What is beauty? It’s a question philosophers have pondered for centuries. And now it’s being asked more and more often in the beauty industry. A confluence of factors means brands and retailers are facing profound shifts in what used to be a relatively simple business of helping people look good.
By the end of this decade, today’s $427 billion beauty industry will be reorganized around an expanding array of products and markets. Consumers, especially younger generations, will drive this reshaping as their definitions of what constitutes beauty evolve, while their perceptions of everything from their role in sustainability to the importance of self-care evolve. Brands and retailers will also change, striving for greater agility and adopting multi-channel operating models. They will do so as competition continues to intensify in an already crowded market across all categories: skin care, makeup, fragrance and hair care.
This special issue of The State of Fashion by The fashion business and McKinsey & Company examines the global beauty industry through a number of key dynamics that will impact brands and retailers in 2023 and beyond. The report uses market intelligence, insights from industry executives and other experts, and proprietary analysis to identify the best business opportunities, while providing both price segment and category retail sales forecasts for the five years to 2027. To enrich this report. McKinsey also conducted a global survey capturing purchasing behavior and consumer preferences in six major beauty markets.
The beauty market is expected to continue to demonstrate the resilience it has built in recent years, showing time and time again that it can withstand, and even profitably thrive and grow in, economic turbulence while other consumer sectors struggle. It’s now an industry that everyone from high-profile financiers to A-list celebrities want to be a part of, and with good reason. McKinsey estimates that by 2027, the global beauty industry will record more than $580 billion in retail sales, with annual growth of 6 percent.
By 2027, the global beauty industry will record more than $580 billion in retail sales, with annual growth of 6 percent.
How the industry achieves that figure depends on the ability of brands and retailers to navigate the dynamics that this edition of The State of Fashion explores; new geographic hotspots; growing luxury opportunity; route to scale for emerging brands; the evolving landscape of mergers and acquisitions; steady growth of health-related beauty; and the complexities of the Gen-Z beauty consumer.
First, geographic diversification is more important than ever. It was only recently, for example, that brands were able to focus their footprints on the two leading countries in the industry, China and the US. Both markets will remain powerful forces for the industry. China is estimated to be worth about $96 billion by 2027, and North America is worth roughly $115 billion. But different factors in both markets mean that growth will be difficult for individual brands to achieve. However, there is a lining. other countries and regions are poised to step into the spotlight, including the Middle East and India. Brands can also find opportunities by targeting consumers with products and services at the highest level of the price pyramid; luxury beauty could grow from around $20 billion to $40 billion by 2027.
The next few years will also be challenging for some brands that until recently carved out niches for themselves and whose reputations were built on disruption. These competing brands have started walking the same bumpy road as other small and mid-sized brands in their quest for scale. Of course, the trajectory of a beauty brand to $20 million in annual sales will continue to vary greatly from one to $250 million or $800 million, especially with the sheer number of brands entering the industry.
However, the brands highlighted in this special edition that have successfully overcome barriers to growth show how the rules of scale can be rewritten with a laser focus on creating international footprints and pathways and smart financing considerations. Mergers and acquisitions can play a role here. As in recent times, conglomerates and financial investors will make deals to invest in promising brands. But dealmaking will be different in the near future. Mega deals are likely to be few and far between, in response to both market turbulence and the need for brands to demonstrate an ability to drive profitability through innovative product pipelines.
The future of another dynamic driving beauty returns to the question of what beauty is. It’s top of mind for many beauty consumers, and we can thank Gen-Z for that. This generation, today’s teenagers and twenty-somethings, who will represent a quarter of the world’s population by 2030, have a huge influence on the industry, for example by mastering social media channels to express likes and dislikes, influence and challenge older generations of consumers. mainstream views of what constitutes a beautiful person.
The definition of Beauty will continue to expand to include much more than the industry’s associated lipsticks, face masks and perfumes as consumers strive to look good and feel good. Nowhere is this more evident than in the steady march of beauty to health. As part of today’s $1.5 trillion global wellness industry, wellness-inspired products—from ingestible supplements to sleeping lotions made with ancient medicinal traditions—have already captured the attention of consumers as well as retailers seeking greater self-care and attract attention in our post. – the epidemic routine. The convergence of health and beauty is only expected to become more prominent, with McKinsey predicting 10 percent annual growth through 2027 for the wellness industry.
Ultimately, the coming years will offer all the right ingredients, from agile channel mixes to consumers eager to explore new products, to drive the industry forward. It will be a unique time for beauty leaders to flourish, with strategies that reflect the new face of beauty.
The report identifies five important dynamics for the industry over the five years to 2027:
1. New growth map
Beauty’s international growth blueprint of the past decade needs updating. China, while still a powerhouse, can no longer be the sole driver of growth for brands. The US, which will continue to be the world’s largest market, will grow in importance to the industry even as competition for market share intensifies. Other markets, notably the Middle East and India, may offer a number of ways to offset these challenges.
2. Health awakens
A new definition of beauty is reshaping the market as consumers shift their goals from aesthetic perfection to holistic well-being. Brands can take advantage of emerging health subcategories, from sleep to sexuality to ingestible beauty, to enhance their existing products and expand their portfolio, provided they do so with credibility and authenticity.
3. Decoding Gen-Z
As Gen-Z grows up, brands must adapt by finding new ways to speak their language. This may require a retirement from traditional ways of doing business, from marketing to product development, and rethinking assumptions about this diverse, digitally savvy and demanding generation that prioritizes value and performance when choosing their beauty brands and products.
4. The scale imperative
For many emerging beauty brands, getting up and running in the early days has been the relatively easy part. Now they have to face the bigger challenges of continuing their growth trajectories. In an industry that has become overcrowded, geographic and channel expansion will likely be key to gaining further market share.
5. M&A Recalibrated
In the short term, beauty M&A activity may not produce as many deals as previously seen in the industry, but dealmaking will continue to be active. The potential benefits for buyers and sellers remain as strong as ever, playing a key role in strategies focused on international growth, innovation and competitive product portfolios.