The beauty industry is big business and it’s getting even bigger. Globally, sales reached $511B in 2021 and are estimated to exceed $716B by 2025 with North America taking the biggest slice of the pie according to Common Thread Co.
Source: Common Thread Co.
The industry encompasses all kinds of businesses and products from hair care, skin care and personal care to cosmetics and fragrances, each with their own characteristics and challenges geographically.
Even during the pandemic lull when many retailers had to close indefinitely, consumers transitioned to buying their favorite brands and innovative products online or opted instead for DIY at-home products which allowed them to keep up a beauty regime. It appears that neither a pandemic nor the financial crisis of 2008 has been able to halt consumers’ quest for beauty and even better news is that smaller companies are entering the market and challenging the industry stalwarts of old from their kitchen tables.
For beauty entrepreneurs and startups, although they’re operating in a highly fragmented market, the big names no longer retain the dominance they once had; younger consumers are driving demand for new brands and products that start out life as purely digital offerings and harness the power of social media influencers to skyrocket to success.
What trends are shaping the beauty industry?
More companies are coming to market with products that meet the specific needs of minority ethnic groups and this will continue to be a consideration for brands, particularly in the cosmetics and hair care space. Make-up that perfectly matches skin tone of all different ethnicities and cultures in society will no longer be considered niche but be a core offering within a brands’ repertoire if they want to succeed in a diverse world.
From both an ingredient and a packaging perspective, consumers are more likely than ever to opt for brands that don’t just talk the talk, they walk the walk which means a holistic approach to sustainability rather than two or three products in range which are more ‘natural’ than others. There’s a wealth of information out there for the public to find and businesses employing unethical practices that cause harm to people or the environment will lose out on the spending power of the millennials and GenZ who are spending more than any other group in the beauty category. Some beauty brands are coming up with creative ideas for reusable packaging which is not only good for the environment, it’s a smart way to encourage repeat purchases and retain customers.
According to Capital Counselor, 58% of US women prefer natural and organic products. The natural and organic personal care market (NOPC) will be largely responsible for the CAGR of 5.9% for the beauty industry in the period up to 2025. Consumers now have much more information at their disposal with regards to the ingredients that go into the products they’re using and despite there being little conformity on what ‘natural’ actually means, savvy shoppers expect transparency from a brand. Brands that formulate an authentic strategy to ‘clean’ products with simple, understandable ingredients will get a bigger share of buyers’ spend.
Digital selling came into its own during the pandemic with brands using beauty consultants and influencers to enter the realm of social selling. Emerging technologies such as artificial intelligence (AI) and augmented reality (AR) take digital services to the next level by providing ways for companies to engage cleverly and on a deeper level with their customer base. Product personalization and virtual try and test enable customers to find the best products for them as individuals and brands can collect data on their buying behavior to further enhance the experience. AI also paves the way for better post-purchase education as to how customers can get the most from their products so that brands can demonstrate value to their customers and AR is enhancing e-commerce sales by facilitating virtual product testing, particularly relevant to the color cosmetics industry which would typically have a high cart abandon rate online. Essentially, the smartest beauty brands are on-board with high-tech personalization as a tool for standout and success.
Understandably, the pandemic forced a decrease in weekly usage of beauty products; shampoo, lip and face make-up all declined and much of the focus turned to more premium products which last longer and are easier to apply, along with products that address specific complaints such as hair thinning in postpartum women. So far it looks like the trend towards premium and away from cheap, throwaway beauty will continue to rise over the coming years. Those consumers that have money to spend are willing to spend more for the right product and brands will need to consider their market and positioning carefully in this respect.
What are the challenges beauty entrepreneurs face?
Whilst there are multiple opportunities for beauty entrepreneurs to expand currently, it’s an ultra-competitive and complex market. Beauty businesses operate on a very short sales cycle, producing many variables of high volume products which turn over quickly, however, they often don’t get paid for months, putting a drain on cash flow.
Smaller players and new entrants can often be held back financially as without the purchasing power of their bigger counterparts, it can be difficult to navigate such convoluted supply chains and be ready to take on major orders whilst dealing with the day-to-day of running a business. When an opportunity for expansion arises, it’s not always easy to act quickly, particularly if the business is relatively new.
When presented with that ‘big break’ order into a major retailer, many business owners find that their existing finance provider can’t extend further credit and actually, additional debt finance or giving away some of your hard-earned equity is not generally appealing. In this situation, alternative finance is often transformational for a growing beauty business. Invoice factoring allows them to get paid early for their outstanding invoices and can also be used really effectively alongside purchase order financing to fund a large order for supplies and can cover related expenses such as transport of goods.
A booming beauty industry needs flexible finance
Sallyport are privileged to be working with many clients in the beauty industry who need access to more flexible funding to be able to grow their businesses. If your business is new, growing rapidly and struggling to qualify for more traditional finance or you’d simply prefer to keep full control of your business, reach out today and we can take you through your options. Essentially our customized finance enables you to keep autonomy over your business while providing the funds needed for growth.
One of our clients was able to expand their footprint from the UK into North America with a tailored finance package and another has expedited the expansion of their business, retailing a range of cruelty-free, natural cosmetic products. Whatever your beauty niche, Sallyport is ready to support the next stage in your business’ growth.
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