The Nearly Invincible Beauty Industry Has Stumbled This Year
The global beauty consumer products industry has been remarkably resilient through most previous economic crises. The sale of personal care, skin care and makeup products have consistently expanded every year since 2005, trouncing the global financial crisis in 2008-09. However, this year’s crisis has played out differently.
With everyone confined to their homes, consumption of makeup and cosmetics has clearly dipped. Overall sales of beauty products were weak in the first quarter of 2020 and are expected to be 20% to 35% lower this year, than the previous year, according to a report by McKinsey.
Despite this, the beauty industry may prove to be stronger and bounce back faster than any other consumer sector of the economy. McKinsey mentions Leonard Lauder’s “lipstick index” from 2001. The index is based on the principle that “ people see lipstick as an affordable luxury, and sales therefore tend to stay strong, even in times of duress.”
In other words, consumption of beauty products could snap back sharply next year, just as they did after the 2001 and 2008 crises. Ironically, lipstick has been the weakest segment of the Estée Lauder Companies portfolio this year. With masks mandatory in much of the world, lipstick sales have been particularly weak in 2020, according to Leonard Lauder’s son and group chairman William Lauder.
However, he did note robust sales of skin care products, with a noticeable uptick in the sales of facial surgical masks. Sales of makeup, concealers, shadows and brow products were all also holding up well, according to Lauder. Consequently, Estee Lauder’s stock is up 62% since late-March.
Rival stocks L’oreal and Ulta Beauty have also bounced back 40% and 81% respectively since March. For investors, the beauty and cosmetics sector could be the ultimate rebound bet for 2021 and beyond.