Op-Ed | The Cost of Growth in Beauty

If the tail of 2024’s earnings season in beauty is a reminder of anything, it is that the beauty industry, while attractive from a growth perspective, is more hotly competitive than ever, with the cost of growth rising and the need for continuous blockbuster innovation table stakes.

Beauty has always been an industry that is dynamic, with high consumer engagement and endless opportunities for creativity and segmentation. Barriers to entry were relatively low, albeit with impediments around distribution and consumer reach.

That was until the advent of social media, which, less than a decade ago, effectively democratised the ability to launch a brand. At the risk of oversimplification, all an upstart beauty brand really needed to thrive in the mid- to late 2010s was a presence on Instagram and some form of distribution, even it was just via Shopify.

Since that time, with the explosion in specialty beauty retail (both e-commerce and brick and mortar), one could argue the market has become oversaturated and a brand’s addressable market is often more narrowly defined versus the historical objective to resonate with as broad an audience as possible. So, while it has become easier to get distribution, we believe it has become harder to get the consumer’s attention and to keep it.

To make matters worse, we’re unsure if beauty brands can find incremental efficiencies in their media spend, as was the case when companies were first shifting from traditional print and TV advertising to digital. Yes, brands can now target new customers better than in the past, but we would argue that the challenge and true cost of staying visible has only grown. For a brand to generate buzz and to scale sustainably, there are more nuances than ever before.

Imagine the challenge of being a big, legacy beauty brand. So-called ankle biters keep coming, operate with a completely different mindset, and only need to reach a fraction of an incumbent’s revenue to feel successful. And while legacy brands often find their strongest growth outside of their home market, for niche brands that don’t necessarily have the resources nor the benefit of scale, they can double down where it matters most to them. This can create interesting competitive dynamics with legacy players spreading resources (financial, strategic, and human capital) across multiple playing fields while newer brands can benefit from a more unilateral focus. We’d argue Estée Lauder, for instance, pursued growth in China and travel retail for much of the past two decades, a decision that left it flat-footed at home in the US as niche brands gained momentum.

Perhaps all of this is not a problem in isolation, but these “other” brands are taking a bigger and bigger share of the consumer’s wallet and eyeballs across beauty categories. We find it fascinating to see that among the five beauty brands with the strongest momentum on social media, according to Social Standards Brand Maps, all were founded within the past 10 years, with the top three, Hailey Bieber’s Rhode, skincare label Summer Fridays and the makeup artist-led Patrick Ta, founded within the past six years.

In this vein, we have wondered in the past if there is a ceiling to how big a beauty brand can be and for how long, and now we wonder if that ceiling isn’t moving lower.

Recently, we have seen CeraVe — the L’Oréal-owned skincare brand that reinvented the derma-cosmetics market, becoming a template for other mass brands globally — begin to see a marked deceleration in growth. We have seen this pattern before, with brands ranging from Olay to Neutrogena, but what struck us as particularly interesting in this case is the call-out of there being not enough newness of late, and Gen-Z customers leaving the brand to try others.

If CeraVe, which inarguably can be credited with driving that mass skin care category and surely sourced some of that growth from prestige, is saying that it missed a beat on innovation and could so quickly lose momentum to other brands, how significant must the cost of doing business have become?

Lauren Lieberman is a managing director at Barclays’ investment bank focusing on consumer goods.