'Always a reason to buy beauty': Young shoppers keep cosmetics hot despite inflation

In Keon Zhang's household, it started with a rite of passage: his eight-year-old discovering a pimple.

"She was like, 'Daddy, I need to get rid of them ... I need a skin care routine,'" said the chief executive of beauty brand Back to Earth Skin. 

"And then, here my son comes up and he's like, 'Do I need it?'"

For others, the impulse to dive into a beauty regimen has come from the endless scroll of social media posts showing influencers slathering on Drunk Elephant skin care products, reaching for Dior's lip oil and swearing by Sol de Janeiro's Brazilian Bum Bum cream. 

The flurry of purchases they have inspired in the middle of an economic downturn has confirmed what the industry has long known: beauty is hot, even when the propensity to spend is not.

Leonard Lauder — heir to the Estee Lauder cosmetics empire — coined the term "lipstick effect" in the early aughts, when many countries were in the throes of a recession, to describe the way customers with less to spend were still willing to splurge on a small item.

Now, the trend is playing out again as younger shoppers flood the market and inflation remains above the Bank of Canada's 2%, weighing on spending power but not dampening the inclination to "treat yourself." 

READ: Canada’s inflation rate tumbled to 2.9% in January, grocery prices rise more slowly

"When you're a little bit constrained and you're a little stressed on your financial side, you tend to cut the big luxury items, so then you spend on smaller luxury items," Zhang said.

"Skin care is sometimes pricey, but it's not like going on a cruise. You're spending on something that gives you gratification immediately."

And shoppers aren't the only ones getting a glow. 

LVMH reported about $12 billion in revenue last year across its perfume and cosmetics businesses, which includes Christian Dior, Guerlain, Fenty Beauty by Rihanna, Loewe and Benefit. 

In its selective retailing category, where beauty mecca Sephora resides, revenue hit $25.9 billion, up from $21.5 billion in 2022. Sephora declined to comment. 

LVMH's experience was part of a wider pattern. Research firm Circana found beauty category sales grew 18% in the first nine months of 2023 in Canada from the same period in 2022. They were up "an astonishing" 47% from 2021, despite almost 80% of Canadians it surveyed saying the high cost of living had them curtailing spending.

The firm named skin care, makeup and fragrances as the fastest-growing general merchandise categories, outranking video game hardware, toy-building sets and even portable beverageware (hello, Stanley cup boom).

While some of the beauty industry's resiliency comes from the lipstick effect, Angus McOuat said social media and influencing are also driving recent growth.

"At least 50%, if not more, of millennials, gen Z are making their product decisions in this category based on social media and directly what they saw online," said the McKinsey & Co. partner, who leads the consultancy firm's Canadian consumer and retail practice.

READ: Why TikTok is ripe with opportunities for grocers

His daughter, for example, picked up a beauty regimen after watching "get ready with me" videos, where posters explain their makeup and wardrobe choices.

"She does it every night," he said. "I'm not sure why she needs skin care at 12, but she feels she does."

Skin care has been a particular boon for the industry because brands see more elasticity in this part of beauty budgets and shoppers picking up these kinds of products are less likely to trade down when prices rise. 

They also believe the more they spend on a product in the category, the better results they will see, McOuat said.

"If you're with a skin cream that you like and it works and you feel like it's sort of making your skin feel better and look younger ... that'll be one of the last things you would want to drop," he said.

Back to Earth Skin, a Vernon, B.C.-based company specializing in natural, vegan and cruelty-free products, is one of the many companies benefitting from this thinking.

Its business grew 18.4% between 2022 and 2023 and its online division increased 24.8 per cent over the same time period.

"We just skyrocketed, flew and I can tell you 2024, it's even going to be higher than that for us," Zhang said.

Irene Doody, who leads category management for beauty at Shoppers Drug Mart, also foresees the sector remaining hot.

In its most recent quarter, Shoppers' parent company Loblaw Cos. Ltd. reported drug retail sales, which includes cosmetics, rose 7.4% to $2.6 billion. The increase reflected "ongoing strength" in beauty sales, Loblaw said.

"There's always a reason to buy beauty. There's always something new," Doody said.

"Certain parts of our population, they are definitely interested in that innovation, and I don't know where they get their money, but they definitely are buying."

Some of those buyers are looking for "indulgence" or an "emotional lift." Others are opening their wallets because of influencers who can make a product go viral overnight.

And yes, many of these shoppers are young, "curious" shoppers with "time on their hands, so they're at the malls."

"But I was at the mall when I was that age, too," Doody pointed out.

All of these shoppers, along with skin care and products to repair damaged hair she sees gaining ground this year, will help the beauty market continue to rise, Doody predicted.

"I think we've only scraped the surface."