The Beauty Market Shifts and Trends Investors Need to Watch

Introduction

Beauty and skincare brands no longer compete solely on product claims, they compete on platform strategies that might encompass dermocosmetics, clean beauty lines, and omnichannel distribution. In an industry rapidly transformed by consumer consciousness, regulatory shifts, and digital acceleration, a platform-worthy brand must deliver scientifically credible innovation, sustainable positioning, and agile go-to-market execution.

Dialectica's expert interviews with C-level executives across the global beauty and skincare industry consistently reveal three dominant themes: the robust growth of dermocosmetics and clean beauty, competitive fragmentation across manufacturing and distribution, and innovation-driven product convergence. For investors and corporate strategy teams assessing this sector, validating these dynamics is essential to identify enduring opportunities and avoid trend-chasing pitfalls.

Quick Summary Table

Key Focus Areas

1. Market Sizing & Growth Momentum

Dialectica’s expert calls highlight the following market sizes: dermocosmetics at ~€2 billion, the Greek beauty market estimated at €120–130 million (low single‑digit growth post-COVID), and the U.S. personal care industry at ~$100 billion. Hair care and fragrances are growth segments, while color cosmetics face a downturn. Clean beauty, a major consumer-driven trend, is expected to double by 2032.

External data supports strong expansion:

• Global dermocosmetics market: ~USD 65.7 bn in 2023, projected to reach ~USD 146.4 bn by 2032 (CAGR ~9.5%).
• Clean beauty market: USD 8.25 bn in 2023, expected to reach USD 21.29 bn by 2030 (CAGR ~14.8%).
• Another projection: USD 6.32 bn in 2023 to USD 34.8 bn by 2032 (CAGR ~14.6%).

Key takeaway: Dermocosmetics and clean beauty are high-growth segments, validation should include layering multiple forecasts, checking regional splits (e.g., Europe vs. U.S.), and confirming sustainable demand vs. "COVID‑rebound" effects.

2. Fragmentation & Industry Structure

Dialectica expert insights reveal high outsourcing: 60–70% of manufacturing in color cosmetics is third-party, whereas skincare, especially premium, tends to remain in-house. Horizontal acquisitions of ingredient businesses are trending.

Additionally, the beauty industry is composed of multiple segments including makeup, fragrances, skincare, and haircare. While conglomerates like Estée Lauder and L'Oréal operate across categories, many brands stay focused. For example, a makeup brand may branch into skincare but still prioritize its core product line.

Producing across categories often requires different equipment, especially for skincare due to active ingredient handling. However, facilities and labor can often be shared. Licensing is a common model for cosmetics and fragrances, enabling fashion brands to extend into beauty. In this arrangement, the beauty company manages development and distribution, paying royalties usually below 20% of revenue.

Luxury groups are increasingly bringing production in-house, viewing it as a margin-protective and resilient strategy. Still, many brands depend on contract manufacturing, especially when volumes don’t justify owned capacity.

To validate:

• Map in-house vs. outsourced SKU percentages.
• Review licensing partnerships, production model resilience, and scalability.
• Track M&A trends and category diversification strategies.

3. Innovation Trends & Product Platforming

Experts note the surge of “hybrid” products, e.g., foundations with skincare benefits, moisturizing lipsticks, and the push for sustainable packaging, despite cost and technical challenges. Clean beauty remains a powerful, but poorly defined, trend, and DIY offerings are niche (under 5%), hindered by hygiene, waste, and low profitability.

Marketing strategies vary by segment. Skincare uses a “problem-solution" approach, emphasizing efficacy and seasonality (e.g., hydration in winter). Makeup marketing, on the other hand, is driven by social media and trend cycles. Fragrances rely on emotional storytelling and consumer loyalty, with luxury perfumes requiring specialized retail staff and environments.

Gen Z trends like lip oils, highlighters, and blushes are fueling fast growth in makeup. Meanwhile, Active Derm and pharmacy-sold skincare products are leading growth in Europe. Even amid downturns, consumers often maintain beauty spending, the so-called “lipstick effect”, making the industry more recession-resistant than many others.

