Beauty sector trends for 2020

From COVID-19 impact to direct-to-consumer

Sep 14, 2020

What are the top business issues and opportunities trending for middle market beauty sector companies in 2020? Our senior industry analyst shares his insights on several emerging topics in the industry.

COVID-19 impact

Businesses in the fashion, beauty and home sectors have been particularly susceptible to the disruptions brought about by the COVID-19 pandemic due to radical changes in consumer behavior. As beauty consumers navigate lockdowns and social distancing, they’ve changed the way they use beauty products and how they’re buying them. While leaders of these organizations have had to adapt to challenges brought about by both supply and demand shocks during the most critical times of the pandemic, adapting their businesses to be resilient to these types of changes will be critical to their recovery and long-term success.

Direct-to-consumer models

The coronavirus pandemic uprooted the traditional cosmetics sales model. The days of beauty counter trials and sales associates handing out fragrance samples are over. Retail closures and social distancing have forced consumers, who may have been averse to making online beauty purchases in the past, to adopt the channel. Beauty companies should expect these behaviors to continue in a post-pandemic world. Consumers retreated to familiar brands and products as they’ve adapted to unfamiliar sales channels. Middle market and emerging brands will be challenged to recreate the immersive boutique and beauty counter experience in a digital environment to compete for market share from the dominant market players. Advances in augmented and virtual reality coupled with an ensuing 5G revolution allow for on-demand digital trials and sampling, and will be critical in replacing high-touch experiences. Social media influencers already played a large part in promoting brand recognition, and integration between social platforms and e-commerce will help drive growth. On the operations side, beauty businesses will need to realign their logistics footprint to accommodate high frequency and low value transactions associated with this sales channel. 

Consumer consciousness

Even in the post-pandemic environment, consumers want to feel good not only about how beauty products make them look and feel, they’re increasingly concerned with the social and environmental impact of the brands they identify with. A push for natural ingredients was driven by consumers’ desire to know what exactly they are putting on or into their body. That preference has now evolved as consumers are becoming conscious of where and how these ingredients are sourced and whether they are sustainable. This trend isn’t just limited to ingredients. Packaging, which has long been a brand’s only means of differentiating itself and standing out on a shelf, has come under scrutiny related to its environmental impact. Established brands have been able to adapt by promoting packaging made from recycled or compostable materials. Other companies have moved toward a zero-packaging approach or are developing reusable and refillable models. As beauty businesses look to scale up their e-commerce operations, they should also be aware of the heavy environmental footprint last mile delivery entails. Emerging brands will have to incorporate the eco-friendly impact as they look to develop packaging that will set them apart from established players. 

Changing consumer preferences spur M&A

The beauty industry has been reliant during past economic slowdowns, and mergers and acquisitions activity in the sector has followed suit. The coronavirus pandemic has temporarily slowed down deal activity; however, the beauty sector will no doubt be part of a rebound. While deal activity has been driven by “recession-proof” demand in the past, in the current environment, changing consumer preferences should stimulate the deal-making market. With fewer consumers going into the office and dining out, color cosmetic and fragrance sales have given way to natural tone and personal care categories. Uncertainty about school, office and event reopening will keep beauty businesses guessing as to how changes in preferences might unfold in the near term. The largest industry players will look to acquisitions to help optimize their brand portfolio and position to align with emerging trends, while looking to divest lower growth categories to free up capital. This can create opportunities for venture capital and private equity firms willing to invest in resurrecting tired brands or looking down market for high-growth brands to scale up quickly. 

Ingredients that provide more bang for your beauty

Consumers are looking for more functionality from many household staples, including cosmetics and personal care items, especially amid the pandemic. This trend has driven businesses to look to incorporate new ingredients with the promise of health benefits within their typical product offerings. The most common example of this is cannabidiol (CBD), an oil extracted from cannabis plants. While the science behind the ingredient is evolving, and current Food and Drug Administration regulations prohibit manufacturers and retailers from making any claims regarding medical benefits, consumers perceive CBD as beneficial for conditions ranging from anxiety and depression, to joint pain and inflammation. Brands centered on an overall wellness theme have emerged highlighting CBD as an ingredient without making specific medical claims. 

Touting ingredients that promote antiaging benefits is another common area some beauty and personal care companies have differentiated their products. While historically such products have been marketed to middle age and older consumers, brands have developed strategies to deliver the message to the millennial and Gen Z demographic as they make up an increasing component of the overall market share. Previously, products typically targeted for younger consumers touted the latest trends and styles; now they stress multipurpose ingredients that moisturize, cleanse, protect against UV and even resist damage from air pollution in addition to offering aesthetics appeal. This multiple-use trend has allowed consumers to reduce their reliance on several special purpose products but rather use fewer multipurpose cosmetic and skincare solutions. 


RSM contributors

  • Peter Cadigan
    Peter Cadigan
    Consumer Products Senior Analyst