Beauty and Cosmetics Stocks: Diving into a Multibillion Dollar Industry

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. 

The Beauty Industry by the Numbers

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. 

Who are the Players?

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: 

  • L’Oreal (LRLCY) is a $115 billion French beauty conglomerate that owns a large portfolio of brands including Kiehl’s, Urban Decay and Lancôme. 
  • Estée Lauder Companies (EL) is a $49 billion multinational company that manufactures and sells a wide range of skincare, makeup, haircare and fragrance products. Its brand portfolio includes Aveda, MAC Cosmetics, Clinique, and Bumble and Bumble, to name a few. 
  • Shiseido (SSDOY) is a $29.5 billion Japanese company that sells cosmetics and other personal care products under its own name, as well as a wide range of brands like bareMinerals and NARS. 
  • Coty Labs (COTY) is an $8.8 billion beauty company that has a portfolio of more than 70 brands across fragrances, cosmetics, skincare, and nail-care. Two years ago, Coty expanded significantly through a $12 billion deal to acquire Procter and Gamble’s beauty business.
  • Ulta (ULTA) is a U.S. beauty store chain that sells a wide range of products and provides beauty services. Since opening in 1990, the company has expanded to more than 1,000 locations and has continued to open new stores in 2018. 
  • Revlon (REV), e.l.f. Beauty (ELF) and Avon Products (AVP) are some of the smaller companies in the industry. Like those above, all three sell a variety of beauty products including haircare, skincare, and makeup.

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: 

  • Unilever (UL) produces a wide range of cosmetics and beauty products, mostly value-priced brands carried at major retailers.
  • Luxury conglomerate LVMH (LVMUY) is involved in the beauty industry in a number of ways. In addition to owning beauty store chain Sephora, it has a large portfolio of luxury makeup and fragrance brands. 
  • Henkel (HENKY) is a German conglomerate that manufactures adhesives, laundry and home products, and beauty products. While Henkel produces a wide range of goods, it has a large portfolio of haircare products and specializes in colorants for bleaching and highlighting. 

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.  

Shifts in the Beauty Business

Like all consumer goods, tastes and desires can shift over time and the beauty industry is no exception. In some cases, there might not be a whole lot companies can do when shifts occur.

Mascara has been a staple of beauty companies, generating $8.1 billion in global sales in 2017, according to Euromonitor International. Sales have started to slow however as lash extensions, lifts and tinting, as well as false lashes, have grown in popularity. Many newer beauty companies have opted to not sell mascara at all. 

Not only do trends affect demand for different products, but the way they are marketed and new customers are reached has changed greatly. Some of the newer beauty companies are marketing their products almost entirely through Instagram or social media channels, and sell exclusively online. 

For the luxury brands, if demand drops off sharply, they aren’t likely going to be able to command the premium prices on which their business models rely. And unlike mass-produced brands, luxury brands frequently choose to eat the loss and refuse to discount products to move inventory, which can negatively impact margins.  

When it comes to researching beauty industry stocks, there are a number of factors to consider when deciding whether such an investment opportunity might be right for your portfolio. The TD Ameritrade stock screener can help provide you with an informative technical and fundamental overview of each stock, screened based on your preferred criteria.