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Beauty has long been regarded as one of the most resilient areas of consumer spending. Even when household budgets are under pressure, consumers tend to keep buying small, affordable luxuries, which has allowed beauty companies to raise prices without losing many customers. McKinsey expects the four core categories of skin care, make-up, hair care and fragrance to grow by c 5% a year to US$590bn by 2030.
Beneath this steady growth, however, the industry is changing in ways that are creating new winners and losers. Large beauty companies have traditionally relied on big marketing budgets and far more shelf space than smaller rivals. Today, consumers increasingly discover products on social media, buy them through online marketplaces and turn to AI assistants for advice. These new routes allow younger brands to build sales much faster than in the past, and in the US, independent brands are growing almost four times as fast as the large groups, according to NielsenIQ (NIQ).
The sources of growth are also shifting. According to NIQ, half of the industry’s recent growth has come from higher prices rather than higher volumes, which will be hard to sustain while consumers remain cautious. For investors, the question is therefore no longer whether beauty will keep growing, but where future growth will come from and who will capture it.
How recession-proof is the beauty industry?
The beauty market is not immune to economic pressure, but demand has held up well. NIQ found that only 17% of consumers say they can spend freely, yet beauty sales across the 52 markets it tracks grew 10% in the year to Q325. Much of this resilience reflects pricing power. NIQ estimates that in the US, a 10% rise in fragrance prices reduces units sold by only c 6%, so sales in value terms still increase, giving brands room to pass higher costs on to consumers.
Growth is not spread evenly, however. Skin care and fragrance are growing more than twice as fast as make-up, according to NIQ, helped by consumers’ focus on products that visibly work and a renewed enthusiasm for scent. Emerging markets are also outpacing Europe, with growth of 14% in Latin America against 4% in Western Europe, although high inflation flatters some emerging-market figures. Where a company sells, and in which categories, therefore matters as much to investors as the health of the overall market.
How is technology changing the way beauty is bought?
The way consumers find and buy beauty products is changing rapidly. According to NIQ, online beauty sales grew 18% in the year to Q325, six times the rate in offline, and e-commerce is expected to deliver most of the industry’s growth to 2030. Social media platforms are becoming places to buy, not just to browse. TikTok Shop, which lets users buy products featured in videos without leaving the app, more than doubled its US beauty and personal care sales in 2025. Although it still has less than 2% of the market, it shows how quickly a viral video can turn interest into a purchase.
AI is likely to accelerate this shift by changing how consumers research what to buy. More shoppers are asking AI assistants to compare ingredients and suggest products for their skin type, rather than browsing shelves or search results. In an October 2025 NIQ survey, 49% of US respondents said they had already received beauty recommendations from generative AI. An AI assistant typically suggests just one or two products, compared with 50 or more on a store shelf, so being the product it recommends is becoming the digital equivalent of eye-level shelf space.
Can store-based retailers adapt?
Physical retail is still consumers’ most popular source of beauty inspiration, ahead of social media, as many shoppers want to try products and get expert advice before they buy. The challenge is that more purchases are moving online while store costs such as rent and staff remain. Retailers are therefore expected to compete less on access to brands, which are increasingly available everywhere, and more on curation, the shopping experience and exclusive or own brands that shoppers cannot find elsewhere.
These pressures are visible at Douglas, a German premium beauty retailer, which cut its full-year guidance in June 2026 amid weak demand and intense price competition in its largest markets. Its like-for-like store sales, which exclude new and closed stores, fell 6.5% in Q326 (April to June 2026). It is now reviewing its store network ahead of a strategy update in Q426. Its results show where it is finding growth, with exclusive brand sales up by 14.7%, click-and-collect express sales up 18.2% and retail media, which sells advertising to brands on its platforms, up 24% in the quarter.
Retailers with strong online businesses and own brands are faring better. Online sales at the Matas chain of Nordic group Matas grew 17.4% in Q126. Digital-first Lyko Group grew Q326 sales by 23.8% and uses its stores to showcase its higher-margin own brands. In the US, Sally Beauty Holdings now also sells through its own TikTok Shop storefront.
Is K-beauty more than a passing trend?
Korean beauty, known as K-beauty, has moved from a niche trend to a mainstream force in Western markets. Its brands built their reputation on effective, affordable products and fast innovation, turning formats such as sheet masks and acne patches into everyday habits. Across 37 markets outside South Korea and China, NIQ found that K-beauty sales rose 53% in the year to early 2026, and Korean brands now account for c 10% of online skin care sales in Europe.
Having built a following online, Korean brands are now moving into physical stores. This lets them reach shoppers who rarely buy beauty online and gives them the credibility of a major retail partner. iFamilySC, owner of make-up brand rom&nd, has been sold by US chain Ulta Beauty since 2025 and is due to enter c 600 more large US stores through Target. Able C&C’s Missha brand has been available in Boots and Superdrug since mid-2026. Japan’s I-ne is following a similar path, testing its BOTANIST hair care range in c 250 US Costco warehouses.
The rise of Korean brands has consequences for the wider industry. Their success is raising consumers’ expectations of what an affordable product should deliver. As they move into physical stores they are competing directly with Western brands for the same shelf space, particularly in skin care and mass-market make-up. For the Asian brand owners themselves, physical distribution brings scale but requires heavy upfront investment and will show whether online popularity can turn into repeat purchases on Western shelves.
Exhibit 1: Fragrance has overtaken colour cosmetics as beauty’s third-largest category
Source: Istock/ Ekaterina Zaitseva
Why is value gaining ground?
