Over the past month, executives have reported that growth in the beauty sector remains elusive.
Recent earnings have shown lackluster results from nearly every major beauty company. Brands like E.l.f. Beauty and Beiersdorf have either reduced their guidance or set expectations below what analysts had forecasted. Firms already under pressure, such as Estée Lauder Companies and Shiseido, faced further setbacks, while even the typically resilient L’Oréal experienced a 6 percent dip in share price due to sluggish sales growth.
This deceleration has become a trend. In the immediate years following the pandemic, growth was easier to find as consumers had pent-up savings and an eagerness to spend on goods. Companies flourished through increased sales volume and price hikes, as customers seemed enthusiastic about premium offerings. However, the economic landscape has changed. In October, US consumer confidence plummeted to near historically low levels, according to the University of Michigan.
“People are purchasing less frequently. They’re only buying what they truly need,” said Filippo Falorni, managing director at Citi, indicating that consumers might opt to extend the life of their products.
While certain brands in beauty are thriving—like E.l.f.’s Rhode, L’Oréal’s Color Wow, Kérastase, and Korean names such as Beauty of Joseon and Tirtir—more brands find themselves competing for consumers’ dollars but with limited shelf space and reduced advertising budgets.
Overall, growth in beauty is expected to be minimal. Analyst Jeremy Fialko from HSBC stated that the sector’s growth will likely remain at or below the lower end of its historical range of 4-5% for the year.
“We do not expect significant improvement in 2026,” he added.
The American Beauty Dilemma
Nearly every major beauty conglomerate reported losses in the US market: Coty saw a 6 percent decline, Shiseido dropped 9 percent, and Estée Lauder Companies experienced a 2 percent dip.
The growing power of Sephora and Ulta Beauty has led to difficulties for brands reliant on department stores, drugstores, or direct-to-consumer strategies to boost sales. Even within these top specialty retailers, brands are vying for dwindling shelf space and consumer attention. Newer sales channels such as Amazon and TikTok Shop provide no guarantee of success, as brands struggle to find their footing on these broader platforms.
Falorni pointed out that retailers are placing smaller orders, reflecting a shift in consumer behavior. This has left beauty firms grappling with excess inventory. “Some of this shift involves customers shopping elsewhere, so brands need to adapt to this new environment,” he remarked. Both Coty and Estée Lauder Companies flagged smaller retail orders as a challenge, though Estée Lauder noted growth on Amazon.
L’Oréal acknowledged the downturn in drugstores like CVS and Duane Reade affecting sales of its mass line, Cerave. Yet, chief executive Nicolas Hieronimus mentioned during an earnings call that the brand had finally returned to “mildly positive territory.”
As companies navigate the realities of a softer US market, they are looking to offset its impact. L’Oréal and Puig, for instance, are making inroads into emerging markets such as India and Southeast Asia to find new growth opportunities.
China’s Rebound
China has also resurfaced as a focal point for global beauty brands after a stretch of underperformance.
Amorepacific’s business in China surged 9 percent, fueled by the global K-Beauty trend and success of labels like Aestura. Coty’s CEO, Sue Nabi, reported that recovery was evident across all sectors of the market, with smaller brands like Lancaster also seeing rapid growth.
Estée Lauder Companies, despite facing challenges due to its earlier market saturation, saw a 9 percent increase in sales in the region, driven by premium brands like La Mer, Le Labo, and Tom Ford. However, Fialko cautioned that the company is still behind on a two-year comparison, as many firms are continuing to recover from a notably poor performance last year. It’s a waiting game, as future quarters may present additional disappointments, he suggested.
L’Oréal’s Hieronimus concurred that one strong quarter does not indicate a trend. “The overall market has turned positive… we’re noticing a slight rebound in consumer confidence,” he stated.
The Fragrance Landscape
Although the fragrance segment continues to perform well, signs of a slowdown are evident.
Spanish company Puig, earning over 70 percent of its revenue from well-known fragrance brands like Carolina Herrera, Byredo, and Paco Rabanne, revealed that the overall fragrance market is softening. Their fragrance division grew only 2.8 percent recently, a stark contrast to previous quarters where growth was significantly higher.
The slowdown poses challenges not only for specialized firms like Puig and Coty but also for L’Oréal, which has become more reliant on fragrances following its acquisition of Creed and Kering’s other fragrance lines. L’Oréal’s exposure to this sector could increase by roughly 6 percent, as per HSBC projections, already nearing 14 percent now, per the latest data.
Even as Estée Lauder Companies anticipates gradual growth in its fragrance sector, relying heavily on scents for expansion is a precarious strategy. This area is fiercely competitive, dominated by niche brands. While popular names like Le Labo continue to thrive, their innovation efforts seem to lag behind the fast-changing market.
As we look ahead, Oliver Chen, managing director at TD Cowen, suggests the industry is stabilizing, though there will be clear winners and losers. “Success will hinge on who can adapt to the shifting channels,” he mentioned in reference to the rise of e-commerce and social shopping, while also rekindling interest in makeup, an arena he perceives as lacking dynamism.
“Consumers are craving more innovation in cosmetics,” he said.
