By Mik Mrd
It’s a tradition for me and my girlfriend to have a specific date and time to go to town and just walk around window shopping. St Andrews doesn’t have many branded retail stores, so we make the most of it and go to every store we can. Boots, being one of those stores, has a variety of branded beauty sections inside which we spend some time at. My girlfriend uses testers to try on brands she already uses while also trying on new products from new brands to see whether they can help her get the style she wants. There are so many choices and so many shades, it is hard for me to figure out what she might want to get.
The boredom and isolation of quarantine allowed me to dive into activities I have always wanted to try. This, coupled with the rise of commission-free investing sites such as Robinhood, paved the way for me to look into the stock market. Robinhood provides easy access for part time traders to put their whole account balance on stocks without the worry of commissions. Its rise had a significant impact on the stock market, with billionaire investor Leon Cooperman criticising the lack of fundamental analysis by Robinhood traders which drove small, risky stocks into new speculative highs (Fox, 2020). Robinhood displays its most popular stocks on its site where it is dominated by tech or pharmaceutical industries. While traders are not necessarily wrong to focus on these areas, I believe that they should look outwards to add more diversity to their portfolios to spread and manage risk better.
The beauty industry is something that has been overlooked and neglected by business school faculties and general part-time traders. In an interview with the ‘Investment Advisor’ magazine, Harvard Business Professor Geoffrey Jones, author of ‘Beauty Imagined: A History of the Global Beauty Industry’ emphasized the gender bias in the faculty of business. He stated that men generally default to industries such as information technology to avoid the certain ‘fluffiness’ the beauty industry holds (2016). This is something that even I have to hold my hands up and admit that I have done.
The beauty industry seems to be a business that can handle shocks to the economy better than others. As beauty products are seen as a luxury, it could be suggested that business would struggle during hard times as people go for the essentials. However, the 2008/09 recession suggested otherwise as it still experienced a growth rate of 1% during a time where the GDP growth rate stood at -1.67% ((Statista, n.d) and (The World Bank, n.d.)). This phenomenon is dubbed as the ‘lipstick effect’, which argues that women’s spending on cheaper beauty products, such as lipstick, increases during a recession due to the desire to ‘attract mates with resources’ to ‘invest resources in themselves and their offspring’ (Hill et al, 2012). The rise of the beauty industry has been catalysed by the use of mass media, through which Jennifer et al. (2016) claim that it has shaped beauty expectations and offered customers a means to reach such expectations through advertising their products on social media. This duo of handling economic shocks better and the use of social media had raised awareness and increased exposure of beauty products.
So how is my girlfriend making me rich? Her behaviour and choices when buying these products can suggest what kind of companies I can look into. In a way, you could say that she is doing my market research for me by giving me increased understanding of the industry, what its practices are, and whether people genuinely hold value in the product and company. For long-term value investors, this information can be crucial as they look to bring in low risk, consistent profit percentages with dividends instead of pumping and dumping a hype stock. Although it can be argued that this is only one source of information, I see it as an introduction to a business that I have little to no experience with that guides me towards what can be a valuable and sustainable investment; more specifically, the trends of the business which are popular with consumers.
Linking back to the introduction, my girlfriend had displayed a few trends when choosing her products, one of which is trying on newer brands that market themselves as cleaner. The trend of sustainability and cleanliness play an important part in the choices of consumers. New companies are shying away from dangerous ingredients such as BPA and phthalates to opt for more natural products. Ipsos (2019) reports that more than 65% of their respondents would try new brands if they were natural, Brands that are big in the beauty industry are also moving to more natural practices, with L’Oréal starting to manufacture vegan products and Origins claiming their slogan as ‘Powered by Nature, Proven by Science’. This would mean that consumers would be more confident in trying the products that are labelled as natural even though it may be unfamiliar to them.
This leads to the second trend of having hands-on experience with the product before buying it. Similar to free samples in the supermarket, testers are cementing their place as a strategy to lure customers in. This idea has been prevalent in most beauty product stores, with singular sprays on small testing strips and foundation testers being quite common from what I have seen. Ipsos (2019) claims in their study that most customers will be unsure if they have not tried the product in real life, suggesting that they may or may not buy them if it had something to do with blending in with the skin, such as foundation or concealer. This indecisiveness increases when it is with a brand that the customer has not used, which instead, they will go with their original choice of brand.
Loyalty is a trait that has an increasing value in the beauty industry, with the generation of millennials experiencing growing numbers and purchasing power. Due to this, social media and its influencers face increasing offers to promote beauty products of up and coming companies in a bid to get their followers to buy their products and experience it. Most of the time, influencers often have discount codes to decrease the cost which can hook the customer to the product, a strategy that may correlate to the free sample’s tactics. Hellsten and Kulle (2017) claim that if the brand keeps their positive brand image, customers that already use their product will stick with it, ultimately leading to an increase of users with new consumers being recommended their products.
Going back to the introduction, my girlfriend had displayed the behaviour that emulates the 3 trends this article discusses. The shifting to cleaner products has given consumers more confidence to apply products on their skin, and big brands with huge user bases are doing the right thing by innovating cleaner products and using that brand loyalty. When it comes to investing, L’Oréal and Estee Lauder seem to be the big players in the industry as they own numerous sub companies that relate to beauty (Willett and Gould, 2017) Korean brands such as Innisfree and Laneige have used the rise of K-pop and K-dramas to promote their brands, which has also increased their exposure to an extravagant amount as well. Ultimately this industry, though often overlooked by many including myself, is showing strong and stable signs of growth as people continue to demand different looks and styles.
Fox (2020) Billionaires keep blaming Robinhood traders for skewing stock prices. But a new study says the upstarts have minimal impact on the overall market. | Markets Insider, markets.businessinsider.com. Available at: https://markets.businessinsider.com/news/stocks/robinhood-traders-impact-stock-market-prices-none-study-popularity-effect-2020-9-1029553122# (Accessed: 5 October 2020)
Hellsten and Kulle (2017) The Beauty of Brand Loyalty | Umeå School of Business and Economics. Available at : https://www.diva-portal.org/smash/get/diva2:1119658/FULLTEXT01.pdf
Hill, S. E., Rodeheffer, C. D., Griskevicius, V., Durante, K., & White, A. E. (2012, May 28). Boosting Beauty in an Economic Decline: Mating, Spending, and the Lipstick Effect. Journal of Personality and Social Psychology. Advance online publication. doi: 10.1037/a0028657
Ipsos (n.d.) What the Future | Ipsos. Available at : https://future.ipsos.com/what-the-future/beauty
Iyer-Ahrestani (2016) The Booming, Yet Overlooked, Business of Beauty | ThinkAdvisor. Available at :https://www.thinkadvisor.com/2016/05/25/the-booming-yet-overlooked-business-of-beauty/
Shahbandeh (2020) Growth rate of the global cosmetics market 2004-2019 | Statista. Available at: https://www.statista.com/statistics/297070/growth-rate-of-the-global-cosmetics-market/
The World Bank (2019) GDP Growth Annual % | The World Bank. Available at : https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG
Willet and Gould (2017) These 7 companies control almost every single beauty product you buy. Available at: https://www.businessinsider.com/companies-beauty-brands-connected-2017-7