The world of skincare and beauty products has seen enormous growth within the past few years. Brands that no one had ever seen or heard of before rose to stardom in short periods of time, strategically implementing various marketing strategies. This sector has brought in some serious money over the last decade- generating $455 billion just last year. The growing beauty market has enticed a new group of people- ranging from venture capital firms to family offices, to private equity investors. The reason behind this new enticement with the beauty industry is due to the tendency of beauty/skincare companies to scale quickly and provide high-profit margins. “It’s just such a massive market”, states Susan Lyne, the president of BBG Ventures. “Everybody sees the opportunity”.
While it does seem promising, don’t be too quick to put your money into beauty. Buyers eager to invest in the industry drive valuations up, creating a “beauty bubble”, which some find concerning. Rich Gersten from Tengram Capital Partners voices this concern; “It makes me nervous. When something scales that quickly, how do you value it? If it’s a namesake brand, what happens if that influencer leaves?” Indeed, Mr. Gersten voices the dissenting opinion that takes into account the risky nature of the “beauty bubble”.
Although risk must be taken into account, there is the opportunity for those seeking long-term investment. There are areas of beauty/personal care that have yet to be explored- for example, transitioning the sales of products from in-store to online. There are also many different niche brands that cater to the different needs/preferences of their customers. Vegan, cruelty-free, and organic products are just a few that are up and coming. More and more consumers are becoming more cautious about the products they buy, the ingredients they contain, and the image that the brand puts out. They are also well aware of the influencers and celebrities that are associated with the brand. Huda Kattan, for example, founder of Huda Beauty, represents the entire brand and was ranked one of the most influential influencers in the world. Most consumers who buy Huda Beauty products know of her and follow her on her social media platforms.
So what to do? Invest in this new, up and coming market, or play it safe and avoid the risk? Well, if you’re planning on investing in the beauty industry, it’s best to plan long-term. The gains that we’re going to be seeing will not be very momentous, despite the abrupt nature of this sector. It is young terrain that is yet to see growth and development in the future. However, do be cautious. Keep in mind that the beauty industry will only last as long as the market. When the current bull run ends, and (if) the market collapses, so will this area. The verdict? If you’re willing to take risks in this volatile market, do so with a long-term mindset, and consider the influencers associated, as well as the possible niche it can fill.