To assess:

• Analyze the product pipeline for hybrid, sustainable, or clinically proven SKUs.
• Evaluate marketing strategy adaptability and emotional branding.
• Examine category-specific innovation cycles and economic resilience.

Distribution and Profitability

Distribution spans e-commerce, brand-owned stores, specialty multi-brand retailers, department stores, and increasingly, the pharma channel (particularly in men's skincare). Amazon is gaining traction even among prestige brands but comes with challenges like price pressure and channel conflict.

Indie brands have flourished, especially in makeup and skincare, regularly with Sephora's support. Many are watched or acquired by larger players.

Profitability tends to concentrate with strong brand owners and those who control marketing. Ingredient providers with patented inputs often hold pricing power. Brands frequently diversify channels to reduce reliance on any single distributor.

What Experts Say vs. Market Assumptions

• Growth: Derocosmetics and clean beauty show double‑digit regional growth, validate sustainability beyond pandemic rebound.
• Fragmentation: Outsourcing and geographic manufacturing proximity are operational risks and advantages; not just supply chain optimizations.
• Platform Innovation: Success relies on credible science, regulatory clarity, and clear packaging differentiation, not greenwashing or novelty.
• Distribution: Direct, diversified retail strategies are key to resilience and margin retention.
• Marketing: Segment-specific messaging and emotional storytelling differentiate winners.

How Calls Are Used in Diligence

Private Equity Teams use calls to:

• Test assumptions: Are top-line CAGR figures matched by regional recovery vs. underlying base growth?
• Understand stretch risks from outsourced COGS, regulatory disparity, and packaging cost inflation.

Corporate Strategy Leaders use calls to:

• Align formulations, packaging, and branding with consumer-perceived value (e.g., hybrid products with clean claims).
• Assess capability to scale regionally, manage in-house vs. outsourced production, and integrate ingredient-level M&A.

Most Insightful Roles:

• Heads of R&D/Product Innovation
• Supply Chain & Manufacturing VPs
• Brand-Marketing Executives

Common Questions Investors Ask

Q1: Are dermocosmetics and clean beauty growth real or hype?
A: Supported by independent CAGR data (9–15%) and consumer demand trends, diligence should segment growth drivers vs. rebound effects.

Q2: Is fragmentation a liability or opportunity?
A: Adds risk but offers strategic supplier flexibility; better if managed via strong execution and regional partnerships.

Q3: How to spot early innovation risk?
A: Beware of heavily-priced “green” without clinical efficacy, narrow DTC reach, or unsanctioned DIY offerings with compliance issues.

Q4: How do category differences impact a company’s  strategy?
A: Marketing, production, and distribution vary significantly across skincare, makeup, and fragrance, platforms must adapt accordingly.

What Investors Learn from Dialectica Insights

Dialectica’s interviews shine light on where growth is driven (dermocosmetics, clean beauty, hybrid lines), where complexity lies (production outsourcing, packaging costs), and where consumer behavior is shifting (brand infidelity, medical/clinical trust, sustainability demands). For investors, those who distinguish platform-quality, not just product hype, gain a competitive edge.

What This Means for Investors

Beauty & skincare are no longer about standalone formulations, they’re about building resilient, scalable innovation platforms, backed by clinical credibility, sustainable supply chains, and channel-savvy execution. To succeed, diligence must stretch beyond topline growth: verify multidimensional drivers, validate fragmented structures, and ensure product differentiation is durable, not just fashionable.

Sources and External Signals (Non‑Dialectica)

Dermocosmetics and clean beauty market size and CAGR: Fortune Business Insights – Dermocosmetics Market, Statista – Clean Beauty Market Overview, Market Research Future, GMI Insights

About the Author

Cecile Novion

Managing Director, Origin Insights

‍Cécile Novion leads the Private Equity and Origin Insights division at Dialectica, where she focuses on building decisive information advantages for top-tier private equity firms throughout their deal sourcing and due diligence workflows. Her strategic insight is shaped by senior leadership roles at global consulting firm BCG and mobility leader Beat.

Beyond her work at Dialectica, Cécile is a Board Member at La French Tech Bogota and is a passionate advocate for technology, entrepreneurship, and the empowerment of women in their personal and professional lives.

Connect with Cécile on LinkedIn.