Beauty’s Slowdown Goes Global

The famous “Lipstick Index” theory of sales dictates that when consumers spend less on big-ticket handbags and jewellery, they’ll turn to beauty instead. By that logic, beauty should be in the midst of a boom period, considering that several major luxury players are in the midst of a historic downturn.

Not so — the most recent round of beauty earnings has shown that shoppers have their limits in this category, too.

In the third quarter of 2024, LVMH’s perfumes and cosmetics revenue grew by 3 percent, its lowest quarterly growth this year and lower than its 9 percent growth rate in the same quarter of last year. At L’Oréal, third-quarter sales rose by 3.4 percent, a slower increase than just over 11 percent in the same quarter last year as well as its lowest quarterly growth rate this year. Estée Lauder Companies, which has seen two consecutive years of declining sales, has seen its Americas net sales go from positive to negative; net sales grew 1 percent in the 2024 fiscal year, but its most recent fiscal first quarter saw a 2 percent decrease.

Even the category’s biggest winners aren’t growing as quickly as they previously were. On E.l.f. Beauty’s earnings call earlier this month, the company announced 40 percent growth for the most recent quarter, but chief executive Tarang Amin still said that “consumers are being more choiceful with their spending.”

Before this most recent quarter, the beauty industry’s woes were mostly limited to slow pandemic recovery in China; other regions showed more resilience. That’s no longer the case. Coty, which is less exposed in China, reported its consumer beauty sales were flat this past quarter. US-based Ulta Beauty saw its second-quarter sales decrease, and is projecting a decline or flat sales at best for the rest of the year. Even LVMH-owned Sephora — which is playing a role in Ulta’s own difficulties — is noticing the trend. On LVMH’s most recent earnings call, deputy chief financial officer Cécile Cabanis said that Sephora is doing “very well” in all markets, but growth has “normalised.”

“It’s to a lesser extent than it used to be,” Cabanis said.

Compared to the greater slowdown in luxury fashion, beauty’s situation is not as precarious. But experts note a common thread between the two: inflation. A $100 bottle of perfume or a $30 lipstick may be more accessible than a $4,000 handbag, but beauty consumers are also feeling the crunch.

“Beauty was just late to this happening,” said Oliver Chen, an analyst at investment bank TD Cowen. “We’ve seen the normalisation of almost everything. Every other category in the world of consumer discretionary [purchasing] has had their time.”

Some categories — in particular, fragrance and premium beauty — continue to perform. But this slowdown is still testing the idea that beauty is resilient to the forces that can impact luxury fashion, which is even more important as fashion brands rush to embrace beauty as a sales diversification strategy. In order to make it through a slump, experts say brands need to focus more than ever on innovation in both products and marketing to reach a wider age range of customers while remaining aware of consumers’ price-consciousness.

Beauty’s Price Limit

Across recent quarterly earnings reports, beauty companies including L’Oréal Group, Estée Lauder Companies, LVMH and Coty repeatedly used the word “normalising” — i.e. slowing — to describe sales.

On paper, 2023 looked like a strong year for beauty, with sales rising 10 percent worldwide. But according to data from consulting firm McKinsey, it was mostly price hikes that fuelled that growth. In fact, global sales volume only increased by 2 percent — and in the US, only 1 percent — as inflation-squeezed consumers traded down or made fewer beauty purchases.

“With the cost of nearly everything going up, including in beauty, consumers who are more price-sensitive are having to make trade-offs on their discretionary spend with consumer staples like groceries,” said Jeff Lindquist, a partner at Boston Consulting Group. A recent BCG survey found that despite low unemployment, 50 percent of consumers believe the US is in a recession. Seventy-five percent reported feeling the impact of inflation, which hit younger consumers harder, with 87 percent of Gen-Z reporting this.

Both mass and premium brands have been impacted. L’Oréal’s dermatological beauty category, which includes brands like the drugstore players Cerave and the pricier Skinceuticals, missed estimates by double digits, eking out less than 1 percent growth for the quarter.

This phenomenon is most visible on social media, as Reddit threads and viral TikTok posts have called out brands for shrinkflation practices and users bemoan annual product price hikes — Milk Makeup received a frenzy of negative attention on TikTok when it reduced its blush size. The rise of beauty “dupe” culture and Amazon’s increasing strength in the market also point to an increasingly price-conscious consumer.

Gen Alpha to the Rescue

Even in a struggling market, there are bright spots. Fragrance has emerged as a dominant force in beauty growth as cosmetics and skincare spending taper off, rising in all price points — the upscale fragrance label Le Labo has been a standout for ELC, who acquired the brand in 2014, while tweens and Gen-Z are still obsessing over the more accessibly priced Sol de Janeiro, which is owned by L’Occitane.

Struggling categories like makeup still have their winners, too, like E.l.f. Beauty. Although it has raised prices over the years — to the dismay of diehard fans on Reddit — it has also developed its direct-to-consumer sales and presence in retailers like Ulta Beauty. Newness in product launches has also been crucial.

“E.l.f. is definitely one that’s breaking through,” said Lindquist, in part because the brand is “super plugged in digitally and with social, and creating this two-way conversation with their consumers.”

There’s also reason to believe that this past quarter is an aberration, not a worrying sign of what’s to come. With inflation cooling, experts are optimistic about 2025 for beauty. For one, with Donald Trump set to return to the White House, the fate of the ultimate beauty hitmaker — TikTok — in the US is more secure than it was just a few weeks ago, good news for the brands that have come to rely on it to drive sales. But longer-term, the impact of proposed tariffs is also already a topic of earnings call discussion, as E.l.f. Beauty’s earnings call predicted effects of them could take place as early as 2026.

In the more immediate future, Circana data shows that the percentage of shoppers intending to buy beauty gifts this holiday season rose “slightly” from 2023 to 29 percent. One driving force is Gen Alpha consumers. No longer a punchline in Sephora tween jokes, this younger shopper is increasingly being looked at as a saviour to beauty industry growth. The survey found that 41 percent of households with children are planning on buying beauty this year.

“This holiday season, its resiliency will be tested,” said Larissa Jensen, Circana’s global beauty industry advisor. “There has been some pullback in spending throughout 2024, but big increases in prestige beauty spend from higher-income households with children under 18 years old indicate parents are indulging Gen Alpha with these products.”

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