Luxury fashion brands struggle to compete with celebs in the branded beauty craze
“There has been a massive shift; we are inundated with brands now. The selectivity is really the main challenge,” Clare Horner, group beauty director at UK luxury department store Harvey Nichols.
Somehow, the luxury makeup market came out of the pandemic bigger, better, and more lucrative.
Cost of living crisis’ be damned, the US market grew 15 per cent in the first half of last year to $14bn (£11.3bn), according to Circana. Sales in other luxury sectors, like handbags and whiskey, saw their revenues slump, according to Knight Frank. The US luxury market even outpaced the regular makeup market, which expanded nine per cent in the first half of 2023.
In the last year, countless luxury fashion brands have announced plans to move into the beauty industry.
Prada has announced a licensing deal with L’Oreal, LVMH-owned Celine has announced a lipstick line, and Rabanne Beauty has entered stores. Hermès, Valentino, Dolce & Gabbana and Balmain have recently announced or are expected to announce beauty debuts soon.
There has been a “complete shift of strategy”, due to “the realisation that there is a big business to be made within beauty”, Sandra Nait-Amer, managing director at Rothschild & Co said at Beauty Independent’s recent Dealmaker Summit EU/UK 2023 in London last month.
Premiumisation drives growth in the beauty market
The growth of the beauty industry is expected to be characterised by “premiumisation,” with the premium beauty tier projected to grow at an annual rate of 8 per cent (compared with 5 per cent in mass beauty) between 2022 and 2027, as consumers “trade up and increase their spending, especially in fragrance and makeup”, according to a McKinsey report.
“In the past, [fashion brands] would only see the beauty potential in launching their fragrance under the same name, but now you can really build a whole beauty business that’s worth billions, beyond just fragrance. The size of the prize is much bigger than people thought initially,” Nait-Amer said.
It is no surprise, then, that luxury fashion brands have spotted an opportunity. But is there room for them all?
The luxury branded beauty market is already inundated with social-media fuelled celebrity brands, a trend which luxury fashion is evidently following in the footsteps of: take a well-known name and utilise it to make the most of a booming market.
“There are a lot of parallels,” Yarden Horwitz, co-founder of Spate, a consumer data aggregator that focuses on beauty and wellness trends, told The Business of Fashion. “With these fashion brands, we tend to see beauty launches do really well at the beginning because they have the story, they have the name. But similarly, to what we’ve seen with a lot of celebrity beauty brands, they get that really big spike in search interest [at first] — and then it just falls flat.”
Celebrity beauty brands amassed over $1bn (£800m) in sales alone in 2023, and sales for these brands surged by nearly 58 per cent in 2023, according to Upbeat Agency. The overall growth rate of the beauty industry is projected to grow by around three per cent annually.
Fenty Beauty leads the pack
Only a few brands are pulling ahead, though: the most successful celebrity beauty brand last year was Fenty Beauty, with a revenue of £477.3m. It was closely followed by Priyanka Chopra’s Anomaly Hair Care and Kylie Cosmetics, both with revenues over £300m.
Together, the top three most successful brands made around £1.2bn, taking the lion’s share of the market. Ariana Grande’s line, r.e.m. beauty, was the fourth-highest-grossing celebrity brand, despite a much lower revenue of £70m.
“While many celebrities have started a company of their own, not many have been as successful or popular as these celebs. That is because they have a passion for what they are creating, and they are credible advocates for their brands,” Jordan Bucknell, CEO of Upbeat Agency, said.
Only brands with a strong brand name and a consistently strong social media presence seem to be able to succeed in the industry – digital popularity appears to be the make-or-break aspect of success.
Prada, for example, has seen search interest in its latest line increase by up about 42 per cent due to successful advertising campaigns and sponsored content on social media platforms like Tiktok.
Consistently tapping into viral beauty moments isn’t easy, though, and requires years of expertise plus a little luck.
This is where celebrity brands and luxury brands differ: celebrities and their teams are more used to utilising social media trends to boost engagement.
Tiktok holds the key to growth
Tiktoks posted by Selena Gomez on her Rare Beauty Tiktok account regularly receive millions of views. Despite a successful recent campaign, @pradabeauty still has only 17,000 followers on Tiktok and rarely breaks the 5,000-view mark.
Digitalisation comes with further headaches: consumers are also happy to shop around for new products online, making the most of a saturated market.
Nearly half of respondents to McKinsey’s 2023 Beauty survey said they enjoyed trying new beauty brands. Consumers are also focused on omnichannel shopping (or ‘phygital’ shopping, where consumers engage with brands through multiple digital and physical touchpoints).
This makes social media presence and engagement ever more important, as well as tailored content and on-trend products for consumers.
Digital advertising isn’t the only hurdle luxury beauty faces, though.
A slumping Chinese economy, for a start, is bad news. Beauty brands like Estée Lauder, Kao and Shiseido have cited poor quarterly sales to reduced demand for prestige beauty in mainland China.
In Western countries, the challenges are likely to come from inside the industry rather than from the general economy. Oversaturation is becoming an increasingly big problem as the lucrative returns of the luxury beauty industry pull more players in.
“There has been a massive shift; we are inundated with brands now. The selectivity is really the main challenge,” Clare Horner, group beauty director at UK luxury department store Harvey Nichols, said at the Dealmaker Summit last month. “I think it is very challenging for brands to find the right foothold.”
McKinsey expects the landscape to become “even more competitive” in coming years, as an increasing number of brands either move into the market and seek to scale or as new challengers emerge to disrupt what will soon be the old guard.
