Growth Slows, Costs Rise: The Beauty Industry’s Next Great Challenge
The global beauty industry faced another year of transformation in 2024, navigating shifting consumer behaviors, persistent inflationary pressures, and evolving regulatory landscapes. Despite these headwinds, the sector demonstrated remarkable resilience. The top nine beauty companies generated $110 billion in revenue, growing by 4.5% YoY - a return to pre-pandemic growth levels.
However, the early signs of 2025 suggest that the path forward may not be smooth. First-quarter results reveal a mixed picture, with aggregate growth of the top nine companies tracked by us slowing to just 1.2%, signaling potential challenges ahead. This deceleration reflects broader economic uncertainties, including fluctuating consumer confidence and geopolitical tensions impacting global trade.
This blog post explores the financial dynamics, strategic pivots, and external factors shaping the beauty landscape as we move into 2025.
Key Players and Their Strategies: Agility vs. Inertia
Agility as a Growth Driver
Companies that embraced agility and innovation continued to outperform their peers. Puig led the pack with an impressive 11.3% full-year growth, driven by its strong presence in niche fragrance markets and sustainable practices resonating with younger consumers. Its Q1 2025 growth slowed slightly to 7.8% but still outpaced most competitors.
Similarly, Interparfums maintained momentum with 10.2% annual growth, leveraging collaborations with luxury brands and a deep understanding of fragrance trends. Its Q1 2025 growth stood at 4.6%, reflecting continued strength in premiumization.
In Asia, Amorepacific staged a dramatic turnaround. After a -1.3% decline in H1, it rebounded strongly to end the year with 5.9% growth, accelerating to 15.7% in Q1 2025. This resurgence was fueled by hyper-localized strategies, including clean beauty lines and K-pop influencer partnerships, aligning closely with regional demand for authenticity and sustainability. The global fascination with K-beauty, characterized by unique ingredients like snail mucin and salmon sperm, has further propelled brands like Amorepacific into the spotlight, especially in Western markets.
Resilience Among Industry Titans
Global giants like L’Oréal and Unilever maintained steady growth, though at a slower pace than smaller players. L’Oréal grew 5.6% in CY 2024 and posted a 4.4% increase in Q1 2025, supported by science-led innovations such as its acquisition of skin-tech startup Skinbetter Science. Unilever’s beauty division grew 5.5% in CY 2024, but Q1 2025 saw a significant slowdown to 2.9%, likely due to inflationary pressures and softening demand in some emerging markets, factors that may have contributed to the discontinuation of REN skincare.
Both companies leaned heavily on their diversified portfolios and geographic footprints to buffer against market-specific volatility.
Challenges for Legacy Brands
Not all legacy players fared well. Estée Lauder, once a dominant force, struggled throughout 2024 with only 0.1% growth, followed by a sharp -9.9% contraction in Q1 2025. Its struggles stemmed from overreliance on traditional retail channels, high brand impairment charges (notably $773M for Tom Ford), and lagging digital transformation.
Shiseido also underperformed, posting just 1.8% growth in CY 2024, followed by a -8.5% drop in Q1 2025. While its supply chain restructuring showed promise, retailers' destocking, weak domestic demand in Japan, and reduced tourist traffic hurt performance.
Coty, too, faced difficulties, with 1.3% growth in CY 2024, followed by a -6.2% decline in Q1 2025 - indicative of ongoing brand positioning issues and fragility in mid-tier beauty segments. The company has also been impacted by macroeconomic uncertainties and trade tensions, particularly in the U.S. market, leading to revised profit forecasts and strategic shifts in production and supply chain diversification.
Financial Performance Analysis: Growth vs. Profitability Pressures
Growth Metrics: Back to Historical Norms
The beauty sector’s 2024 growth mirrored its historical average of around 4.5% annually, excluding crisis years like 2008 and 2020–2021. However, Q1 2025 data shows a clear slowdown in momentum, with aggregate growth among the nine tracked companies falling to just 1.2%. This divergence between CY 2024 optimism and Q1 2025 caution suggests that underlying economic strains are beginning to bite.
Despite easing headline inflation in many developed economies, input costs remained elevated in 2024, particularly for packaging, raw materials, and shipping. Companies absorbed much of this pressure through operational efficiencies and selective price increases.
However, Q1 2025 results suggest that consumer sensitivity is rising, especially in North America and Europe, where discretionary spending is being curtailed due to high interest rates and stagnant wage growth. Inflation in developed countries during Q1 2025 ranged between 2.1% and 3.5%, impacting consumer purchasing power.
Trade Tensions and Regulatory Challenges
The U.S. tariff regime and potential new levies on imported cosmetics introduced uncertainty for multinational beauty firms. Brands reliant on Chinese manufacturing (e.g., Coty, Estée Lauder) faced increased scrutiny and costs, prompting supply chain diversification efforts toward Vietnam, Thailand, and Eastern Europe.
The U.S.-China trade war led to steep tariffs, with the U.S. imposing up to 145% on Chinese goods and China retaliating with tariffs up to 125% on U.S. exports. These measures disrupted global supply chains and increased costs for beauty companies reliant on international markets. However, recent negotiations have led to a 90-day agreement to reduce tariffs by 115% on each other's goods, signaling a potential easing of trade tensions. This development has boosted investor confidence and may provide relief to the beauty industry moving forward.
The EU’s Green Claims Directive and the U.S. Modernization of Cosmetics Regulation Act (MoCRA) further raised compliance costs, especially for smaller players lacking robust regulatory infrastructure.
2025 and Beyond: Strategic Priorities
As the beauty industry enters a more challenging environment, success will hinge on balancing agility with discipline:
Balance Premiumization and Accessibility: Offer tiered pricing models without diluting brand equity, especially in inflation-sensitive markets.
Invest in AI and Sustainability Tech: From personalized skincare algorithms to blockchain-based ingredient traceability, tech investments will drive differentiation.
Strengthen Direct-to-Consumer (DTC) Channels: Reduce reliance on third-party retailers and build deeper customer relationships via owned e-commerce platforms.
Navigate Regulatory Shifts Proactively: Prepare for stricter environmental claims laws and ingredient transparency requirements.
Optimize Supply Chains Amid Geopolitical Risk: Build flexibility to adapt to tariffs, trade disruptions, and local sourcing mandates.
Final Thoughts
The beauty industry's 2024 performance showcased its enduring resilience, bouncing back to pre-pandemic growth levels despite macroeconomic turbulence. However, the early signals from Q1 2025 indicate that growth is decelerating, and profitability remains fragile.
To thrive in this evolving landscape, brands must embrace strategic agility, invest in technology and sustainability, and stay attuned to shifting consumer priorities and regulatory climates. As the sector moves into 2025, agility, authenticity, and adaptability will be the ultimate differentiators.
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