Value has become a powerful force in beauty as consumers look more closely at what they get for their money. Mass-market and ‘masstige’ brands, which offer a premium look and feel at more affordable prices, have gained five percentage points of global share in skin care and make-up over the past five years, according to McKinsey. Nearly half of consumers now mix expensive and cheaper brands.
Value brands are not immune to the squeeze, however, as their customers are often the most stretched. Warpaint London (Warpaint), owner of the W7 and Technic colour cosmetics brands, saw revenue fall by almost a fifth in H126 as consumers cut back, retailers ordered cautiously and there were some non-recurring prior-year orders. It expects full-year revenue towards the lower end of market expectations. It has nonetheless kept improving profitability, lifting its gross margin to 47.3% through its sourcing strategy and a one-off benefit from discounted Barry M stock, and it remains debt free. Warpaint expects Q326 sales to be c 5% higher year-on-year and is widening its distribution, having launched W7 in 2,200 Rossmann stores in Germany in May 2026 and secured a substantially larger Christmas order from Walmart.
Tougher conditions are reshaping the industry. In February 2026 Warpaint bought the Barry M brand out of administration for £1.4m. Barry M’s collapse shows how hard it has become for mid-sized brands without scale to compete against both larger groups and newer brands building followings on social media. Warpaint has since re-sourced Barry M’s products through its own supplier network and says the brand is delivering a slightly higher margin than W7 and Technic. This consolidation among value brands could continue.
Why do so few challenger brands reach scale?
Beauty has attracted more new brands and investment over the past two decades than ever before, yet very few challengers build large, lasting businesses. McKinsey analysed 430 brands founded since 2005 using Euromonitor data. Of these, 220 reached US$70m of retail sales in 2025, but only seven exceeded US$1bn, fewer than one in 30 of those that reached meaningful scale. All seven are now owned by large beauty or consumer goods groups.
The capabilities needed to launch a brand differ from those needed to scale it. A distinctive product, a strong founder story or a viral moment can win early customers. Once sales reach somewhere between US$250m and US$400m, however, growth depends more on distribution, operations and international reach, where large groups have a clear advantage. This is why successful challengers usually end up being acquired, and why large groups and investors compete to find the next breakout brand early.
Contract manufacturers help bridge this gap by letting brands grow without building their own factories. Intercos, an Italian group that makes make-up, skin care and hair and body products for other companies, shows both the opportunity and the volatility. Revenue from its ‘emerging brands’ customers fell 11.6% in FY25 as Western challengers slowed, before rising 6.2% in H126. The group returned to growth in Q226 with what it describes as its best second quarter for sales on record and record quarterly adjusted EBITDA, supported by an order book built up since the end of 2025.
Where else is beauty spending growing?
As consumers increasingly treat beauty as part of a wider health and wellness routine, spending is spreading into new areas. One fast-growing area is at-home devices such as LED face masks and radio-frequency tools, which bring treatments once offered only in clinics into the home. The Beauty Tech Group, owner of CurrentBody Skin, ZIIP Beauty and Tria Laser, illustrates the opportunity, having grown H126 revenue by 44% to £79.7m and raised its full-year adjusted EBITDA guidance. The company says that devices account for only c 1% of beauty spending in its core markets. That leaves room for growth if they become a routine purchase.
Fragrance is another bright spot. Younger consumers increasingly treat scent as a mood booster and layer different fragrances, and fragrance has overtaken colour cosmetics as beauty’s third-largest category. French group Robertet shows how suppliers to perfume brands can benefit. Its fragrance division grew c 13% in H126 on demand from niche fine fragrance brands and the emergence of new players, in particular in Latin America and the Middle East. That growth more than offset softer raw materials and flavours businesses, and the group delivered a recurring EBITDA margin of 21.1%. Robertet is also investing in Italian biotechnology company Aethera Biotech to expand into skin science innovation.
What could hold the sector back?
The first risk to the sector is that beauty’s resilience has relied partly on price increases, which cannot continue indefinitely while most consumers feel stretched. If shoppers trade down further or buy less, growth would slow. Recent weak trading at several European retailers and value brands suggests this pressure is already being felt.
The second risk is growing dependence on platforms the industry does not control. Social commerce growth is driven heavily by promotions, creator commissions and costly customer acquisition, so its long-term profitability is unproven. Those costs are likely to rise as more large brands compete for attention. Social discovery also tends to encourage trial rather than loyalty, and AI could amplify this. If AI assistants recommend only one or two products, a brand that falls out of favour could lose sales quickly.
What should investors watch for?
Investors should watch five things. First, the balance between price and volume, since growth driven more by selling additional products than by raising prices would signal healthier demand. Second, whether social commerce becomes profitable once promotions are scaled back, and whether viral successes turn into repeat customers. Third, the speed at which AI assistants move from recommending products to buying them on shoppers’ behalf. McKinsey estimates that AI platforms could drive up to 35% of e-commerce transactions within three to five years. Fourth, whether Korean and Japanese brands can turn online popularity into lasting space on Western shelves. Fifth, the pace of consolidation, as large groups look to buy growth and weaker brands and retailers restructure.
Edison insight
Underlying demand for beauty products remains resilient, but the route to the consumer is being rebuilt around social platforms, online marketplaces and, increasingly, AI. That shift is moving value towards challenger brands that can turn online popularity into shelf space, retailers that give shoppers a reason to visit, and the manufacturers and ingredient suppliers that serve whichever brands succeed. It is also testing businesses that have relied on footfall and price increases. Demand driven by algorithms can be fickle and promotion-led, and 2026 has shown that a resilient category does not guarantee resilient earnings. The beauty market is changing, and the winners will be those that change with it.
Megatrends: digital economy, future consumer, disruptive technologies
