Consumer demands for tailored solutions are impacting product segments and digital retail platforms.
1. New Growth Markets
A range of new frontier markets has emerged, led by Indonesia, Saudi Arabia and India. These dynamic growth markets are benefiting from the sophistication and expansion of beauty and personal care routines.
These changes in routines remain a key growth factor for category diversification and price platform segmentation in emerging markets.
Regimen changes include both trading up to a higher unit price and added-value alternatives in staple categories, as well as the addition of new personal care steps.
2. Ever-evolving Customization
Changing beauty habits, both in developed and developing markets, continue to fuel the customization trend in global beauty. Although it is not a new trend, it has been rapidly evolving and constantly raising the bar for marketers.
Consumers’ demands for tailored solutions vary across regions and categories and, strongly aided by digital technologies, are developing into individualization.
The most recent product customization innovations have included new product formats, textures and functions. For example, oil-based products are entering a wide range of beauty categories beyond hair and body oils into cleansing products, serums and color cosmetics (e.g., YSL Volupté Tint-In-Oil).
Demand for individually tailored solutions, the ultimate customization, is on the rise. New product developments are aligned with the trend, such as Clinique Smart Custom Serum, launched in 2014.
3. New Lucrative Opportunities in Skin Care
The global retail value of skin care exceeded $110 billion in 2014, registering more than 5% growth. Customization remains a key trend across all beauty categories, but it is driving especially prominent growth in skin care due to the wide range of functions, benefits and claims the category can accommodate.
Within skin care, facial care products will be the most prospective growth generators. New lucrative market niches will include face masks, anti-aging and men’s skin care. Diversification of claims and formats for face masks is expanding both across Asia and Western markets.
In 2014, Asia-Pacific still accounted for 80% of the global facial mask market. However, the category has registered 15% growth in the United States, and the frequency of face mask application is growing in large European beauty markets, such as France and Germany.
New sheet formats should create further interest due to more complex demands and evolving beauty routines.
4. Growing Demand for Niche Offerings
Although growth was still modest in 2014 in developed markets, beauty companies aim to capture demand for “niche.” This trend is reflected in the intensifying acquisition activities among strongly performing niche brands, especially in skin care and fragrances.
Niche brands have the advantage of a more personalized offering, unique features and benefits, and are highly specialized in their focus categories.
5. Digitally Engaged Consumers
Niche opportunities beyond dynamic categories and exclusive brands are available via a growing number of niche retail platforms.
Traditional beauty retailers are developing their online presence in order to succeed among the growing competition for consumers.
Simultaneously, pure e-tailers, e.g. Amazon and eBay, have long-established infrastructure and the know-how of online trading, but the competition facing them is growing from a myriad of mobile apps, social media and company websites.
The Internet retailing channel in beauty and personal care is still relatively underdeveloped, accounting for about 5% of total sales in 2014, but it registered the fastest growth over the 2009–2014 review period with a 17% compound annual growth rate (CAGR).
Consequently, companies have been making significant investments into expanding their digital footprint.
There are a number of focus points for these growth initiatives, including brand building, consumer engagement, beauty habit analysis and, most importantly, online retail platforms to capture new sales. As a result, the digital market space in beauty is becoming highly fragmented; the development of sound digital strategies is a necessity to capture novel opportunities.
Cautiously Optimistic Outlook
The outlook for global beauty is cautiously optimistic, near 3% CAGR at constant 2014 prices over 2014–2019. Despite the slowdown in China and Brazil, there is still huge potential to grow beyond first-tier cities and to expand the penetration of existing flagship brands.
India remains at a nascent stage of its development with average disposable incomes at much lower levels than China or Brazil. However, given the sheer size of its rural population (860 million in 2015), and a predisposition toward skin care, even a small increase in wealth could yield a highly significant upside for the skin care category.
Meanwhile, Indonesia will increase its contribution compared to the previous five years, with a major boost from skin care.
The diversity of trends is expected to evolve under the growth pillars of customization, digital and niche opportunities in 2015 and beyond.
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