Bubble bursts for US make-up market

Via Financial Times

When beauty blogger-turned-entrepreneur Huda Kattan was shooting an advertising campaign for her new skincare line, she chided staff for airbrushing her to perfection.

“You took away my zits, put them back!” she recounted in a recent Instagram video. “I want photos to be as real as possible.”

Few have had their finger on the pulse of the US beauty market like Ms Kattan, who over the past seven years has built a make-up business — Huda Beauty — valued at more than $1bn by championing a heavily made-up look she dubbed “cake face”. That the 36-year-old has now moved into skincare reflects concerns about how the once-booming US beauty market — the world’s largest — has gone into reverse.

High-end make-up sales fell 7 per cent to $7.6bn last year, contracting for the first time in a decade, according to NPD Group. The market research firm tracks department stores and speciality retailers such as Sephora and Ulta Beauty but not mass-market outlets such as Target. In contrast, US skincare sales rose by 5 per cent to $5.9bn, outpacing make-up for the third year in a row. 

Column chart of Annual % change  showing US makeup sales in decline

This dynamic is already having repercussions for everyone, from the sector’s biggest players L’Oréal, Estée Lauder and Coty to newer independent brands such as Anastasia Beverly Hills and ColourPop Cosmetics. Ulta Beauty, a US chain of beauty stores, lost almost a third of its market value in a single day last August after it issued a profit warning and predicted continued weak demand for make-up.

Industry executives said that a shake-out is looming that will cull so-called “indie” brands and challenge established companies. Players are scrambling to adapt to an environment where the latest face mask is more coveted than a new eyeshadow palette. 

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“In the boom years everyone was winning in make-up, but now you’re likely to see a gap open between the winners and losers,” said Chris de Lapuente, chief executive of LVMH-owned Sephora. “We’re going to see which of the new independent brands have long-term sustainability and which end up being fads.”

Sephora is unlikely to add as many new make-up brands as in the past, said Mr de Lapuente: “If the category isn’t growing, then we will have to be more discerning than before.”

While Sephora is pressing on with plans to open up to 100 stores in the US this year, skincare and haircare products — rather than make-up — will get more of the prominent display space near the front of stores. 

As the US stutters, cosmetics sales have been growing at a double-digit rate in much of Asia in recent years, while Europe has been flat to slightly up.

Huda Kattan, founder of the cosmetics line Huda Beauty © Matt Licari/Invision/AP

Several reasons explain the US make-up slowdown. Industry executives and analysts said they range from aesthetic considerations to the typical cyclical swing between skincare and make-up. Many think fatigue has set in among women who simply bought too many products.

One thing is clear: the foundation-heavy look is no longer in vogue. The “contouring” technique, which involves applying several shades of product to parts of the face to subtly enhance certain features, has been replaced by a more natural look. Brought to the market by influencers such as Kim Kardashian, contouring spawned a cottage industry of make-up tutorials on YouTube and Instagram, which underpinned sales during the boom.

The change was reflected in the rise of the “VSCO girl”, a teenage fashion trend that went viral last year. Named after the photo-editing app VSCO, and known for a relaxed and natural look, VSCO girls favour lip gloss and facial sprays — a marked contrast to the high-maintenance Kardashian aesthetic. 

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Piper Jaffray’s annual survey of teens showed that last year spending on cosmetics fell to 19-year lows, down by a fifth to reach $106 spent per person each year. A growing number of wealthier teens indicate they are not wearing make-up at all — up from 12 per cent to 20 per cent in the past five years.

Women are increasingly shifting their spending from make-up to skincare products such as face masks and serums, or opting for hybrid products such as tinted moisturisers that blur the lines between the categories. That dynamic has helped the big companies such as L’Oréal and Estée Lauder — which also have strong skincare offerings — weather the downturn in make-up. But it has left many independent cosmetics brands rushing to launch skincare lines, like Kylie Jenner’s brand did last year.

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L’Oréal chief executive Jean-Paul Agon said in an interview that the return of a more natural look was forcing some of the indie brands it had acquired in recent years to adapt. L’Oréal’s NYX and Urban Decay were emblematic of a certain “very spectacular, visible and a bit heavy” look that was now out of favour, he added. 

“The brands just need to evolve,” said Mr Agon. “Our teams in the US are working to launch new products that correspond more closely to what consumers want now.” 

The drag from these brands caused L’Oréal’s North American sales to decline 0.8 per cent last year on a like-for-like basis, ending more than a decade of consecutive yearly growth. Meanwhile in February Estée Lauder booked $777m of impairment charges related to weaker performance of its make-up brands in the US, where sales fell by 5 per cent to $4.7bn in the year to June 30.

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Brands that advocate a more natural look are thriving. Direct-to-consumer player Glossier has become among the most successful since it launched a decade ago by popularising a “skin first, make-up second philosophy”.

Ali Weiss, head of marketing at New York-based Glossier, said it created its Futuredew oil-serum hybrid product to respond to women’s desires for a barely there clean look. It is “all about healthy hydration, glow and dew,” she said.

Larissa Jensen, a beauty analyst at NPD Group, predicted that future make-up sales would be driven by so-called “clean beauty” products that emphasise natural ingredients paired with more sustainable packaging and manufacturing. “We think this will be big,” she said. 

Others think the depressed demand for make-up reflects a more profound shift, and that the “less is more” spirit is here to stay. In videos posted on YouTube, influencers such as Jeffree Star recount their “anti-hauls” that explain what they did not buy, and discuss “editing” their massive make-up collections. Others post to Instagram about “project pans” in which people choose products from their make-up collection and chart their progress to the bottom of the vial or bottle. 

On online chat platform Reddit, members of a group dubbed MakeupRehab post about their experience doing “no-buy” challenges in which they aim to go months or years without adding to their collections.

One blogger wrote about overcoming a Sephora “addiction” that was costing her $4,000 a year. Eventually, the desire to buy faded, she said. “I realised today . . . Each dollar I spend, each minute I take consuming make-up media is one taken from somewhere else.”