By Emily Gerstell, Sophie Marchessou, Jennifer Schmidt and Emma Spagnuolo of McKinsey & Company, with edits from BXP
The beauty industry has been resilient in the past. Could this crisis have a different outcome?
Beauty may be in the eye of the beholder, but there is little debate when it comes to the long-term attractiveness of the global beauty industry. Not only has it grown steadily, it has created generations of loyal consumers. During the 2008 financial crisis, spending in the industry only fell slightly and fully bounced back by 2010. Even though the economic magnitude of the COVID-19 pandemic on brands and retailers will be far greater than any recession, there are signs that the beauty industry may once again prove relatively resilient. In China, the industry’s February sales fell up to 80% compared with 2019. In March, the year-on-year decline was 20%—a rapid rebound under the circumstances. In a variety of markets, consumers report they intend to spend less on beauty products in the near term (largely driven by declines in spending on color cosmetics) but more than they will in other discretionary categories, such as footwear and clothing. Noting the uptick in lipstick sales seen during the 2001 recession, Leonard Lauder of the cosmetics company coined the term “lipstick index” to describe this phenomenon. The principle is that people see lipstick as an affordable luxury, and sales therefore tend to stay strong, even in times of duress.
McKinsey has explored nine scenarios for the economy over the next few years, based on epidemiological trends and the effectiveness of economic-policy decisions. This article highlights some of the scenarios. To learn more about McKinsey’s research, visit the firm’s website, www.mckinsey.com.
Based on the scenarios most expected by global executives and current trends, McKinsey researchers estimate global beauty-industry revenues could fall 20% to 30% in 2020. In the U.S., if there is a COVID-19 recurrence later in the year, the decline could be as much as 35%. The McKinsey team looked at the beauty industry’s recovery against each scenario, considering two key factors: where and how beauty products are being sold and what is being purchased.
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Where and how beauty products are being sold
In most major beauty-industry markets, in-store shopping accounted for up to 85% of beauty product purchases prior to the COVID-19 crisis, with some variation by subcategory. Even online-savvy American millennials and Gen Zers (those born between 1980 and 1996) made close to 60% of their purchases in stores. With the closure of premium beauty-product outlets because of COVID-19, approximately 30% of the beauty-industry market was shut down. While some stores have re-opened, other stores may never open again. New store openings will likely be delayed for at least a year.
McKinsey identified several ways beauty-product sales are changing as a result of the pandemic and the subsequent lockdowns, including:
Beauty-product sales at essential retailers are down. While brick-and-mortar drugstores and mass-market and grocery stores remain open, their customer traffic and revenues have plummeted. The Boots UK drugstore chain reported its overall sales fell by two-thirds between March 25 and April 3, 2020, with beauty-product revenues contributing to the decline. Surveyed UK consumers say they expect to spend around 50% less on beauty products than usual in the next two weeks.
China shows the return to in-store shopping could be slow and differentiated. Despite store reopenings in China starting the week of March 13 and reports of “revenge spending,” sales have not fully bounced back. As of mid-April, 90% of drugstores, supermarkets, beauty-product specialty retailers and department stores in China had reopened.
However, depending on the sector and type of store, traffic remains down 9% to 43% compared with pre-COVID-19 levels. Mall-based stores have proven slower to recover. Even after reopening, around 60% of large malls in China report a 30% to 70% decrease in sales, year on year, in the first quarter of 2020.
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Retailers and brands are turning to promotions to bring in consumers and clear inventory. In an uncharacteristic move, several prestige brands are offering discounts online of up to 40%, competing with specialty beauty-product and department stores to capture promotion-oriented consumers. Promotions also help move unsold seasonal inventory.
Which beauty products
are being purchased
Skin-care, hair-care, and bath-and body products appear to be benefiting from self-care and pampering trends. NPD, which tracks consumer spending and point-of-sale data, recorded that sales of luxury hand soap in France were up 800% the week of March 16, 2020, as the country went into lockdown. Zalando, Europe’s largest fashion and lifestyle e-commerce marketplace, reported a boom in pampering and self-care beauty categories, including candles, aromatherapy and detox products; sales of
skin-, nail- and hair-care products were up 300%, year on year. That is consistent with results from Amazon, for which most makeup sales in the U.S. are showing slight declines, compared with the same month in 2019, while sales for nail-care products (218%), hair coloring (172%), and bath-and-body products (65%) are way up.
DIY hair coloring, nail care, and care in other beauty categories are finding new customers. In the United States, Nielsen reported rises in the sales of hair dye and hair clippers by 23% and 166%, respectively, in the first week of April 2020 versus a year ago. Sales of Madison Reed at-home hair-coloring kits rose tenfold from mid-March to mid-April. In the UK, online sales of prestige-brand nail polish have seen double-digit growth every week since lockdown began in March.
This surge in DIY nail care has some speculating that the current crisis’s lipstick effect has an added dimension—the “nail-polish effect.”
The long-term impact of COVID-19 on the beauty industry
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The pace of innovation accelerates. As the COVID-19 crisis has shown, the world can change quickly, bringing substantial shifts in demand. Sometimes, supply cannot catch up.
Even before the pandemic, brands were under pressure to overhaul their product-innovation pipelines, inspired by the ability of digital-native direct-to-consumer brands to go from concept to cupboard in less than a month. Now, the need for speed is greater.
