Back in May, I attended the inaugural Future of Beauty and Wellness event put together by the Wall Street Journal in NYC. At the time, I was mostly interested in learning more about the business side of the cosmetics industry, specifically how category leaders like Jessica Alba and Bobby Brown access capital markets in order to grow their beauty business empires. While we all know that there’s a lot of money to be made in this industry (market value estimated at $532.43 billion in 2017 with 5 year CAGR of 7.14% starting in 2018*) we also know that it is a highly competitive industry with at least 18,000 brands competing for its market share in South Korea alone. With that in mind, I went to NYC in order to learn the answer this question: Is there investor interest left in this overly saturated market? To my surprise, the answer is “yes” and not only that, the market is still growing.
What I find fascinating about this industry is that despite the saturation of beauty products, new brands are still entering the market, including small businesses. And, to top it off, it also has a fairly low barrier to entry. For example, if I wanted to create a lipstick, all I’d need is to find a place like Spatz Laboratories in California (in case some of you didn’t know is the chemical company that manufactures Kylie Cosmetics products), plunk down anywhere from $5,000 to $7,000 per formulation, scale up, package, market and then sell, sell, sell. No clinical trials, no need for venture capital money, just straight up product development. Yet, despite the ease of product development, lipstick producers/brands can still command high prices for their products and the best brands can command close to $100 for one tube of lipstick (Christian Louboutin anyone?). Is there anything special about these products at their core? Absolutely not! But innovators in this space are constantly finding new ways to set themselves apart and the market seems to love it. In fact, just in the U.S. alone, the average woman spends about $313 per month** on cosmetics and that number is only expected to rise.
So what is it about the cosmetics industry that, despite being primarily focused on selling consumables, still constantly grows and innovates (I mean, since when did anyone care about the latest innovation in dish soap)? Well, after attending more beauty conferences, I’ve come to realize that each innovation in beauty brings with it a cultural component and enables a sense of belonging for people who subscribe to one brand or another, like a clique. For example, when I went to Beautycon in L.A. in July, I learned about a brand called Lime Crime. It has a fairly limited product line…maybe a dozen lipsticks, a couple eyeshadow palettes but nothing spectacular like a L’Oreal or Proctor and Gamble. Yet, despite this limitation, this particular booth at Beautycon had one of the longest lines and they were limiting the number of products fans could purchase. Out of curiousity, I actually purchased a few products from this line and found that none of my purchases were anything special, I basically got eyeshadows with a bunch of glitter, which are available through any brand. But what they were selling wasn’t really their makeup. Instead, they were catering to those who wanted to wear theatrical, fanciful makeup on a daily basis. Hence, buying a lipstick from Lime Crime wasn’t just about buying glittery lipstick, it was about subscribing to a brand where culturally, it was acceptable to wear glitter, loud lipstick and clown-like eyeshadows as part of their normal routine. This cultural aspect of beauty is one of the reasons why brand ambassadors and trend setters on Instagram as well as other social media sites are so powerwful in the beauty industry. They’re not just selling makeup, they’re also creating a culture that their followers can follow and subscribe to.
So, next time you’re in the market for cosmetics products, look into what you’re buying. Are you buying into a clique or purchasing something that is fit for your intended purpose? Every brand is on Instagram (and if not, then do you really want to try that product on your face?! Signing up for Instagram is FREE so really, why would they not be on there?) and in about a single finger swipe, you can see what kind of community the brand is trying to cultivate. If you find the one that works for you, you’ll be much happier with your cosmetics purchase and if you don’t, then there’s your market entry opportunity (in case you were dreaming of starting a cosmetics brand).
** Source: https://nypost.com/2017/07/06/vanity-costs-american-women-nearly-a-quarter-of-a-million-dollars/