiene and the effectiveness of products. More than ever companies like RECESS have an opportunity to take advantage of the trend that clean is cool.
Key Beauty Acquisition: Procter & Gamble Acquired Billie
Procter & Gamble acquired Billie in early 2020 as part of its goal to reach into the millennial and Gen Z market. Billie's product line is part of a back-to-basics strategy, to offer shaving and skincare products while eliminating the pink tax. The "pink tax" is the increased price brands charge for women's products solely because they are marketed to women.
How Beauty Brands Are Evolving In A COVID World
The word pivot has been on the tip of the tongue for anyone operating in the COVID economy. At Summit Capital, we look at pivot as a short-term, gut reaction to a current challenge. Instead, beauty brands need to take this opportunity to evolve rather than pivot.
At the start of the pandemic, some brands found themselves pausing social media campaigns while wondering how to market in this environment. Some companies, like J Nicole Skincare, took the opportunity to redeploy marketing spend to rebrand. J Nicole transformed their brand with new colors and new targeted messaging.
Personal care brands are certainly facing unprecedented challenges. Marquis brands such as e.l.f. Cosmetics closed all of its retail stores in favor of re-investing in e-commerce in 2019, even before the current business challenges arose.
In the luxury skincare market, though, online-only sales channels bring challenges. When spending money on luxury products, like DR.AV SKINCARE, people want to test the product, or at least smell it. It’s the same with the scent and perfume segment. Companies are trying to figure out a way to get samples to customers in a way that improves the bottom line.
Overall, what is a worth-while short-term response versus a strategic evolution that will be of value in the long run?
Influencer Marketing Is More Important Than Ever But Facing Challenges
With increasingly more limited access to retail stores, beauty brands are turning to online tutorials, augmented reality, and influencer marketing to bridge the gap. These strategies, though, come with their own set of challenges.
Use of Online Tutorials
Online tutorials are becoming more important. The same is true for augmented reality tools, which allow customers to try on products before purchasing. This is increasingly more important in a time when retail store visits are difficult. Even when retail stores are open to consumers, there is less of an opportunity to try products in-store due to local hygiene restrictions relating to COVID-19.
Influencers who offer online tutorials that promote personal care products are often considered more trustworthy than one-way marketing from a company to the consumer. Unboxing videos are appealing to consumers, so companies like J Nicole Skincare actually rebranded to improve the unboxing experience in order to improve marketing reach through influencers.
Effect Of Algorithms
As much as YouTube videos and other influencer marketing are expanding, it’s an uphill battle for brands to only rely on social media and its constantly changing algorithms. It’s increasingly more challenging to reach potential consumers through organic reach. It’s difficult for brands to understand how much they should be spending on Facebook ads, for example, or what percentage of their marketing budget should be spent on influencers.
Although it is likely that older demographics will undoubtedly return to the retail space, it’s possible that younger demographics will focus on online sales channels in the future. It will be important to use influencer marketing more efficiently to reach this segment while not forgetting about the older consumers who might not spend as much time on social media.
Key Beauty Acquisition: Kendo Acquired KVD Vegan Beauty
In early 2020, Kendo acquired KVD Vegan beauty, a brand developed around the personality of Kat Von D. As much as she exited the company, her influence over consumers is what propelled the brand to its success. The acquisition's success will come from continuing to reach these consumers without Kat Von D's presence.
Niche Beauty Brands See Success
Opportunity abounds both for niche beauty brands looking to grow and for more established brands to acquire niche product lines.
Product Development Of Niche Products
Big beauty brands are always trying to lower their Cost of Goods Sold (COGS). This is a struggle in personal care because quality active ingredients often cost more. There was a trend in the beauty industry to just private label products, with little science or innovation. It was easy for big brands to quickly respond to trends and have a product to market within weeks.
This is no longer enough. Niche beauty brands can spend five or ten years developing a product to ensure the formulation is perfect. Their goal is to ensure they solve a consumer’s problem with one, quality product. This leads to brand loyalty. But, there is a barrier to entry when it comes to creating niche branded beauty products. This is why some big brands are looking to invest in niche brands rather than building their own product or developing a relationship with niche consumers.
Reaching Niche Consumer Segments
Companies like Bossy Beauty saw an underserved segment of the population when it came to traditional beauty brands. No one was targeting powerful, strong women or women in power positions. They wanted to market in a way that helped women understand how to best present themselves. This market is more critical than ever as the effects of COVID affect working mothers disproportionately. How have their needs changed and what types of content or services are most useful to them now?
It’s not only women who are looking to put their best face forward while working remotely. Men’s skincare brands are also trending. Companies like Troy Skincare are on track to launch in this unique environment with a focus on building a community for men focused on premium skincare products. By 2027, male grooming is estimated to be a $183 Billion industry. Beauty and skincare are no longer just for women.
There are opportunities for niche brands to continue to grow strategically by building market share. They are developing additional, focused products to reach their loyal customers. Or, they are acquiring similarly aligned beauty brands to expand market share. Similarly, larger companies are investing in niche beauty and personal care brands to fill gaps in their product line.
Key Beauty Brand Acquisition: Colgate Palmolive Acquired Hello Products
Colgate's acquisition of Hello Products in January 2020, attempted to increase Colgate's footprint in the sustainable and environmentally-friendly oral care product segment. Building on the reputation Colgate has in the oral care industry, this niche acquisition helped Colgate to target a younger market segment interested in sustainability.
2021 Economic Trends In Beauty And Personal Care
There are a variety of factors affecting beauty brands heading into 2021. Although supply chain challenges occurred earlier in 2020, there are other COVID-related problems that could arise. There could be overall pressure on the market as a whole over the next 6-12 months. This means beauty brands need to be creative while being efficient and strategic on long-term growth.
Raising Capital
Overall the ROI in the beauty industry is good. Companies are doing well raising capital in this environment. Natura & Co, the parent company of Avon and The Body Shop raised $1 billion in funding in what was deemed the largest SEC-registered transaction for a consumer products business in 2020. Although it is more challenging for new brands to seek seed money, larger beauty brands are looking to be strategic in their investments in mid-market companies.
Rethinking Strategy
Some brands on the verge of substantial growth pre-COVID had to rethink their strategy. For example, companies were planning for brick and mortar stores. Companies like e.l.f. Cosmetics saw some early success with their own stores. Now, that’s not as profitable. In fact, e.l.f. Cosmetics closed all of its retail stores and redeployed those resources elsewhere. As an alternative to retail shops, companies like DR.AV SKINCARE look to partner with established retail partners who align with their values.
Effective Marketing Strategies
There is a growing concern about the value and effectiveness of marketing campaigns, both traditional and online. Some brands struggled in Q2 and Q3 and stopped all marketing campaigns. They were in survival mode. How can beauty brands redeploy their marketing spend most efficiently?
But, where do we go from here? What’s most effective and efficient in retaining consumers and reaching new customers. What strategic growth strategies will be most efficient in not only surviving 2020 but evolving over the next decade.