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Google Maps images of Nykaa store in Orion Mall, Bengaluru IN by owner

Why beauty companies are my favorite pandemic-comeback story

Disclaimer from the writer: All views and opinions are those solely of the author and for purely educational purposes only. Please do your own research before investing. *Returns calculated as of EOD prices on September 8, 2021. 

I will be honest with you, when I was a sophomore in March 2020, the gravity of coronavirus and lockdowns never sunk in. I was more concerned with making sure I could secure an internship because this quarantine was only for like two weeks—right?

I spent hours reviewing companies I applied to so I could ask the most meaningful questions to interviewers, and of course, hours practicing my elevator pitch with a dashing smile. But looking back at my experience I surprisingly spent days making sure I had a near perfect outfit, hair, and professional appearance, no matter if it was a WebEx video call or an in-person superday. 

By the worst one day drop since the 2020 market turmoil, beauty stocks like Estée Lauder (NYSE: EL), e.l.f. Beauty (NYSE: ELF), Ulta Beauty (NASDAQ: ULTA), and L’Oréal (OTCMKT: LRLCY) returns from January 2, 2020 – March 16, 2020, steeply dropped about -34%, -72%, -61%, and -27% respectively. The broad consumer staples index, which can be tracked with XLP SPDR Consumer Staples ETF, went down only by about 17% in comparison. Overall, investor sentiment towards beauty companies was more negative for 2020, as many people shifted to video call meetings, work-from-home, and more casual meeting attire. 

However, discretionary spending on beauty products was not as hard-hit as other luxury expenses like handbags and footwear. In 2001, then CEO (1982-1999) of Estée Lauder, coined the phenomenon “lipstick effect,” where sales of makeup like lipstick continue to stay strong even in times like recessions. Despite offices, important events, and schools being virtual for almost 90% of 2020, people continued to buy essential beauty products like makeup, haircare, and skincare products. Moreover, how you dress for work-from-home, and what your appearance in a 12” x 13” Zoom computer screen still continues to make a difference on first impressions.

The pandemic likewise saw a growth in customers who were willing to try do-it-yourself routines that encouraged them to buy,phygitally,many new beauty and skincare products. Specifically, this can be attributed to social selling, or the use of influencers known as key opinion leaders (KOLs) to drive important beauty sales. In China, live streaming and KOLs on Singles’ Day, culminated in $28 million sales in 500 million views that made Estée Lauder a top pre-sale performer in 2021. 

The success that many beauty companies like Estée Lauder have seen through KOLs emphasizes a key element that makes beauty companies one of my favorite industries: beauty companies continuously innovate and listen to what customers want. They continuously find ways to make technology not just their best friend, but their customers’ best friend. 

Customers, especially the younger and wealthier population, are not just looking for companies to deliver them products—they want companies to go the extra mile to deliver them an experience and listen to their concerns. According to the 2021 ESG Cosmetics report, companies like P&G, Kao, and Estée Lauder have taken top ranks in ESG. Revlon, Sephora, and L’Oréal have driven more engagement towards its BIPOC employees. Media pressure is something that dually challenges us and the firms we interact with to always do better.  

Nykaa appreciates the growth of “phygital” stores with small showrooms called Nykaa On Trends across Indian metro areas. Consumers are encouraged to browse in store and buy online through their e-commerce platform. Photo courtesy of Nykaa store owner via Google Maps.

On August 4, Nykaa, India’s biggest e-commerce company that provides beauty and wellness products, had an initial public offering valued at $1.2 billion. Pandemic-induced lockdowns in India have encouraged the growth to nearly 44 million downloads of its mobile apps, by allowing members to order and buy multiple branded beauty and fashion products from the one-stop shop website. The company has posted an $8 million net profit in 2021, with a 34% increase in revenues from $236 million in 2020 to $334 million for 2021. The Indian beauty market is also expected to more than double by 2025 to $28 billion, making Nykaa’s IPO entrance at an attractive time for investors. Proceeds from the offering are expected to be used to “set up new retail stores, fund capital expenditure and repay debts.” I think Nykaa will be successful in its IPO and future growth as a company, as Nykaa emanates many of the successful catalysts mentioned in this column that I prefer to see in beauty, fashion, and e-commerce companies. 

Beauty companies, as such, are my favorite pandemic comeback story, as they not only were able to bounce back with reopening, but reinvent themselves throughout the year to speak and connect with the “new normal” consumer. These reinventions have catapulted stocks like EL, ELF, ULTA, and LRLCY to return nearly 32%, 23%, 33%, and 22% year-to-date respectively*. Post March 2020 selloff returns (while provocative from the melt-up) are at about 82%, 119%, 85%, and 73% respectively*.

Not Financial Times (NFT) is an Opinion column written and created by Roshni Revankar ’22 to share insights and research into her favorite companies, industry trends, and anything in financial markets that really irks her curiosity.

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