The beauty industry has been in the spotlight in recent months as various happenings in the sector caught the eyes of investors. This included the takeover of luxury brand Tom Ford by Estee Lauder, which now owns the brand’s fashion and beauty units; Puig’s acquisition of Byredo and Coty’s sale of the Lacoste license back to the brand. The industry is riled with transactions during the end of 2022 and could possibly see more movement in 2023.
The allure of having a beauty arm is simple because it is considered one of the fastest ways where brands can stand to grow their revenue and expand their reach to a wider audience. On the first point of revenue generation, in the recent financial report by luxury conglomerate LVMH, its perfumes and cosmetics business group recorded a 17 per cent growth in 2022 to €7.7 billion while other legacy beauty companies like L’Oréal, Coty and Shiseido posted revenue of €38.2 billion, US$5.26 billion and US$8.2 billion respectively.
All For The Revenue
Taking into account challenges like rising inflation rates and disruption in the supply chain, beauty companies have performed well. While the initial phases of Covid-19 had brought about a decrease in demand for makeup as a majority of the people are not going out, brands have pivoted to focus on skincare. Treatments related to acne arising from mask-wearing took the top spot, which helped to cushion the impact of slowed sales in makeup.
Another segment of beauty also took a leap and that is the fragrance category. According to a report by NPD, sales for fragrances were up 19 per cent year-on-year. And this uptick in number was attributed to behavioural changes in Gen-Z consumers and increased interest in the Chinese market. Dominating the luxury fragrance market are designer brands from the likes of Chanel, Christian Dior, Giorgio Armani, Paco Rabanne, Calvin Klein and more.
Looking a closer look at the commonality of these top designer brands, one would notice that many have a counterpart in the fashion industry. Branching out to beauty allows fashion brands to earn an additional stream of revenue. In today’s highly competitive climate, every bit counts and the example of LVMH’s direct control of its beauty brands is a testament to this business strategy which has been helping it to grow.
Planning to follow in the footsteps of LVMH is Kering, which announced the creation of a new business division, Kering Beauté. Under this new unit, it has named Raffaella Cornaggia, a long-time executive of Estee Lauder, as the incoming CEO. Just like how Christian Dior is now a multi-billion dollar business under LVMH that comprises both fashion and beauty, Kering is slowly “[developing] an expertise in the beauty category for Bottega Veneta, Balenciaga, Alexander McQueen”. Currently, these brands including Gucci are licensed to Coty.
“Kering is confident it can create value for the group and its houses, drawing on each of their unique identity in a way that is fully consistent with their strategy and market positioning,” said Kering in a statement following the announcement. Rather than “giving away” the revenue earned, the owners of luxury brands would prefer to keep it within the group.
A Wider Consumer Reach
On the second point of appealing to a wider audience, investing in a beauty arm helps to lower the barrier of entry for consumers. As products from luxury brands often command high prices, not everyone has the ability to buy the latest bag. Products like lipsticks, eyeshadow palate or fragrances are a great alternative to be part of the brand’s universe.
By slowly easing new consumers to the brand, companies stand to build a good foundation with these new entrants. Apart from a steady revenue stream, brands stand to improve their brand awareness and loyalty, which in the long-run is beneficial in establishing a solid consumer base. Going back to the example of Christian Dior, it has a dedicated line of makeup products that are used exclusively for its runway shows. Consumers are even given tutorials on how to re-create these looks using the products, which further strengthens engagement.
In a similar vein, beauty products constitute one of the largest categories for social engagement on platforms like Instagram, TikTok and YouTube. Content creators using these designer-branded makeup products further amplify the brand’s visibility to a greater segment of society. One only has to look to the appointment of Jisoo of Blackpink as Dior’s global ambassador for fashion and beauty and up-and-coming South Korean girl group NewJeans’ Minji to know that brands are constantly making themselves relevant through partnerships with figures that will appeal to the modern consumers.
While beauty products are becoming more and more genderless, women still represent an important group for these brands. Akin to how football is hugely dominated by men, beauty products and its marketing efforts are skewed towards the attracted females. More and more companies are recognising the significance of offering a beauty line to their customers. This has led to a growing trend among brands to venture into the beauty industry in order to increase their profits and cater to the changing preferences of consumers who are willing to spend on beauty products.
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