Cosmetics giant Revlon was plunged into a bitter controversy at the beginning of this century when it terminated the contract with model Cindy Crawford. At 34, the top was considered “too old” to continue as the image of the brand. “We need freshness”, they declared on their day from the signing. Twenty years later, Revlon itself seems to have lost its grip on the competitive beauty industry. The company has just declared bankruptcy under United States bankruptcy law, drowning with a debt of 3,700 million dollars (about 3,500 million euros) and unable to stand up to emerging rivals. The company owned by Ron Perelman had a turnover of 2,079 million dollars in 2021 and lost 207 million, chaining several exercises in the red.
The fall from grace of one of the largest firms in the industry starkly exposes the vertiginous transformation that the business is undergoing. In recent times, a large number of independent brands have emerged supported by the online channel and sustainability; singers and celebrities have entered the sector with notable success –Kylie Jenner or Rihanna–; And, to top it all off, fast fashion giants such as Inditex or China’s Shein have launched their own line of make-up and facial care products, giving birth to fast beauty. To take the measure of this last strategy, just two notes: at the headquarters of the owner of Zara, in Arteixo, there is a space dedicated exclusively to innovation in cosmetics, while one of the most visited corners in the ephemeral store of Shein in Barcelona has been precisely the make-up. By the way, the design and name of the cosmetic products that Shein has exhibited this week in the Catalan capital are similar to those of the Jenner brand, but they are much cheaper. You know, when they copy you is that you have achieved success.
All these factors put pressure on historical beauty groups like never before. “The competitive environment in the sector is very high, and the big brands have to make a constant effort to interest consumers and adapt to their new demands,” says Enrique Porta, partner responsible for consumption at KPMG in Spain. This requirement translates into an enormous dedication, of both human and economic resources, in innovation, technology, promotion in social networks and contact with the client. “The consumer constantly wants new products, new textures and new ingredients,” confirms Jordi Morcillo, CEO of Skeyndor. Companies that are able to adapt survive.
Industry leaders such as L’Oréal, Estée Lauder or Lancôme have learned to deal with this changing environment, and their sales are maintained and even grow. Sometimes, following one of the maxims of any strategist: if you can’t beat the enemy, join him. The acquisitions of independent cosmetic brands by large groups have been a constant in recent times. In Spain there is a paradigmatic case. It is that of the fashion and beauty company Puig, which two summers ago bought the British make-up firm Charlotte Tilbury.
Here’s a textbook case. A professional makeup artist, used to working with models and actresses, takes advantage of her contacts in the entertainment world to launch her own brand. The products are liked, the famous ones promote them and the social networks do the rest. An independent brand rises to the top of the success of cosmetics, as Chanel or Dior did in their day. And a large group in the sector, in this case Puig, bought it for nearly a billion euros.
Thus, traditional companies, with a large and often more rigid structure, confront with different methods the greater agility of small ones, who take risks in their proposals without much consideration. Laggards are left out of the market, as has happened to Revlon.
The pandemic-driven digital shopping boom has just broken down barriers to entry for new brands in cosmetics, especially makeup – see chart. “If you have a good value proposition and complement it with opinion leaders, with a successful network promotion campaign, it’s not difficult to find a niche,” says Porta. In Spain, Saigu, Freshly or Cocunat have started their businesses with this model and with different luck.
The phenomenon does not seem to have peaked. Data from KPMG indicate that the purchase of cosmetics online in Spain reaches 11%, while in neighboring countries it stands at 25%. And growth of 10% per year is expected in beauty e-commerce compared to the average 6% in the sector. “Cosmetics somehow follows in the footsteps of fashion, and the digital and technological vector, to improve the consumer’s shopping experience, is essential,” emphasizes Iván Borrego, general director of Beauty Cluster, an association that brings together 240 companies from the cosmetics sector in Spain. In the same way that textile firms such as H
Two conjunctural processes are added to these background currents that move the cosmetics industry. First, inflation, which in Spain already reaches 10%. The rise in the cost of raw materials has reduced the margins of companies, and the lower spending capacity of the general population has polarized consumption. “In this inflationary context, differentiation is more relevant than ever,” says Porta, from KPMG. Either you compete with price, or you compete with product quality and proposal. “In some way you have to differentiate yourself; Staying in the middle, in no man’s land, is not an option.” Even more so in a business where loyalty is at low levels. The substitution effect, changing a product for a similar one with the least complication, is especially pronounced in cosmetics. The networks here again play an important role, with thousands of tutorials that teach how to replace cosmetics without remorse.
The second circumstance that pushes the beauty sector comes as a collateral consequence of the pandemic. After almost two years restricting social life, with faces hidden behind masks, the drive to look attractive grows. Consumers seek indulgence and dress up a little more. More creams, more makeup and more perfume. “If you’re sad, put on more lipstick,” is attributed to Coco Chanel. And if it’s red, even better.
Hence, the business figures have recovered at a relatively fast pace in 2021, almost equaling the 8,460 million euros invoiced in Spain in 2019. In terms of per capita consumption, the figures also grow again. If in 2019 each Spaniard spent 177 euros on cosmetics and in 2020 the figure fell to 154 euros, the last year it was already 166 euros. This places Spanish customers among the most boastful in Europe, being the fifth market for beauty products.
This 2022, therefore, the evolution of the industry will be conditioned by a double inflation: that of prices and that of vanity.
