How beauty is changing in 2023

Behind its allure and aesthetic appeal, the beauty industry has proven to be recession-proof in the face of various macroeconomic shocks over the past two decades. The “Lipstick Effect” or “Lipstick Index”– an economic indicator from the beauty category, suggests that during periods of recession or economic hardship, women will indulge in discretionary purchases, splurging on small, affordable luxuries, such as lipstick, that boosts their mood without putting a strain on their finances. Hence, despite a shifting backdrop, our beauty sector outlook remains bullish and we expect it to continue as a bright spot in 2023.  

The rise of beauty with purpose

Consumers are shifting from wants to needs, and thus, we believe the players that will survive in the long term are those that can integrate beauty with purpose. 

After the pandemic, consumers have to navigate rising costs, energy and climate crisis, and political unrest. These factors are driving intentional spending. Consumers seek products with good value and function that aligns with their evolving ethical expectations.

This is especially true for Gen Z, the generation of consumers who came of age with heightened awareness about our impact on the planet. According to a WGSN Beauty & Insight white paper, this generation strongly prefers brands that prioritize sustainable practices, and are  responsible for their social and environmental impact. They are educated, eco-conscious shoppers who make purchasing decisions based on how they perceive a brand’s values align with their own. 

As such, Base and Sociolla are two of East Ventures’ portfolio companies in beauty care & commerce with a socially responsible approach to beauty. Base offers personalized beauty solutions that prioritize inclusivity and cater to individual skin needs. It believes in empowering women to define beauty their own way and make informed choices that align with their values by using technology to simplify product discovery, ensuring transparency and personalized recommendations. 

Sociolla has contributed to the change in messaging surrounding beauty through their sustainability campaign, “Waste Down, Beauty Up”, and “Love Local” campaign, among others. The firm is the first major e-commerce company in Indonesia to implement a zero bubble wrap policy, including using eco-friendly packaging and recycled paper wrappers. Promoting the idea that being beautiful does not have to be wasteful, Sociolla is committed to helping beauty enthusiasts make mindful beauty purchases and positively impact the world and the environment.

Social media drives the force of beauty

Rising inflation has affected consumer spending choices, but as noted by Euromonitor International in 2020, digitalization has been a significant buffer. It is anticipated to remain vital in the long-term recovery of the beauty industry.

Beauty commerce has become much more convenient. One of the most significant impacts of digitalization has been the ease of discovering new brands and products through social media platforms. 

Social media has emerged as the driving force behind online cosmetic sales, accounting for more than 85% of all online cosmetics traffic. Platforms such as TikTok, Instagram, YouTube, and Facebook have become the primary channels for selling cosmetics online. Additionally, social media engagement enables faster feedback from the beauty community, resulting in faster innovation. 

Indonesia is a prolific participant of social platforms, often ranked among the top 3-5 monthly active users (MAUs) in the world. Since both branded channels and influencers sell products on social platforms, the country’s rapidly growing internet-connected population provides a wealth of data to be analyzed. It sets high growth expectations for the beauty category.

The new easy shopping experience for beauty is supported on the supply side. Digital solutions have made it easier for businesses to find suppliers and streamline fulfillment processes. Thus, social media will continue to drive the beauty care sector.

Opportunities ahead

We observe several emerging themes that will shape the beauty commerce category, including sustainable production, reliance on trusted advisors and key opinion leaders, customization and inclusivity, augmented reality (AR) and artificial intelligence (AI) utilization. 

The beauty commerce industry in Indonesia is primarily influenced by innovation in product selection, marketing channels, and distribution innovation rather than more advanced technologies such as AR/AI or beauty devices. This can be attributed to more pressing issues like limited product accessibility and high costs associated with beauty devices. So, we see that AR/AI can use existing solutions from developed countries to bypass the innovation process and related expenses.

For many companies, innovation took a backseat in 2022 because they shifted their focus toward managing supply chain issues and inflation. This presents a unique opportunity for companies in the beauty category to innovate with less competition for shelf space.

Companies must prioritize constant product and marketing innovation to ensure long-term success in the beauty commerce industry. Establishing a competitive advantage over other players in the market is crucial, which can help build customer loyalty and defend against competitors.

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By Maria Marcia, Investment Associate at East Ventures & Cheryl Amadea, Investment Professional at East Ventures