Everybody likes a good comeback story. For beauty executives marred by the coronavirus pandemic, a return to growth is more than welcome news. Even better, research from McKinsey & Company, suggests that the global beauty market will surpass 2019 levels this year—an extraordinary demonstration of the category’s resilience. In fact, China’s beauty spend was the first to emerge from the pandemic malaise, as beauty sales reached 2019 levels by mid-2020, according to McKinsey analysts at a recent online press event to promote the company’s new study, The State of Beauty 2021.

While the overall state of beauty isn’t pretty, some regions and categories are performing much better than others. China’s sharp, 40% decline at the start of 2020 had already recovered by August, helped along by on-shoring of previous travel retail sales, with continued dynamic growth of 8-10% in 2021. McKinsey predicts that the US will return to growth by mid-2021 and will continue growing at a 3-4% CAGR through 2022. In contrast, Europe and Japan will be slower to recover, not reaching 2019 sales levels again until 2022, driven by deeper initial volume loss.

Category Killers

There will be clear winners and losers in individual beauty categories, too. As one might expect, color cosmetics and fine fragrance were most negatively impacted by social distancing and retail lockdowns. Color cosmetics also took a hit from mask mandates and fragrance was hurt by a sharp decline in travel retail. As a result, McKinsey expects global color cosmetics sales to dip 2% to $71 billion between 2019 and 2021. Fine fragrance sales will be even more hard hit, with a 12% decline to $42 billion.

In contrast, hair care and personal care sales are expected to post modest 2% gains during the period to $73 billion and $146 billion, respectively, while skin care sales will grow 5% to $159 billion. Overall, McKinsey projects that global beauty retail sales will increase less than 1% from $485 billion in 2019 to $491 billion in 2021. But considering the depths from which beauty must emerge, that is quite a comeback.

Taking a closer look at the US, McKinsey estimates the market contracted 10-20% last year to $83-88 billion due, of course, to steep declines (once again) in color cosmetics and fragrance sales. From 2019 to 2021, McKinsey expects hair care sales to rise 8%, skin care to increase 6% and personal care will rise 4%. In contrast, color cosmetics sales will fall 13% a year and fragrance will decline 15% a year. Yet, all categories should return to growth by 2023. McKinsey expects skin care, hair care, fragrance and personal care will all post a CAGR of 3% from 2021 to 2023. Meanwhile, color cosmetics will enjoy a 7% CAGR.

“We think the pandemic has been a barrier to color and that there is pent up demand in the color space,” explained Emma Spagnuolo, a partner with McKinsey.

Leading up to the pandemic, new product development in color cosmetics category led to a lot of “cabinet stuffing,” that is only now subsiding as consumers clear out their medicine cabinets.
“Once the pandemic ends, consumers will be ready to purchase again. But cosmetics companies must target Millennials and GenZ, and reach them via digital adoption,” explained Spagnuolo.

E-Commerce Wins

And as more consumers opt for online shopping, companies that embrace digital solutions will outpace their competitors.

“The big winner during the pandemic has been e-commerce; people want to reduce the number of trips they take,” explained Emily Gerstell, an associate partner at McKinsey.

She noted that 86% of Chinese consumers purchase products online and now, more consumers in the US and UK are shopping online, as well. At the same time, social media purchasing in the US and UK is increasing, too.

Taking a look at channel mix, global e-commerce sales are expected to soar 36% from 2019 to 2021. In contrast, every other channel will record a decline in sales, according to McKinsey estimates. Those declines range from just 1% in grocery, mass and specialty retail, to 27% for the hard-hit travel retail sector. But it’s not just that more consumers are moving online; where they shop online is changing, too.

“Social media purchase is really interesting. The number of consumers using it isn’t high, but the engagement is high,” said Gerstell. “Twenty percent of consumers are using it and intend to use it more; it’s not widespread, so there is room to grow.”

Growth for many multinationals typically comes through acquisition; going forward, M&A activity may focus on technology rather than brands, according to Sophie Marchessou, a partner in McKinsey’s Paris office.

“We will see more investment in technology, such as trying products virtually; there is a lot of support that can be brought to players in this space” she explained.

Who’s Buying?

While Millennials and GenZ may represent the best customers for the global cosmetics industry through 2023, the McKinsey analysts warned that it’s no longer as simple as targeting a specific demographic anymore.

“People are made up of different elements, cosmetic purchases are no longer tied to gender,” observed Spagnuolo. “In the younger generation, there are women who don’t want any makeup and, on the flipside, there are makeup junkies—both in the same age group. Companies can’t just target demographics, anymore; you must be nuanced. Think about all the different consumers out there.”

And yet, during the pandemic, all brands cut their marketing budgets. When they do spend, it’s been primarily in digital, but there is experimentation across all advertising channels as brands experiment with different ways to talk to consumers. But whatever methods they choose, more often than not, brand messaging is trending toward authenticity.

“There is more honesty, openness and letting your guard down type of messaging,” explained Gerstell. “We’ve seen that approach work very well with local Chinese brands. They take a tongue-in-cheek, best-friend approach to messaging that makes an authentic connection with consumers.”

And who better than a best friend to help with your hair and nails? When the lockdown first hit, there was a surge in at-home hair and nail color applications. Once a vaccine becomes widespread, consumers may leave their homes—but economic uncertainty may limit salon spending.

“In Europe, there is a nascent DIY skin care market,” observed Gerstell. “It represents a step change and I’m bullish about the trend.”

Spagnuolo agreed that DIY may be an opportunity and a trend that fits in well with consumers’ growing interest in what goes in the products they use.

“DIY highlights that consumers have needs that they want solved and right now brands are not fulfilling those needs,” she said. “Consumers don’t want nasty ingredients in their formulas, but right now a lot of truly natural and sustainable formulas are truly expensive.”