The NPD Group reports the US prestige beauty industry generated $22 billion in 2021, representing a 30% increase in dollar sales versus 2020. Last year the beauty industry saw continued growth from pandemic winners including perfumes, scented candles, facial exfoliators, nail care, and haircare products. At the same time, makeup foundation, hair styling products, and other market segments started to recover as consumers began engaging in pre-pandemic activities like going into the office and attending social events.
“The beauty industry is unique in its ability to instill self-confidence and change the way people feel," said Larissa Jensen, beauty industry advisor at NPD. "These timeless abilities keep our industry relevant and important in the minds of our consumers — regardless of circumstances or lifestyle changes. As was the case across the retail world, the beauty market faced hurdles in 2020 but proved its resiliency in 2021.”
Category Sales Year Over Year:
Fragrance Sales +49%
Hair Products +47%
“As we move through 2022, the beauty companies that will thrive are those that harness the industry's unique ability to spread joy, while also recognizing the opportunities of a changed consumer and retail environment," added Jensen. "We can expect more change to unfold in 2022, but, along with these changes, new opportunities for the beauty industry will present themselves.”
Over the past two years, there have been significant changes, but the industry could look very different in 2022. Here are some of the factors that Jensen predicts will affect the short- and long-term changes ahead of us:
Global recovery: While most global beauty markets are experiencing growth versus 2020, very few have reached pre-pandemic 2019 sales levels. If certain markets continue to struggle, it will weigh down the larger global revival. The US and China were two countries that grew in 2021 versus 2019, but each country achieved growth in a different way: the US showed how growth could be fueled by smaller categories, like fragrance and hair; success in China revealed the power of the largest category there—skincare.
Takeaway: Pay attention to both large and small market areas because they can both impact sales significantly. Many nuances drive the sales performance in specific countries; recognizing those differences will help identify the geographic regions and categories you'll need to prioritize to grow your business.
The role of retail: According to the latest NPD data, brick-and-mortar store sales remain strong, averaging higher spending levels in 2021, compared to 2020 and 2019. Growth in the online channel has been slowing down, with some weeks posting negative sales performance as the market rightsized itself. Amid these shifts, direct-to-consumer sales outpaced both brick-and-mortar and online sales.
Takeaway: While these are all macro trends, beauty retailing is following the same trajectory. Beauty also experienced the added layer of channel blending, with the new Ulta-Target and Sephora-Kohl's partnerships that rolled out this past year. Brands need to develop strategies to capitalize on these structural shifts.
Pricing shifts: The consumer has been retrained to pay full price across many industries, from cars and homes, to gasoline and groceries. This shift has broadly affected the overall retail industry, from price promotion to consumer spending. Most industries are reevaluating promotional strategies coming out of this period but, in beauty, price promotion continues to rise.
Takeaway: Brands need to find their sweet spot in leveraging market dynamics to maximize return. Those choosing not to reduce prices must position their points of differentiation to drive demand without promotion.
Demand levels: Consumers are spending at unprecedented rates, with total retail dollar volumes reaching their highest level in the past four years. Beauty industry sales contributed to the growth at retail this past year. Part of what's driving the current demand trajectory is the move to experiential spending, which has strong correlations to beauty industry sales performance.
Takeaway: As total retail demand levels eventually slow, beauty might experience a similar pinch. Recognizing important signals to watch—whether it's a return to offices, travel, experiences, or events—will help keep brands ahead of the top-line demand levels for the beauty industry.
Consumer lifestyle: The consumer is the common link across every factor driving the beauty industry's performance. The prestige beauty consumer has changed in many ways, but her engagement with beauty products remains, even as it evolves. Our market is overrun with movements, from wellness and self-care to sustainability and diversity, not to mention other hot topics in the media like social selling and NFTs.
Takeaway: Brands need to be in sync with what is most important to their consumers right now. The future of our industry rests on many things, but it mostly lies inside the minds of our consumers and the lifestyle they lead.
The prestige beauty industry received a shock in 2020 and proved its resilience in 2021. Even though we are only two years into the new decade, the dramatic shifts that took hold brought about a significant amount of change. Change can be daunting, but it is also full of promise.
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