![]() ![]() With limited spots available on the beauty palette, successful brands will adapt to the changing rules of the game and secure a uniquely differentiated value proposition amid a saturated market and increasingly sophisticated consumers. Its high profitability, with EBITDA margins of up to 30 percent, will continue to attract new founders and investors to the space. The next few years will be a dynamic time for the beauty industry, filled with opportunities and new challenges. The likely upshot is that many brands will align their geographic strategies to this new world order, which will require a variety of localized playbooks.Īcross geographies, another growth opportunity will be products and services in the top tier of the pricing pyramid: the true luxury and ultraluxury beauty market has the potential to double, from around $20 billion today to around $40 billion by 2027. Meanwhile, other countries and regions, including the Middle East and India, are ready to step into the limelight, offering distinct potential for specific categories and price tiers. Department stores are expected to continue to lose market share globally.īut in both markets, growth will be harder to come by for individual brands, not least due to fierce local and foreign competition. E-commerce is expected to continue to be the fastest-growing sales channel, at 12 percent per year between 20, but growth in traditional channels-including specialty retail, grocery retail, and drugstores-is expected to pick up postpandemic, as consumers’ preference for omnichannel is partly driven by their continued desire for in-store discovery and trial of products (Exhibit 2). This compares with a 2022 e-commerce share of approximately 30 percent in apparel and footwear, and around 65 percent in toys and games.Ī number of factors have fueled e-commerce growth in beauty: the expansion of beauty offerings from online giants like Amazon in the United States and Tmall in China the increased digital sophistication from direct-to-consumer players the steadily growing significance of online for omnichannel retailers and the proliferation of social selling, including livestreaming, in Asia. Their preference for omnichannel shopping is expected to continue to fuel legacy brands’ shift online and independent labels’ move into a brick-and-mortar presence.Į-commerce in beauty nearly quadrupled between 20, and its share now exceeds 20 percent, with significant runway ahead. Meanwhile, consumers are increasingly shopping across price points and report that both online and offline stores influence their shopping behavior. In line with the trend-driven dynamics in the market, 42 percent of respondents to McKinsey’s 2023 survey of consumers across China, France, Germany, Italy, the United Kingdom, and the United States say they enjoy trying new brands. Intensifying competition will prompt incumbent brands and retailers to change as well. Overall, beauty is expected to be characterized by “premiumization,” with the premium beauty tier projected to grow at an annual rate of 8 percent (compared with 5 percent in mass beauty) between 20, as consumers trade up and increase their spending, especially in fragrance and makeup.Īt the same time, we expect the landscape to become even more competitive, as a range of independent brands that successfully came to market over the past decade seek to scale and as new challengers emerge. Consumers, particularly younger generations, will spur this shift, as their own definitions of beauty morph while their perceptions of everything-from the meaning of sustainability and the role of influencers and key opinion leaders to the importance of self-care-evolve. This article is a collaborative effort by Imran Amed, representing views from the Business of Fashion, and Achim Berg, Sara Hudson, Kristi Klitsch Weaver, and Megan Lesko Pacchia, representing views from McKinsey’s Consumer Packaged Goods and Retail Practices.Ī dynamic segment that is ripe for disruption, the beauty industry will have reshaped itself around an expanding array of products, channels, and markets before this decade is over. ![]()
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