Beauty and cosmetic sales have grown 48% since the onset of the pandemic in 2020. A rise in both in-store and online sales suggests these retailers will continue to provide strong demand for retail space despite the growth of e-commerce. Legacy retailers in the industry have boosted overall sales by opening additional stores, experimenting with new store formats, and creatively integrating the in-store and online experience. But they are not alone – newer beauty brands have also been adding storefronts and increasing their visibility.
The demand for space
Despite consumers reducing spending in other non-essential categories due to inflation, beauty and cosmetics are viewed as an affordable luxury, according to analyst Sky Canaves at eMarketer. Post-pandemic, many consumers have heightened their focus on wellness and self-care, leading to annual increases of at least 5% in spending on beauty and cosmetics each year since 2020.
In-store shopping remains integral to cosmetic and beauty retailers, even as online shopping has grown significantly. NielsenIQ reveals that consumers are increasingly blending their shopping experiences, moving between online and in-store channels to find the best deals and a wider variety of products. Cosmetic stores prominently display products that are trending online, bridging the gap between online and in-store shopping.
An appetite to innovate
Key retailers in the industry have been experimenting with store locations and formats as they try to grow their customer base and fight for market share. In 2024, Sephora opened 166 new locations, Ulta Beauty opened 165, and Bath & Body Works opened 89. For Sephora and Ulta, totals were boosted by smaller “store-within-store” locations to reach new shoppers who may not be near a stand-alone store. Sephora partnered with Kohl’s, while Ulta partnered with Target. While it remains to be seen how successful these partnerships will be for all brands involved, they are interesting examples of thinking “outside the box” by going “inside the box.”
Through these partnerships and new store openings, cosmetic companies have been branching out to reach younger demographics with spending power – especially millennials and Gen Z, who have been influential in driving trends. According to Digital Commerce, 18 to 34-year-olds make up nearly 50% of beauty shoppers. Furthermore, millennials report the highest amount of beauty spending, with nearly a quarter (24.4%) of the generation spending $1,000 or more in the last year, according to eMarketer's The US Beauty Consumer report.
The competitive landscape
Smaller beauty chains have also seen significant growth in recent years. For example, Bluemercury, owned by Macy’s, is a boutique cosmetics store with an elevated customer base, as the median income of their shoppers is just over $120,000. There are approximately 180 stores in the U.S., primarily located in affluent areas of New York, New Jersey and California, averaging 2,600 square feet. The chain is expected to add 30 stores in the next year, according to the Robin Report.
Bluemercury has reported 16 consecutive quarters of comparable sales growth as of Q4 2024. Its success is attributed to loyal shoppers who prefer the retailer's selection of high-end, professional, and newer brands andservices, as well as a customer base that spans all ages but heavily skews towards older millennials who can spend more on "high performance" products, according to Tracy Kline, Head of Merchandising and Spa at Bluemercury. Other small companies have established a loyal customer base by marketing to buyers who prefer a more bespoke experience than is typically found at the biggest cosmetic stores.
For beauty and cosmetic retailers, physical stores will remain a crucial element in growth strategies for the foreseeable future. How this space is used to showcase fresh ideas, attract diverse customers and build brand loyalty is something commercial real estate owners and investors will be watching closely.
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