The beauty and cosmetics market is estimated to continue growing but the industry still faces strong headwinds especially from weak spending in China.
In addition, the sector is seeing increased competition and more discerning customers trying to balance their spending in uncertain times. However, the lower inflation and recent interest rate reductions by central banks might help the industry in the years to come, writes eToro analyst for Romania, Bogdan Maioreanu.
In 2023, global beauty market retail sales grew to $446 billion, up 10 percent from 2022, according to consulting company McKinsey. The largest increase was in the Middle East and Africa region with 18%, followed by Latin America with 17%, Europe and Asia- Pacific region with 10%, Australasia and the US with 9%. Last was mainland China with a 3% growth. Price increases were the ones that drove growth in the sector, while global volume across geographies only grew 2 percent year-over-year. China’s beauty market growth was entirely driven by price growth.
According to a survey by the Environmental Working Group, the average person uses nine personal care products daily. These contain 126 unique ingredients. One man in 100 and fully 25 percent of women surveyed apply 15 or more products each day. For the industry this is good news as it warrants a continuation of the growth trend. By 2028, McKinsey expects the beauty sector to reach $590 billion, with an annual growth rate of 6 percent. But in mature markets, such as the United States and Europe, they estimate that both price and volume growth will be in the low single digits. Within the sector, the luxury segment is expected to grow with an annual rate of 9%, the prestige one by 7% while the mass market will have a rate of only 5%. All the other categories in between are estimated to grow by 6%.
The improving perspectives of the industry were not left unnoticed by Warren Buffett’s investment fund. Ulta Beauty is one of Berkshire’s newest holdings. The fund bought over 690,000 shares of the cosmetics retailer in the second quarter of 2024. That equals 1.5% of Ulta’s shares but only accounts for 0.1% of Berkshire’s entire portfolio. Similar to Sephora, Ulta Beauty is a cosmetics retailer that sells products at a broad range of prices.
The latest US retail sales report showed that sales topped expectations in August by rising 0.1% month-over-month to $710.8 billion with a 2.1% rise on a year by year basis. Categories showing strength included health & personal care stores, with a 0.7% month-over-month growth and respectively, a 3.5% year-over-year increase. This is showing that retailers like Ulta Beauty, Walgreens Boots Alliance or even Amazon may have benefitted. And this positively impacts beauty and cosmetics companies like L’Oreal, Esteee Lauder or Coty.
While from the beginning of the year Ulta Beauty and L’Oreal’s stock share prices fell by 17%, Estee Lauder lost almost 40% and Coty dropped over 25%, the recent cuts of interest rates made by central banks are supportive for the companies. The head winds brought by inflation and Chinese weak spending are still strong but credit cost reduction might help boost discretionary spending in the next period. And this is also important for investors.
According to the latest eToro Retail Investors Beat survey, around 25% of global and over 34% of Romanian investors own stocks in the discretionary sectors, while 26% of global and 29% of Romanian investors have shares in the consumer staples sector.
