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The Opportunity in Private Label Beauty

By selling existing formulas under their own name, retailers can tap into the lucrative beauty market without investing in custom formulations. But that doesn’t mean the private label model is an easy win.
Private label
Private label beauty, a lucrative market, is only getting more so. (Blanka )

Key insights

  • The private label model offers emerging brands and major retailers the chance to quickly capitalise on beauty without the investment or expertise needed to develop custom formulas.
  • With high margins available in the lucrative beauty market, major retailers like Family Dollar and Target have turned to private label skincare and fragrance launches, with overall private label beauty sales up 10 percent in 2023.
  • But private label brands still need to offer more to consumers than just a cheap dupe of an existing product to compete in a competitive landscape.

The beauty industry pendulum is swinging from brands fronted by the world’s most recognisable names to brands without much of a name at all.

Private label beauty — brands owned and operated by the retailers they sell in, typically made from pre-existing formulas offered by a private label manufacturer — is on the rise, offering consumers a lower-cost alternative to some of industry’s buzziest products. Take the tanning drop craze that took over TikTok last year: For $38, shoppers buy the Drunk Elephant Bronzing Drops that spearheaded the category. But for those willing to forego the brand name, they can get a similar effect with the Sephora Collection Gradual Tanning Drops for just $16, or Ulta Beauty’s equivalent, only $12.99.

And in today’s economic climate, they may well prefer the latter two.

“Consumers are constantly on the hunt for low-priced products, and this is even more true in 2024,” said Kaylee Lieffers, co-founder and CEO of private label beauty manufacturer Blanka, which raised $2 million in seed funding in August 2023. It’s got benefits for the retailers, too. “These large retailers are scrambling to produce low-cost product lines so that they can maintain their margins,” she added.

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Private label beauty, a lucrative market, is only getting more so. According to data from the Private Label Manufacturers Association, private label beauty sales grew 10.5 percent across the US in 2023, making it the top growing category across the private label sector.

“Beauty is a category between an essential and a discretionary product,” said Tiffany Hogan, director of retail insights at consumer insights group Kantar. “When folks are pulling back on discretionary [purchases] like apparel, we haven’t seen that in beauty.”

Sephora and Ulta Beauty have reaped the benefits of offering lower-priced versions of beauty staples for decades, updating their assortment to include items that reflect contemporary trends, like lip masks and lactic acid serums. But more are hopping on board: Last October, budget chain Family Dollar launched the in-store beauty brand Levitate Beauty, which sells on-trend products like vitamin C serum and niacinamide night cream for as little as $4. Competitor Dollar General also introduced private beauty in 2023 with sensitive skincare line Joy Works.

But with everything from skincare to perfume already available across a myriad of price points, private label brands still need to offer a clear selling point to successfully attract and retain customers who have endless options.

“Retailers are going to really have to think about how to build a strong narrative around what they’re selling,” said Lieffers.

Building Trust

Today’s beauty consumers don’t necessarily need a known brand name to convince them to make a purchase — with consumers increasingly turning to social media for information about skincare formulations, certain ingredients essentially have become a brand name themselves.

“Our parents’ generation, they trusted brands to provide them products that work best,” said Brian Jeong, co-founder of men’s grooming brand Hawthorne. “With the increase in education through all these information channels, consumers are looking for specific things. If they’re looking for a vitamin C serum, they don’t necessarily need to go to a specific brand for that.”

However, while younger customers may willing to sacrifice fancy packaging for a cheaper product, that doesn’t mean they’ll stick to a cheaper private label brand in the long term.

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“Gen-Z customers specifically can be quite fickle,” said Sarah Fairhurst, creative director at Dalziel & Pow. “Brands have to work very hard to stand out and to gain any amount of connection and longevity with the customer.”

For Indian multi-brand beauty retailer Tira, which developed its in-house brand with London-based creative agency Dalziel & Pow, the answer was to frame the brand as “impartial kind of best friend,” in order to stand out alongside Tira’s other offerings, which includes both international brands like Huda Beauty and local names like Chambor.

“[The Tira label] can be really honest with you about what something is, is it worth it, giving people true choice at different price points,” said Michelle Bower, associate strategy and transformation director at Dalziel & Pow.

Non-beauty destinations like Family Dollar or Dollar General can translate their reputation for providing consumers with affordable, but effective products to the category.

“Family Dollar shoppers trust them to provide value across the board,” said Hogan. “Why wouldn’t they trust them to provide value in this beauty space?”

In some cases, brands can also rely on consumers to do the talking around their brand, particularly when it comes to those that sell dupes for pricier alternatives.

For instance, Fine’ry, a private label fragrance brand sold at Target and created with beauty incubator Maesa, sells on-trend scents like Not Another Cherry and Pistachio Please for under $40 a bottle. The scents aren’t explicitly marketed as dupes of the higher-priced Tom Ford Lost Cherry or Kayali Yum Pistachio Gelato, but countless beauty TikTokkers and YouTubers make those comparisons for them. In doing so, Fine’ry is able to appeal to Gen-Z’s desire for dupes without running afoul of their values around authenticity.

Still, brands should be wary of their private label lines being positioned as solely a dupe line, which can make it more difficult for a retailer to establish its own point-of-view and storytelling in beauty, crucial to keep consumers loyal in the long term.

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New Horizons

While private label brands can capitalise off current trends, consumers instead are largely primed to see in-store brands as followers rather than leaders, said Hogan.

“The disruptors are the disruptor brands, not the private labels,” said Hogan.

That means that private label brands should likely stick to tried-and-true approaches to selling beauty. Headquarters, a scalp-focussed hair care line born out of DTC personal care line Harry’s brand incubator Harry’s Lab and sold exclusively at Walmart, for instance, lasted only a year in stores after its 2021 launch because it was simply too early. The “skinification of hair” had yet to becoming a trending topic in beauty; The Ordinary entered hair care with similar messaging in 2022.

“Walmart’s consumer base maybe wasn’t necessarily ready for something as nuanced as scalp health-specific hair care,” said Jeong.

That doesn’t mean there’s no room for innovation in private label. Using pre-existing formulas can allow brands to test the market before investing in custom, says Lieffers, citing Kylie Jenners’ Kylie Cosmetics as such an example. Though not a private label brand, it followed a path that private label beauty could replicate: Jenner initially launched her namesake brand with incubator Seed Beauty before selling a majority stake in the brand to Coty in 2019, which relaunched the line with new formulations in 2021.

That move into custom formulas is essential — eventually investing in custom is key to growth given the stigma that remains around private label manufacturing.

“None of our brands ever want to share that they’re working with us. We try and write case studies all the time, and they’re like, ‘No, we don’t want anybody to know.’ This is one of the bigger challenges,” said Lieffers.

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Further Reading

Beauty E-Commerce Is Broken

Once thought of as long-term disruptors who would change the way we shop forever, multi-brand online retailers that sell cosmetics, skincare, fragrance and more are facing multiple headwinds.

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