Reflecting Pandemic Trends, Investment in Beauty and Personal Care Startups Hits a Recent Low

More factors are involved in the decline than just Covid-19, say analysts

eyeshadow set
Funding fell by over 50% compared to the previous quarter. Siora Photography/Unsplash

Key insight:

In the opening quarter of 2020, private market funding for young companies in the beauty and personal care space fell by more than 50% compared to the previous quarter, according to a new report from market intelligence firm CB Insights. The category, which includes cosmetics and men’s grooming, raised a total of $103 million—the lowest number seen since at least Q2 of 2017.

While the decline marks the category’s second consecutive quarter-over-quarter decrease, it stands in contrast to other sectors that have seen a burst in investor interest during the Covid-19 outbreak. Fitness technology, for instance, grew 471%, raising $600 million. The food and beverage category received $1.3 billion, an increase of 133%, thanks in part to plant-based protein alternative manufacturer Impossible Foods.

Although financing for gaming and e-sports companies was ultimately down 11% to $633 million for the quarter, data shows that activity jumped in February and March, both in terms of dollars invested and deals made. The current moment is certainly one the video game industry appears intent to leverage. During the first two weeks of April, ad spend from consoles, retailers and game titles was higher than January and February combined, according to ad intelligence firm MediaRadar.

Jake Matthews, a senior intelligence analyst at CB Insights, warned against blaming the pandemic alone for the decline in new capital for beauty and personal care startups. However, he also said it shouldn’t be surprising to see funding trends in the consumer space reflect sales figures seen in the broader market.

“It’s hard to draw a connection between the two, but it definitely, at a high level, makes sense,” said Matthews on Covid-19’s impact on investors’ enthusiasm for beauty and personal care.

Pandemic aside, DTC companies in general are under more scrutiny these days, which also plays a role in how much money gets raised. On the other hand, Matthews noted that Chinese cosmetic brand Perfect Diary raised $100 million in April, boosting its valuation to $2 billion and showing that appetite for the beauty and personal care category has by no means disappeared.

With schools, bars and shopping malls closed, and many white-collar employees working remotely, demand for makeup has plummeted. Even when venturing outside, the thought of applying lipstick doesn’t make much sense when a face mask will cover it up.

In this environment, beauty giant L’Oréal experienced a 4.8% decline in comparable first-quarter sales, while Estée Lauder reported a drop of 11% for its fiscal third quarter ending March 31.

“While the terrific double-digit momentum in sales growth from the first half of our fiscal year carried into January, the dynamics in the quarter changed significantly as COVID-19 spread beyond Asia,” said Estée Lauder CEO Fabrizio Freda in a statement.

Procter & Gamble’s revenue has soared recently, but the uptick hasn’t been distributed evenly across the company. Quarterly organic sales of its healthcare division as well as its fabric and home care division, which together include brands such as Crest, Tide and Mr. Clean, were up 9% and 10%, respectively. Meanwhile, its beauty business (SK-II, Head & Shoulders) was up 1%, while its grooming unit (Gillette, Venus) was down 1%.

In recent years, consumer interest in skin-care products has grown, while demand for makeup has waned. Figures from market research firm the NPD Group show that between January and October 2019, U.S. skincare sales increased 3% to $4.6 billion. During the same time period, makeup sales decreased 7% to $5.9 billion.

@hiebertpaul Paul Hiebert is a CPG reporter at Adweek, where he focuses on data-driven stories that help illustrate changes in consumer behavior and sentiment.