The COVID-19 disaster has shaken the worldwide beauty sector, which includes skincare, color cosmetics, hair care, perfumes, and personal care. In the first quarter, sales were weak, and many stores shuttered.
Companies have switched production to hand sanitizers and cleaning chemicals, as well as providing free beauty services to first responders, as a result of the situation. Simultaneously, industry executives must do everything necessary to assure the success of their companies. The beauty industry generates $500 billion in annual sales and directly and indirectly employs millions of people. The most crucial thing is to save lives, but livelihoods are also crucial.
Let’s look at how COVID-19 will affect the beauty business in the coming three to six months. Understanding how the crisis will affect the business in the long run—and how retailers, strategic actors, and investors can adapt—is critical.
Even though beauty is in the eye of the beholder, there is no denying the global beauty industry’s long-term attractiveness. It has not only grown steadily over time but has also spawned generations of loyal clients. During the 2008 financial crisis, business spending only decreased little, and by 2010 it had fully recovered.
Even though the COVID-19 pandemic will have a considerably higher economic impact on brands and stores than any recession, there are indicators that the beauty sector may once again prove resilient. In China, the industry’s February sales dropped by up to 80% compared to the previous year. In March, the year-over-year drop was 20%, which was a quick turnaround given the conditions. Consumers in several areas said they want to spend less on beauty goods in the near future, but more on other discretionary categories like footwear and clothing. The cosmetics company’s Leonard Lauder coined the phrase “lipstick index” to explain the spike in lipstick sales noticed during the 2001 recession. The idea is that lipstick is seen as an affordable luxury, thus sales tend to stay strong even when times are tough.
Based on epidemiological trends and the effectiveness of economic-policy actions, McKinsey has created nine possibilities for the economy over the next few years. They forecast that worldwide beauty-industry revenues will plummet 20 to 30 percent in 2020, based on the scenarios most foreseen by global executives and present trends. In the United States, if COVID-19 recurs later this year, the reduction might be as high as 35 percent.
Prior to the COVID-19 issue, in-store shopping contributed for up to 85% of beauty-product purchases in most major beauty-industry markets, with some variance by subcategory. Even the most tech-savvy millennials and Gen Zers (those born between 1980 and 1996) made nearly 60% of their purchases in stores (Exhibit 4). COVID-19 resulted in the closure of about 30% of the beauty-industry market due to the closure of premium beauty-product stores.
Increased internet sales aren’t enough to compensate for the drop in in-store sales. Some beauty-product companies and merchants with ready-to-ship inventory and shipping operations are reporting double-digit increases in e-commerce sales compared to before COVID-19. In general, a 20 to 30% increase will be more normal. For the four weeks ending April 11, Sephora’s US online sales were up 30% compared to the same period last year, as were Amazon’s beauty-product sales. According to McKinsey’s research, during the outbreak in China, internet revenues for beauty-industry firms increased by 20 to 30 percent.
The sale of beauty products at major retailers is declining. While physical drugstores, supermarkets, and food stores are still open, consumer traffic and revenues have decreased. Between March 25 and April 3, 2020, overall sales at the Boots UK drugstore chain plummeted by two-thirds, with beauty-product revenues adding to the drop. Consumers in the United Kingdom said they plan to spend 50% less on cosmetic products in the following two weeks than usual, according to a survey.
Promotions are being used by retailers and brands to attract customers and clear inventory. In an unusual move, numerous high-end labels are giving discounts of up to 40% online, competing with specialty beauty stores and department stores for discount-conscious shoppers. Promotions can also aid in the movement of unsold seasonal products. We expect to see additional incentives focused on regaining customer foot traffic once beauty-product brick-and-mortar establishments reopen.
While the beauty industry is doing better than other consumer categories, the pandemic period was one of the worst in its history. However, we believe that, in the long run, the industry will continue to be compelling. Rather than breaking new ground, the COVID-19 problem is predicted to accelerate existing market trends, such as the growth of the global middle class and the adoption of e-commerce.
Even before the epidemic, the definition of “beautiful” was expanding and becoming increasingly entwined with people’s sense of well-being. These tendencies are unlikely to change as a result of the COVID-19 issue, which is reason to be positive.