The beauty and personal care space saw $264 million in funding in the seven months to July 2021 compared to $106 million in all of 2020. While the returns are higher, awareness among investors about the attractive category is increasing too
The beauty and personal care market is attractive: Gross margins tend to be high at 65 to 70 percent, unit economics are good, and products need regular replenishmentImage: Shutterstock
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The category has weathered the Covid-19 storm well. In the initial months of the first lockdown in March 2020, demand dropped, supply chains got disrupted and business plummeted. But by September 2020, most companies regained their footing. “The recovery was largely festival-led. Customers kept thinking that things would improve the following month,” says Singh of Sugar Cosmetics, which posted revenues of Rs 100 crore in FY20.Historically, lipstick purchases have remained buoyant during recessions. A relatively cheap, feel-good product, sales didn’t even dip during the second World War. “It’s what we call the lipstick index,” says Singh, referring to a term coined by Leonard Lauder of Estee fame during the 2001 recession to describe how lipstick sales increase during trying times. But with mask-wearing made compulsory, has the lipstick index finally fallen? “Not really. Lipstick has fallen from being the number one category pre-Covid to now being number two after skincare products. The 5-8 percent displacement from lipstick sales has been made up by skincare,” says Singh. The focus on skincare, and wellness in general, since the onset of the pandemic is a natural shift and one that is here to stay, believes Manvitha Janagam, investment professional at Verlinvest. “Ever since the pandemic, consumers are becoming more aware of their health and wellness, including their skin health. They are not shying from paying extra dimes for a cleaner product and invest extra time in catering to their holistic wellness routines.” Covid-19 has also further accelerated the shift to online buying, especially in Tier II and beyond cities. Ecommerce penetration, improved logistics and the proliferation of social media have enabled D2C beauty brands to grow at a fraction of the time and cost than was previously possible. “There’s a reason why we didn’t see so many FMCG brands being born in the ’80s, ’90s and ’2000s,” says Taneja of Purplle.