March Beauty Report ⚡2023

The beauty market in 2023: A special State of Fashion report

It has been difficult to resist the allure of the beauty industry, which has drawn numerous new businesses and investors. Differentiating decisions are necessary for brands to succeed in this dynamic and fiercely competitive market.

The skincare, fragrance, makeup, and haircare segments of the beauty market brought in about $430 billion in revenue in 2022. All aspects of beauty are increasing in the modern era. It has shown to be robust in the face of severe macroeconomic conditions and worldwide economic downturns. Nowadays, a lot of people—from A-list celebrities to high-level financiers—want to work in the beauty industry, and for good reason. The beauty market is predicted to grow at a projected rate of 6% annually and reach around $580 billion by 2027, after seeing a strong recovery since the peak of the COVID-19 pandemic (Exhibit 1). This is comparable to other consumer segments like clothing, shoes, eyewear, pet care, and food and drink, or marginally higher.

Before the end of this decade, the beauty industry, a dynamic segment ready for upheaval, will have reshaped itself around an ever-expanding array of products, channels, and markets. Customers, especially the younger ones, will drive this change as their own ideas of beauty change along with their views on everything, including the value of self-care, the definition of sustainability, and the role of influencers and important opinion leaders. In general, "premiumization" is predicted to define the beauty industry. Between 2022 and 2027, the premium beauty tier is expected to expand at an annual rate of 8% (as opposed to 5% for mass beauty) as consumers trade up and increase their spending, particularly on makeup and fragrances.

At the same time, we anticipate that the market will get even more competitive as new competitors appear and a number of independent brands that have been successful in the last ten years try to grow. Increasing competition will force established brands and merchants to adapt as well. According to McKinsey's 2023 survey of consumers in China, France, Germany, Italy, the United Kingdom, and the United States, 42% of respondents say they enjoy trying new brands, which is consistent with the trend-driven dynamics in the market. In the meantime, shoppers are becoming more discerning about price points and say that both physical and virtual retailers have an impact on their purchasing decisions. Their inclination for omnichannel shopping is anticipated to support independent labels' entry into the online market and the legacy brands'.

Between 2015 and 2022, e-commerce in the beauty industry almost quadrupled, reaching a share of over 20% at present, with substantial growth anticipated. This contrasts with an estimated 30 percent e-commerce share in clothing and footwear and 65 percent in toys and games in 2022.

The expansion of beauty offerings by online behemoths like Amazon in the US and Tmall in China, the growing importance of online for omnichannel retailers, the rise of social selling, including livestreaming, in Asia, and the growing digital sophistication of direct-to-consumer players have all contributed to the growth of e-commerce in the beauty sector.The fastest-growing sales channel is predicted to remain e-commerce, growing at a rate of 12 percent annually between 2022 and 2027. However, growth in traditional channels, such as drugstores, specialty retail, and grocery retail, is anticipated to pick up after the pandemic, as consumers' preference for omnichannel is partially driven by their continued desire for in-store product discovery and trial (Exhibit 2). Globally, department stores are predicted to keep losing market share.