The economic climate may be uncertain, but the beauty industry’s future is bright: Global beauty sales are expected to record a compound annual growth rate of 6 percent between 2022 and 2027, according to BoF’s new report, “The State of Fashion: Beauty,” created in partnership with McKinsey & Company.

That growth will be driven by emerging markets like the Middle East and India, which offer fresh opportunities for brands dealing with stagnation and increased competition at home. As well as new markets, the definition of beauty will continue to broaden, encompassing more wellness-centric brands and products. Meanwhile, digitally-savvy Gen-Z consumers are coming into their spending power, bolstering the beauty industry.

At The Business of Fashion’s inaugural The Business of Beauty Global Forum at Stanly Ranch in Napa Valley, California, speakers including Falguni Nayar, founder and CEO of Nykaa, India’s leading e-commerce firm; Mielle Organics founder Monique Rodriguez; Los Angeles county supervisor Holly J. Mitchell and Sephora Americas president and CEO Jean-André Rougeot broke down the opportunities and challenges facing the beauty industry today, from how to succeed in India to maintaining authenticity after an acquisition.

India’s beauty space is ready to be unlocked with value and digital savvy

With the world’s largest population, which increasingly includes young, digitally savvy consumers, India is an appealing market for beauty brands looking to grow.

The coming decade could be a defining one for India’s beauty industry, according to Falguni Nayar, founder and chief executive of Nykaa, India’s leading beauty e-commerce platform.

“Beauty consumption is just waiting to get to the next level … reset your mind on India. If all goes right at this level of GDP growth, we’re in for a fantastic decade that will be consumption-led,” said Nayar.

But while the country’s large population provides an opportunity for brands, it also makes getting a foothold in India more challenging due to its diversity.

Beauty is now wellness

In the past few years, there’s been a fundamental shift in the way brands and consumers think about beauty, putting more emphasis on how it makes you feel rather than how it makes you look. That change has created room for a wider variety of brands in the sector, such as wellness and health-centric labels, said Kirsten Green, founder and managing partner of early stage venture firm Forerunner Ventures, which invested in groundbreaking brands from makeup disrupter Glossier to wellness accessory Oura.

“It really is about what it means to be healthy, be an individual, be beautiful inside and out,” said Green.

Placing the right investment bets means figuring out what the trends are going to be before they happen, and evaluating behavioural shifts and how products and new business models will stem out of them, added Eurie Kim, managing partner at Forerunner Ventures.

Strong acquisition targets marry concept, heritage and future-focus

M&A has been — and will continue to be — a huge driver of growth within the beauty space.

American conglomerate Unilever has acquired some of beauty’s fastest-growing brands, such as Japanese-inspired skin care label Tatcha, which it reportedly bought for $500 million in 2019, and clean beauty disruptor Paula’s Choice, which it purchased for an estimated $2 billion.

While buzzy beauty brands launch all the time, not many last. To separate short-term hype from long-term relevance when evaluating potential acquisitions, Vasiliki Petrou, chief executive of Unilever Prestige, Unilever’s investment arm, looks at the history of a label as well as their growth potential. She is excited by brands that speak to or benefit consumers in a new way, and whose culture fits in with Unilever Prestige’s fast-paced, tech-first vision. She looks at acquisitions more as partnerships than takeovers.

“I’m looking for a beautiful concept, a brand that has a very strong DNA, heritage, and point-of-view about the world… but also brands that are future fit,” said Petrou.

Selling doesn’t mean selling out

When Monique Rodriguez sold her textured hair care brand Mielle Organics to P&G Beauty in January, she faced backlash from the same Black community that had turned the label into a roaring success. On social media — where Rodriguez first gained a following posting videos of her kitchen-crafted concoctions — users accused her of selling out.

“When you build a brand in the Black community, it’s not my brand, it’s their brand,” said Rodriguez.

Though selling to a big firm is a goal for many brands, if their consumer base is predominantly made up of a marginalised group, they can oftentimes feel abandoned when those deals happen, especially if they’ve historically been underserved by the acquirer. Rodriguez’s solution was to educate her audience on why brands sell to conglomerates, how it would actually benefit the brand and help the community at large.

Byredo founder Ben Gorman also faced questions after selling the fragrance line to Puig in 2022 for an estimated €1 billion ($1 billion). Those critiques, he said, can be hard to avoid.

“It’s less about selling, even though that’s the mechanical trigger of the transaction, my role is still intact. I continue to work night and day as I’ve done over this journey,” said Gorman.

Rodriguez likened an acquisition to a marriage, and both speakers said they looked for partners who understood their brands’ ethos and strengths.

Black hair care is a political movement, and a huge opportunity in beauty

Hair care products aimed at Black consumers have rapidly gained mainstream attention in the past few years as more brands race to cater to underserved communities. Black consumers make up a significant portion of the booming hair care space: according to market research firm Mintel, Black consumers will spend $1.9 billion on hair products by 2025 in the US. But Black hair can be political: discrimination against natural styles like locks, braids and twists is prevalent in workplaces, schools and public forums — in many US states, it’s still legal.

“People are not promoted, little girls are still suspended from school … Hair is a race-based trait, and should be protected under the law like other race-based traits,” said Los Angeles county supervisor Holly J. Mitchell, who as a state legislator passed the Crown Act, aimed at preventing discrimination based on hair. She noted that while the legislation has passed in over two dozen states — most recently Texas — discrimination remains a problem even where legal protections exist.

Community is key to growth

When LVMH-owned Sephora first entered the US, it took a radical approach to beauty by putting indie brands next to global giants in an open-format store.

According to Americas chief executive and president Jean-André Rougeot, it was a decision that helped democratise beauty and define Sephora’s ongoing strategy.

“This is when younger people, people with different skin tones and different sexual orientations started to feel like prestige beauty was actually accessible to them,” Rougeot said.

Today, the company sees reaching communities typically excluded from beauty — whether founders or shoppers — as key to its next stage of growth, said Rougeot.

“Giving the little guys a chance, that’s what young consumers want to buy,” said Rougeot.

Editor’s Note: This article was updated on 6/6/2023. A previous version misstated the title of Vasiliki Petrou, CEO, Unilever Prestige.

The Global Forum is made possible in part by our partners Bolt, BeautyUnited, Unilever Prestige, McKinsey & Company, MagicLinks, Cavu and Stanly Ranch.