The beauty boom and beyond: Can the industry maintain its growth?

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The beauty boom and beyond: Can the industry maintain its growth?

By Kristi Weaver et al., | McKinsey & Company | September 11, 2024

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In 2023, global beauty market retail sales grew to $446 billion, up 10 percent from 2022.  In the year since the release of McKinsey inaugural state of beauty report, published in collaboration with The Business of Fashion in May 2023, the industry—comprising fragrance, makeup, skin care, and hair care—beat expectations and outperformed other consumer sectors, such as apparel.

The beauty market’s 10 percent growth in 2023 exceeded industry forecasts across nearly all regions.  The Asia–Pacific region, excluding China and Australia, remained the largest region by retail sales in 2023, growing at a 10 percent rate over the previous year. India, which also grew at a 10 percent rate year over year, was a bright spot in the region (with 4 percent volume growth and 6 percent price growth). 

In North America, which today accounts for 20 percent of the overall beauty market, retail sales grew by 9 percent year over year. Europe, another mature beauty market, grew 10 percent from 2022 to 2023. Growth in the Middle East and Africa region and Latin America reached 18 percent and 17 percent, respectively, year over year, both exceeding industry expectations.  These strong headline figures do not tell the whole story, though.

By 2028, the authors expect the beauty sector to reach $590 billion, with an annual growth rate of 6 percent. In mature markets, such as the United States and Europe, the researchers estimate that both price and volume growth will be in the low single digits.  Among the regions, the highest annual growth rate is expected from the Middle East and Africa (10 percent) over the next four years. Price mix increases will most likely outpace volume growth here more than anywhere else in the world, as consumers continue to demand premium products.

Skin care—the sector’s largest category, accounting for 44 percent of the market—grew 6 percent in 2023, in line with projections.  Despite being the smallest category in beauty, representing just 17 percent of the market, fragrance posted the highest growth (14 percent) in 2023. The category is likely to continue exhibiting strong growth, especially in the Asia–Pacific region, where it currently represents around 5 percent of the total market (compared with 17 percent in North America and 27 percent in Europe).

In 2023, price increases across tiers drove much of the growth in beauty, although some consumers—particularly those in emerging markets such as the Middle East—also indicated a desire to spend on higher-priced categories. One challenge beauty players will face includes understanding why consumers may be trading down and where their appetite for luxury products is growing, given that we see a mix of both trade-down and trade-up behaviors in the market.

Mass beauty, the least expensive segment, represented 48 percent of the beauty industry’s value in 2023.  Despite the proliferation of luxury beauty offerings in 2023 and 2024, such as those from luxury brands that do not specialize in beauty, this segment is not yet saturated.

Online sales channels accounted for much of the beauty industry’s growth at the height of the COVID-19 pandemic. While online sales growth was still strong in 2023, growth in physical channels accelerated during this period.  

Global sales at specialty beauty retailers—those that cater specifically to beauty consumers—grew 14 percent last year. (North American and European specialty beauty retailers in particular propelled this growth.)  To appeal to younger shoppers, these retailers prominently display products that are trending online to help bridge the gap between the online and in-store experience. To that end, best-in-class specialty retailers also continue to cultivate engaged social media communities.  As most beauty players know by now, the decision about whether to focus efforts on in-store retail or e-commerce is really a matter of “and.” 

The beauty industry has proven resilient in the face of economic turbulence, but the era of de facto price-fuelled growth is over. To build sustainable momentum, best-in-class beauty brands will need to create real value from product differentiation, supported by greater productivity. Executives should focus on becoming more attuned to shifting consumer preferences while doubling down on their brands’ and products’ unique value propositions. Agility and speed to market—which the use of new technologies such as AI and generative AI can enable—will distinguish the best from the rest, as will the ability to cultivate strong communities of loyal customers.

3 key takeaways from the article

1. In 2023, global beauty market retail sales grew to $446 billion, up 10 percent from 2022.  In the year since the release of McKinsey inaugural state of beauty report in May 2023, the industry—comprising fragrance, makeup, skin care, and hair care—beat expectations and outperformed other consumer sectors, such as apparel.
2. The Asia–Pacific region offers beauty players the greatest opportunity to expand volume growth over the next few years. In more mature markets, such as Europe, volume growth is also projected to remain healthy.
3. The beauty industry has proven resilient in the face of economic turbulence, but the era of de facto price-fuelled growth is over. To build sustainable momentum, best-in-class beauty brands will need to create real value from product differentiation, supported by greater productivity. Executives should focus on becoming more attuned to shifting consumer preferences while doubling down on their brands’ and products’ unique value propositions. Agility and speed to market—which the use of new technologies such as AI and generative AI can enable—will distinguish the best from the rest, as will the ability to cultivate strong communities of loyal customers.

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Topics:  Beauty Products, Fashion Industry, Retailers, Consumers, Marketing