Thinking about investing in beauty stocks? Learn more about this multibillion dollar industry, including recent trends and who some of the major players are.
Many investors are regularly on the hunt for trends and industries that could provide potential investment opportunities. Some trends have staying power, while others disappear in a flash. One that has lasted throughout the ages is the use of beauty products and cosmetics, which has been around since before the Ancient Egyptians.
Once used largely for ceremonial and ritual purposes, makeup and cosmetics, along with other beauty products, are now a ubiquitous part of society. Today the beauty industry covers everything from tubes of mascara to perfumes costing thousands of dollars per ounce. All those products add up to an industry that generates hundreds of billions of dollars in sales each year.
In 2017, L’Oréal estimated sales for the total global cosmetics market were $240 billion, a roughly 4% to 5% increase over global sales in 2016. The luxury beauty market has been growing at an even faster clip. Since 2014, sales in the luxury segment have increased between 5.2% and 5.7% each year, according to L’Oréal. In 2017, that growth accelerated and L’Oréal estimates the overall luxury segment grew between 8.5% to 9.5%.
The Asia Pacific region is far and away the largest market, with roughly 37% of market share, based on L’Oréal’s analysis (see image below). That market has also been growing rapidly as overall wealth continues to rise in many countries in that area. North America comes in second with 25% market share, then Western Europe with 18%, Latin America with 11%, Eastern Europe with 6%, and Africa and the Middle East accounting for just 3% of the total market.
Sales in certain categories can ebb and flow from one year to the next depending on broader trends. For example, skincare was the fastest-growing category within the U.S. luxury beauty market in 2017, increasing 9% year-over-year to $5.6 billion, according to industry research firm the NPD Group. This was after its growth had lagged for several years, but the popularity of face masks and other face products helped drive growth in skincare products.
Many of the brands are consolidated under a few key players in the industry, several of which operate their own retail locations as well. These are some of the major companies whose business is predominantly generated from beauty-related products:
In addition to companies that are entirely focused on the beauty industry, there are several conglomerates who generate some portion of their sales from it:
In addition to the companies above, there are many retailers that are involved in the industry. For example, Macy’s (M) owns Bluemercury, a luxury beauty store that also provides spa services with 139 locations—some freestanding and some housed within Macy’s department stores.
Cosmetics and beauty products make up a decent amount of the product mix at drugstores like CVS Health (CVS), Walgreens (WBA) and Rite Aid (RAD). And both Walmart (WMT) and Target (TGT) have steadily expanded their own private label beauty products and launched exclusive lines. This merchandise is just one component of their sales, but it’s still a part of different retailers’ strategies to drive traffic, increase revenue and improve margins.