The beauty industry has been resilient in the past. Could this crisis have a different outcome?

by Emily Gerstell, Sophie Marchessou, Jennifer Schmidt, and Emma Spagnuolo

The global beauty industry (comprising skin care, color cosmetics, hair care, fragrances, and personal care) has been shocked by the COVID-19 crisis.

First-quarter sales have been weak, and there have been widespread store closures.

The industry has responded positively to the crisis, with brands switching their manufacturing to produce hand sanitizers and cleaning agents and

offering free beauty services for frontline response workers. At the same time, the industry’s leaders have a responsibility to do their best to ensure that

their companies survive. The global beauty industry generates $500 billion in sales a year and accounts for millions of jobs, directly and indirectly. Lives

come first, but livelihoods also matter.

This article examines the likely effects of COVID-19 on the beauty industry over the next three to six months. Then it explores how the crisis

could fundamentally change the industry in the long term—and how retailers, strategic players, and investors can adapt. In many cases, it draws

from the results of a McKinsey Global Consumer Sentiment Survey that took place in early April.

The short-term outlook for the beauty industry

Beauty may be in the eye of the beholder, but there is little debate when it comes to the long-term attractiveness of the global beauty industry. Not

only has it grown steadily, it has created generations of loyal consumers. During the 2008 financial crisis, spending in the industry only fell slightly and fully bounced back by 2010 (Exhibit 1).

Even though the economic magnitude of the COVID-19 pandemic on brands and retailers will be far greater than any recession, there are signs that

the beauty industry may once again prove relatively resilient. In China, the industry’s February sales fell up to 80 percent compared with 2019. In March,

the year-on-year decline was 20 percent—a rapid rebound under the circumstances. In a variety of markets, consumers report they intend to

spend less on beauty products in the near term (largely driven by declines in spending on color cosmetics) but more than they will in other

discretionary categories, such as footwear and clothing (Exhibit 2). Noting the uptick in lipstick sales seen during the 2001 recession, Leonard

Lauder of the cosmetics company coined the term “lipstick index” to describe this phenomenon. The principle is that people see lipstick as an affordable

luxury, and sales therefore tend to stay strong, even in times of duress.

McKinsey has explored nine scenarios for the economy over the next few years, based on epidemiological trends and the effectiveness of economic-policy decisions. Based on the scenarios most expected by global executives and current trends, we estimate global beauty-industry revenues could fall 20 to 30 percent in 2020. In the United States, if there is a COVID-19 recurrence later in the year, the decline could be as much as 35 percent (Exhibit 3).

We looked at the beauty industry’s recovery against each scenario, considering two key factors: where and how beauty products are being sold and what is being purchased.

Where and how beauty products are being sold

In most major beauty-industry markets, in-store shopping accounted for up to 85 percent of beautyproduct purchases prior to the COVID-19 crisis, with

some variation by subcategory. Even online-savvy American millennials and Gen Zers (those born between 1980 and 1996) made close to 60 percent

of their purchases in stores (Exhibit 4). With the closure of premium beauty-product outlets because of COVID-19, approximately 30 percent

of the beauty-industry market was shut down. Some of these stores will never open again, and new openings will likely be delayed for at least a year.