In the U.S., NPD Group and Statista report the cosmetics segment was worth $93.5 billion last year, up from $74.7 billion in 2018. According to projections, revenues this year should reach $97.3 billion. Globally, the industry is expected to have a market value of nearly $805 billion by 2023.
Somewhat surprisingly, the industry has long been welcoming to entrepreneurs, even though it’s dominated by iconic brands, both old (Estee Lauder, L'Oréal) and new (Mac, IT Cosmetics, Drunk Elephant and Fenty Beauty, to name a few).
How do you break into an industry with a lineup of brands like that? Like any startup today you have to follow the trends and understand the country’s changing demographics. But to gain share in a highly competitive environment, you need to launch with a disruptive product or concept.
One of the advantages of being a beauty startup is the industry is so broad and diverse, there are many paths to building brand awareness. Statista defines the main product categories of the cosmetic market to include skincare, hair care, make-up, perfumes, toiletries and deodorants, and oral cosmetics.
Entrepreneurs launching beauty businesses today are likely thinking about their potential exits, even as they come into the market. Reality is while you can gain a foothold in the market by introducing a disruptive product, in the long run it’s hard to compete with the major players.
Mergers and acquisitions “in the beauty category have been on fire for several years,” according to industry blog BeautyMatter. This M&A activity is good for smaller brands. Susan Babinsky, SVP of Kline Group, told BeautyMatter, “The flurry of M&A activity…has reduced the pipeline of good-sized opportunities [so] companies are snatching up small and sometimes less proven businesses—often for quite a premium.”
The success stories in this industry are truly astounding.
IT Cosmetics got its start in 2008 when then news anchor Jamie Kern Lima couldn’t find a product to cover her rosacea and hyperpigmentation. After consulting with plastic surgeons and dermatologists she launched her disruptive product, Bye Bye Under Eye concealer. Kern Lima gained attention by selling on QVC and sold the company in 2016 to L'Oréal for $1.2 billion.
Tiffany Masterson started Drunk Elephant in 2012 after she couldn’t find products without the six ingredients (the “Suspicious 6”) she thought shouldn’t be in skincare products. At the time “clean” products were a disruptive concept. Within two years the brand had attained cult-like status, and was Sephora’s top-growing skincare brand. Last fall Shiseido bought the company for $845 million.
Of course, you don’t have to exit your beauty startup to succeed. Glossier’s Emily Weiss was a beauty blogger who decided to transform her business. She got turned down by 11 VC companies, before one said yes and funded her. She launched in 2014 with four products. Although she told The Cut, “I had no idea what I was doing. I was 28 years old. I didn’t have an M.B.A. I went to art school,” Weiss succeeded by focusing on millennials. Glossier is valued at $1.2 billion.
- “Clean” beauty will continue to grow, but businesses with “influencers with marketing megaphones and/or distribution partners that can help grow sales” will attract the most attention.
- Corporations interested in acquisitions will be “looking to buy true innovation and consumer engagement,” particularly with younger demographics.
- Most beauty brands will need to become beauty businesses to attract capital/get sold.
Other experts predict haircare and skincare products (particularly “clean”) will be strong this year.
There are several avenues for new beauty brands to get exposure.
- · Sephora Accelerate is a 6+ months-long program “dedicated to building a community of innovative female founders in beauty.”
- · Target Takeoffinternally-run accelerator programprogramming, guidance and mentorship to help startups learn how to scale to mass retail.
There are other ways to explore the beauty business. Service providers (hair salons, barber shops) are often dependent on product sales to make a profit.
You can open a beauty supply store—on- or off-line.
NPD’s Jensen says her “one word to characterize the beauty industry for 2020 is ‘connection’,” meaning “the human connection we have to each other, to brands, and to the environment.”
About Rieva Lesonsky
Rieva Lesonsky is CEO and Co-founder of GrowBiz Media, a custom content and media company focusing on small business and entrepreneurship, and the blog SmallBizDaily.com. A nationally known speaker and authority on entrepreneurship, Rieva has been covering America’s entrepreneurs for more than 30 years. Before co-founding GrowBiz Media, Lesonsky was the long-time Editorial Director of Entrepreneur Magazine. Lesonsky has appeared on hundreds of radio shows and numerous local and national television programs, including the Today Show, Good Morning America, CNN, The Martha Stewart Show and Oprah.
Lesonsky regularly writes about small business for numerous websites and for corporations targeting entrepreneurs. Many organizations have recognized Lesonsky for her tireless devotion to helping entrepreneurs. She served on the Small Business Administration’s National Advisory Council for six years, was honored by the SBA as a Small Business Media Advocate and a Woman in Business Advocate, and received the prestigious Lou Campanelli award from SCORE. She is a long-time member of the Business Journalists Hall of Fame.
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