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Skin Care Slows But Naturals and Dermocosmetics Prevail*

July 3, 2017 | Contact Author | By: Nicholas Micallef, Euromonitor International
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Keywords: skin care | naturals | dermocosmetics | wellness | active beauty

Abstract: Seizing and disrupting niche categories provides new opportunities but depends on the category’s concentration in a given market. Growth in the skin care market is anticipated to slow, with pockets of strength in naturals and dermocosmetics.

*Adapted with permission from Global Cosmetic Industry

While sentiment on the beauty and personal care industry’s performance in 2016 points to a vibrant color cosmetics category, skin care is anticipated to slow down, albeit with pockets of strength in segments such as naturals and dermocosmetics. This is highly indicative of several prevailing trends, described here.

Wellness Cuts Through the Clutter

Evolving consumer patterns across multiple industries are opening new avenues to beauty players. For example, a holistic approach to a healthier lifestyle is being manifested in consumers’ choices of food, alcohol consumption, sports and exercise, and greater attention to personal hygiene and appearance through the use of preventative beauty products. More consumers are basing purchasing decisions on a product’s wellness priority, formulation and prominence in an otherwise cluttered marketplace.

New market entrants are exploiting this scenario with unique offerings and the development of cross-category and inter-industry product innovations. This evolution sums up why niche labels, dermocosmetics and “clean label” products are challenging legacy power brands, as consumers, in particular those in saturated Western markets, seek authentic options.

Active Beauty

Beauty players also are exploiting the thriving sportswear arena as the wellness drive extends to fashion. For example, Birchbox launched the Arrow line in 2016, while Sweat Cosmetics specializes in sweat-proof permeable mineral makeup. Others, such as Mio Skincare, are more specific to users’ activities, with lines such as the Workout Wonders and Liquid Yoga.

Consumer Scrutiny as a Source of Novelty

Consumers are more discerning than ever, especially regarding product formulations. In virtually all categories, legacy brands are falling out of favor, replaced by those professing to be natural, organic, chemical-free and green, and products that instill a sense of clean living with the use of fewer ingredients.

This is leading to a new wave of products under the green/clean label, as demand for naturally derived ingredients surges and consumers become more informed about the origin, processing and overall social and environmental footprint of a product. Some consumers also reject products based on unsustainable ingredients, e.g., those derived from limited sources such as the Dead Sea.

Benefits Set You Apart

Claiming to be natural and “clean” is not enough, however, because consumers are not easily convinced. As certain claims, such as anti-pollution, proliferate, brands must stand out with tangible evidence or they risk being dismissed as far-fetched. Ultimately, a product’s performance is most crucial, and what sets a brand apart could be how visible its benefits are to the consumer; for example, the improvement of dark spots or acne breakouts.

Probiotic Skin Care

Meanwhile, the beauty market is witnessing the launch of relatively bold concepts, leveraging success achieved in other industries. One example is probiotic-based skin care, which is inspired by probiotic supplements and yogurts. U.S. brand Mother Dirt pioneered the first skin care range formulated with live cultures, reported to restore the skin’s bacterial equilibrium. Other niche brands later came to the fore, including Esse and Yun Priobiotherapy, promising to take skin care to a new level.

Big players are already taking note as they seek revenues when opportunities arise. For example, Johnson & Johnson announced a partnership with S-Biomedic, a start-up biotech firm specializing in probiotic cosmetics, and has plans to launch its first product, an acne skin recovery solution. Under the agreement, S-Biomedic receives help from Johnson & Johnson while supporting the latter’s skin care strategy, which is also geared toward dermocosmetics, as evidenced in the 2016 acquisition of Neostrata.

Extensions into dermocosmetics could see an upsurge as brands expand equity.

Seizing and Disrupting Niche Categories

Niche brands have motivated several acquisitions, such as L’Oréal’s recent purchase of AcneFree, CeraVe and Ambi; or Unilever’s string of premium skin care acquisitions, including Murad and Dermalogica. These acquisitions show swift efforts on the part of multinationals to seize ripe opportunities, especially when segments such as dermocosmetics and doctor brands remain dynamic.

The scope for niche acquisitions is dependent on a category’s level of concentration in a given market. For example, a high concentration for oral care in Western Europe opens up opportunities to for niche brands to disrupt the category; as with the U.S. subscription-based oral care brand Quip. This is similar to Bulldog in the United Kingdom and Dollar Shave Club in the United States, which have spurred growth in men’s toiletries in their markets and hold potential to disrupt elsewhere.

In contrast, in a fragmented market scenario, such as baby care in Asia-Pacific and color cosmetics in North America, new entrants have a tougher time disrupting. Thus, the focus more likely should shift toward acquiring niche brands that facilitate specialization, such as personalized solutions and uniquely sourced product ingredients, to maintain the competitive appeal.

Acquisition Targets

Dermocosmetics are set to exert a greater influence on the beauty industry, and additional opportunities will open up as healthy aging is placed at the core of consumer lifestyles. This will be spear-headed by millennials, who put greater focus on preventative skin care through the use of facial cleansers, masks and moisturizers, which are anticipated to gain in vigor from 2015–2020, with global CAGR prospects of 2.4%, 8.1% and 3.5%, respectively; exceeding their growth from 2010–2015.

Facial masks are one category where companies will seek acquisitions due to its dynamic outlook and the category’s prevention-based direction. Probiotic-based skin care brands, such as Mother Dirt, are perhaps too new but beauty players will watch them closely over the next few years.

Finally, extensions in the dermocosmetic arena could see an upsurge as brands expand their equity. This explains L’Oréal’s acquisition of IT Cosmetics and Johnson & Johnson’s acquisition of Neostrata; the latter could raise the company’s profile in color cosmetics via skin-friendly makeup. Other hybrid brands such as Glossier, born out of an online community blog, and Niod Photography Fluid, a high-tech foundation that “Photoshops” the wearer, could be up for grabs as big players seek ventures with a unique proposition to grow and generate fast revenues.