- The cosmetics industry has been on the decline in recent years, as it fails to keep up with the rise of skin care and the success of buzzy direct-to-consumer brands like Glossier.
- This week, both Coty and Ulta Beauty missed sales expectations, pointing to ongoing challenges as the industry seeks ways to stay relevant and appeal to younger shoppers.
- According to Kayla Marci, a market analyst at Edited, traditional companies are struggling to meet consumer demand for clean beauty and more natural, toned-down looks.
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It’s been a difficult few years for cosmetics.
Following several quarters of slumping sales, Coty – parent company of mass market beauty brands including CoverGirl, Rimmel, and Philosophy – reported that comparable sales in the second quarter of 2019 fell by 8 per cent from the same period the year prior. Just two days later, Ulta Beauty shares fell a staggering 22% after the company reported lower than expected earnings.
The slumps reflect ongoing stagnation within the industry as it struggles to keep up with shifting consumer demand for skincare and clean, eco-friendly beauty. From iconic brands like Lancome, to big box retailers like Sephora, traditional cosmetic companies are failing to contend with the deluge of buzzy direct-to-consumer brands like Glossier with their large social media followings and arsenals of influencers.
Ulta Beauty slides after revenue miss
“With brands like Glossier and Drunk Elephant seeing success in the market, there has been a noticeable shift in beauty from cosmetics into skincare,” said Kayla Marci, market analyst at Edited, a retail analytics firm. “Trends like heavy contouring have fallen out of favour as consumers take a more natural approach to their skin, focusing on getting the base clean and healthy.”
Thus far in 2019, Benefit Cosmetics has been the only company of the top 10 largest US beauty brands to avoid a sales dip, posting modest growth of just 3 per cent from the same period in 2018, according to the Business of Fashion. Meanwhile, mainstays like Revlon have sought out the help financial advisers to consider strategies for revitalizing in an attempt to stay relevant.
Relevance has remained an industrywide challenge, as trends have shifted away from bold colours and flashy styles and moved toward simpler natural looks, Marci said. UBS analysts echoed the sentiment, writing in a report on Ulta’s earnings on Friday that formerly popular items like colour eye shadow and blush palettes have fallen out of favour with shoppers.
“We think brands will look towards more innovative products beyond the recent influx of palettes. We expect more focus on emerging trends, such as textures (powder lipsticks and jelly highlighters) as well as CBD-infused products,” UBS analysts wrote.
According to a recent Edited report, new arrivals of beauty products at major retails has been on the decline over the last three months, while skincare items have been on the rise. At Neiman Marcus, for example, Edited found new makeup offerings declined by 3.5% compared to three months prior, while skincare items increased by 11%. Likewise, though Target showed a 2.3% growth in makeup, it had a whopping 31.6% uptick in skincare products.
For Ulta, attempts at bringing in new makeup products that appeal to younger shoppers seem to be coming up empty-handed. Though it forged a buzzy partnerships Kyle Jenner in November 2018, establishing itself as the exclusive third-party seller of Kylie Cosmetics, the products have been heavily discounted recently. Further, Kylie Cosmetics sales had independently been on the decline before the start of the collaboration, decreasing by 62% from November 2016 to November 2018, the New York Post reported.
“Ulta Beauty continues to drive meaningful market share growth in makeup across mass and prestige,” Dillon said in a call to investors on Thursday. “But it’s clear that cosmetics in the overall US market is challenged. After several years of very strong performance, growth in the makeup category has been decelerating over the last two years for recently turned negative.”
Sucharita Kodali, retail analyst at Forrester, wrote in an email to Business Insider that despite the sales dips, she doesn’t believe cosmetics companies like Ulta have imminent reason for concern.
“The reaction to the Ulta news seems a bit disproportionate to the news. They are still anticipating positive comps and comps that are better than most of the retail industry,” she wrote. “Digitally native brands need store exposure to grow and that suits Ulta and Sephora well. I’m not worried about the company yet.”
Marci, the Edited market analyst, said traditional cosmetics companies can stay fresh by taking cues from younger eco-conscious brands like Milk Makeup and Āether Beauty, which offer 100% vegan formulas and recyclable packaging.
“With new beauty brands launching every other day, makeup needs to take cues from skincare and tick the eco-friendly boxes,” Marci said. “Brands that will be able to remain relevant within the shifting landscape are those that can deliver products with sustainable packaging, refillable containers with clean and cruelty-free ingredients.”