Trends and Opportunities in the Ever-Evolving Beauty Industry
In 2022, the beauty and wellness industries faced a paradox of high levels of global inflation, ongoing supply-chain disruptions, complex geopolitical unrest, and erratic financial markets, despite historically low unemployment and good consumer balance sheets. Deal activity in Q3 of 2022 was 27% lower than in Q2, but still remained above average.
Positive factors such as the resilience of the industries during the COVID-19 pandemic, shifts in beauty distribution trends, and continuous innovation and entrepreneurship attracted investors. Revlon filed for Chapter 11 bankruptcy, while Sociolla, an Indonesian beauty retailer, raised $42 million in a series C funding round. As a result, deal activity in the beauty and wellness industries was handled much more cautiously in 2022.
The Statistics.
The notable stats of beauty deals in the recently concluded third quarter of 2022 (Q3) are as follows:
Deal activity in Q2 was 27% higher than that in Q3.
Despite the decline, deal activity in Q3 still remained above average.
Growth investments comprised 54% of deals, and mergers and acquisitions comprised 42%.
There were no initial public offerings (IPOs) made during the quarter.
Specifically, 15% of deals occurred in skincare, 13% in retail, and 21% in supply side.
The category that experienced the highest increase in deal activity is personal care with a 64% increase. Additionally, color cosmetics saw a 55% increase, skincare saw a 16% increase, and supply side saw a 4% increase.
Supply side has retained the highest share of deal activity all through 2022.
Wellness experienced a 73% decrease in deal activity, as well as fragrance with a 56% decrease, professional services with a 41% decrease, and retail with a 20% decrease.
Positive Factors Affecting Deal in Activity in 2022.
1. The COVID factor: The COVID-19 pandemic signified symbolic turnarounds, either positive or negative, for every business. Noteworthy is the unrelenting resiliency of the beauty and wellness industries. It is this resiliency through unfathomable economic times that convinced a record number of new and existing investors to keep investing in the beauty industry.
2. Investment criteria: In 2022, investors started paying more attention to factors like the caliber of management teams, strategies for profitability, supply chain stability, and ESG factors in addition to the more conventional criteria including sales velocity and consumer demand.
3. Shifts in beauty distribution trends: The reigning trend is now omnichannel distribution as this makes it possible to deliver anything, anytime and anywhere! This shift does require a lot of capital to succeed and has, thus, opened up great investment opportunities and presented huge returns for those who invest their money with the right brands.
4. Unwavering consumer interest: According to Target CEO, Brian Cornell, beauty brands sold at Target saw double-digit comp sales growth this year. It is an unwavering truth that people always want to buy and try the best things in beauty, especially with the popularization of enhanced beauty on TV and social media. Beauty will always be in vogue, and that is music to the ears of any investor.
5. Continuous innovation and entrepreneurship in beauty: One of the most dynamic, forward-thinking, and entrepreneurial consumer sectors will always be the beauty industry. As countless new brands and products are introduced each year with excellent creative branding and product development, as well as the extensive ecosystem of accelerators, beauty certainly offers investors a variety of chances to invest at all phases of growth.
VC in Focus: Revlon vs Sociolla.
Beauty household name and cosmetics juggernaut, Revlon, has been a force to be reckoned with in the industry since it was founded about 90 years ago. Unfortunately, in June 2022, Revlon filed for Chapter 11 bankruptcy on Thursday as a result of mounting debt, supply chain disruptions, and increasing costs. According to the brand, its $3.5 billion debt load left it unable to pay essential suppliers in the supply chain for its cosmetics on time. Nonetheless, efforts are being made on the part of the leadership to exit Chapter 11 via either the aid of secured lenders and unsecured creditors or a sale of the company.
On the other hand, beauty and personal care e-commerce startup, Sociolla, has attracted an excellent roster of investors, including East Ventures, Jungle Ventures, Temasek, and Pavilion Capital, and managed to raise almost $225 million since 2018. What has made Sociolla very attractive to investors is its founders’ achievement of transforming the e-commerce business into a multimillion-dollar beauty conglomerate with clearly endless potential. Founder, Chrisanti Indiana, was able to do this by taking her operations from running solely online to implementing omnichannel distribution as Sociolla now also has 47 offline stores in Indonesia and 16 in Vietnam. The conglomerate also operates Soco, Indonesia’s largest online review service for beauty products which also serves as a powerful driver for the purchase decision-making of Sociolla customers.
To summarize, while the current economic realities experienced by Revlon have made it difficult to secure the trust of key investors, Sociolla’s strategic courses of action and their successful outcomes have enabled the startup to obtain major investments in order to scale the business to even loftier heights.
Conclusion.
Investors undoubtedly remain excited about the potential for earning significant profits from beauty and wellness deal-making, albeit being more circumspect. Thus, while they will clearly be engaging in incredibly meticulous due diligence before committing any monies, investors will certainly keep putting capital to work in the beauty industry.