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A 10-step Korean skin care routine might sound excessive and expensive to some, but to plenty of skin-obsessed millennials all over the world it’s nothing short of a necessity. To achieve what Koreans call ‘glass skin’ –a glowing, porcelain complexion– a nightly beauty regimen will include two different types of cleanser, a toner, moisturising serums, eye creams, and the occasional sheet mask. This is just the latest, and perhaps most extravagant, development in a skincare movement that has millennial women – and many men – hooked, and is reviving a long-stale industry.
Today’s emerging skincare brands are digitally-native. Investors are eager to get involved.
Gone are the days when global brands like Nivea and Estée Lauder dominated the skincare and beauty market, trading their concoctions on beauty counters at department stores. Today’s emerging skincare brands are digitally-native, sell directly to consumers, dominate social media, and are smaller and more malleable than their more established competitors. It’s no surprise that investors are eager to get involved.
“The overall skincare market has seen strong growth over the past few years, but most of the growth has come from the emergence of younger, niche brands,” says Constantin Rojahn, Investment Director at BlueGem Capital Partners, which holds many emerging beauty brands in its portfolio. “These are the brands investors tend to partner with, to support their growth both financially and operationally. In general, skincare is a great sector to invest in as margins tend to be high and people quickly become repeat customers once they like a product.”
They shall not grow old
In the UK alone, the market is set to grow 21.1 per cent between 2017 and 2022, according to the UK Health & Beauty Market Report, and skincare is set to be the fastest growing sub-sector within the industry, rising 27.9 per cent. Younger consumers, namely millennials and Generation Zers, have been the driving force behind much of this growth, with 45 per cent of American18–29-year-olds admitting to spending more than $51 a month on beauty and personal care products and 24 per cent of those spending more than $100. This vastly outstrips other age groups, and is causing the industry to change the way it does business.
Social media and direct-to-consumer e-commerce allow small brands to scale very rapidly today.
Constantin Rojahn, BlueGem Capital Partners
Glossier, a US-based make-up and skincare brand, doesn’t disclose figures but has revealed it saw three times as much revenue in 2017 as the year before, and attracted £38.8m in a round of capital funding in early 2018. It’s a direct-to-consumer brand which uses digital platforms for creative purposes and sales, with the explicit aim of challenging the ‘stale retail’ format of beauty counters. Most of Glossier’s sales are done online directly from its own site, and the brand only has two bricks-and-mortar locations in the US. Glossier relies heavily on social media buzz: it has more than 1.5 million Instagram followers and regularly features on the pages and posts of beauty influencers. “Social media and direct-to-consumer e-commerce allow small brands to scale very rapidly today, without having to secure listings with the big retailers,” says Constantin, “That’s a huge opportunity for brands, but also means that the barrier to entry for newcomers is lower, so competition is very high.”
Glossier has come to typify the successful emerging beauty brand. These are brands that are upfront about their formulations, and eager to meet the new consumer’s heightened expectations for ethical, cruelty-free and often even vegan products. “Natural skincare is a growing at double the rate of traditional skincare and lifestyles are changing,” says Maria Lam, Managing Director of Wildsmith Skin, a UK-based natural skincare company. “If a brand understands and can manifest the zeitgeist, then it can create an opportunity.”
Digital differentiation
In this new digital-first, direct-to-consumer environment, brands need to communicate their unique selling point clearly in order to succeed. Deciem, a Canadian brand part-owned by Estée Lauder, is a formulation-focused, no-nonsense, affordable brand with products typically selling between £5 and £10. Wildsmith Skin, on the other hand, only offers a handful of products, all of which are natural and many of which retail at over £100.
Both brands’ success in their segments exemplifies what skincare companies as a whole have understood and other industries sometimes fail to grasp: it’s entirely possible to achieve success in a small niche of a bigger market. Beauty brands are actively banking on the idea that each consumer will have different needs and will invest in getting those needs met, sometimes with a variety of different products. “It is important to establish credibility and trust,” says Maria, but beyond that, the opportunities to explore niches in the market are seemingly endless.
“New businesses start in the belief that they have something unique to offer,” adds Maria. “Beyond developing the right products, communication is very important so that consumers understand what you are delivering. Despite the crowded market, I still see white space and opportunities to disrupt.”
