Four years on from the seismic impact of the COVID pandemic, beauty brands continue to navigate an alien environment where trends, preferences, and consumer behaviour shift by the hour. Rising interest rates, consumer belt tightening, and a difficult trading environment has caused brands to compete harder for consumer dollars.
While some brands have enjoyed a big boost in revenue during the pandemic years, a failure to shore up their position as spending dries up have left many at the mercy of the market. In this new paradigm, the beauty sector has become a two-tier market with premium brands and budget brands dominating at either end. The once-ubiquitous Covid start-ups are non-existent or are in a holding pattern as they try to hold their own against more established brands and value has become an all-encompassing proposition.
Despite the challenges, the beauty sector in Australia is projected to grow to US$8.17 billion by 2028. Enormous demand is being driven by the TikTok generation Gen Z and beauty and health-conscious Millennials. Across the board the burgeoning skincare segment with its pandemic-induced focus on perfect skin has led to exponential growth. Market intelligence estimates the Aussie skincare market size will expand by CAGR 6.95% by 2028 to be worth US $2.94 billion.
Downturns are known to increase value-seeking behaviours; as uncertainty increases, customers look to maximise the benefit of every dollar spent. Businesses typically respond by cutting prices, cutting down the cost of production, reducing business operating expenses, and abstaining from new launches or initiatives.
Strategies for keeping on top when times are tough
Too many businesses are fundamentally flawed in the way they plan and strategise for growth in a time of economic weakness. Shrinkflation is an all too common faux pas as attempts to cut costs also cuts into precious goodwill and damages customer trust. Brands must be guided by the core tenet of value and transparency at all times. Customers may accept a modest price hike, but they’re not so forgiving of brands which try to up costs while reducing the amount of product.
Milk makeup is a case in point: a fan of the brand’s $24 highlighter blasted the company on social media for keeping the same price while selling a product that was close to five times smaller than it was a few years ago. Brands which want to keep pole position without a damaging bout of criticism on social media should of course focus on margins and pricing but they should do it in a way that doesn’t contravene customer expectations.
Cash flow is everything and in a downturn so the first port of call should be to work with suppliers to see where costs can be trimmed and where brands should maintain quality control. Cheapest is not always best because customers will simply walk away if they think they’re not getting their money’s worth.
Next, businesses need to invest in long-term strategies. They may not want to spend more on risky new projects but they should have a realistic contingency plan in place for all types of scenarios including when the market is on the up. Brands that prepare for the worst are in a much better position to move quickly and recover from mistakes that would wipe out the competition.
Last but not least, maintaining marketing spend is critical to remain top of mind for customers especially in the saturated beauty industry. Marketing doesn’t have to be expensive and can be done well with a clever social media strategy, digital marketing, and judicious use of publicity. Brands must make clever marketing central to their business strategy as this will amplify the brand’s key benefits and help brands gauge consumer interest and sentiment.
When it’s a struggle to survive, this kind of information is valuable and can make or break a business. In the end the brands which adapt quickly will be the ones who are best positioned to capitalise on the opportunities of the future. For now, they will need to play to their strengths, focus on delivering value, staying relevant to customers and live to fight another day.
Rohan Widdison is CEO of New Laboratories.