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Beauty sector stocks could be in for a shock sell off – new data


The beauty sector could be on course to lose over $175bn in revenue during the COVID 19 pandemic, according to Paris-based Fraicheur.

Consumer behaviour has changed significantly as the use of beauty products has drastically declined. Data acquired by Fraicheur indicates that for the first time in decades, the beauty industry is set to lose a staggering $175 billion USD in 2020 alone. While not as tragic as the airline or hospitality sectors, this still has significant implications from some leading beauty stocks.

Changing consumer habits are cutting into revenues

From the data, it is clear that COVID-19 has greatly changed the beauty habits of every customer. Due to work from home becoming the new norm, the use of skincare and makeup products experienced a significant decline of 20%. Personal care products are faring slightly better with only a 3% reduction in overall use.

As a large part of the beauty industry’s customers continue working from home, hope for complete recovery is slim. Data has shown that 90% of women use little to no makeup while at home which has greatly cut into spending on beauty products. As long as social activities continue to decline, a return to previous levels of consumption is unlikely.

Fraicheur CEO, Ingrida Cerniauskaite, said:

“COVID-19’s impact on the beauty industry is undeniable. Our acquired data shows that we are looking at a rare loss of revenue. Yet, there is hope in the online market. As our customers move towards shopping online, so should our businesses. With enough innovation and adaptation, we can greatly lessen the blow dealt by COVID-19 to our beloved industry.”

A chance for recovery seems to lie online. Innovative beauty solutions for the internet age might be able to hasten the recovery of the industry.

During the early stages of the pandemic, The Armchair Trader identified significant shorting opportunities in the beauty and luxury goods sectors as China closed down its economy to fend off the pandemic. Since then we have also seen luxury goods brands return to profit for their Asian operations by embracing online distribution.

For investors it could be hard to strip out the impact of a slow down in the cosmetics and beauty sector as many major players are more diversified and could protect their revenues thanks to other business lines. Good examples include Revlon (NYSE:REV) and Amorepacific Corp (KOR:090430) in Korea.

Revlon stock has, however, illustrated the general ebbing of optimism from the sector has shares have dropped in value from 13.20 in July to trading at around 4.91 this week.

Where to look for cosmetics growth stocks this winter

It is, however, a different story with L’Oreal (FRA:OREP) which experienced a considerable rally in its stock price over the six weeks from the middle of May to the start of July. L’Oreal shares have been largely rangebound since then, however, as the market tries to work out how its sales will fare during the autumn.

We remain cautiously optimistic about those beauty stocks that can meet these two key criteria this winter: firstly, they must have a good online sales distribution network already in place. If they are just going to the drawing board now, it is likely too late. Secondly, they ought to have good exposure to Asia, where retail is back in business again. and where there remains an excellent market for beauty products.

A good example is Japan’s Kose Corp (TKY:4922) which has seen a very substantial rally in its share price since July. Kose Corp stock has sold off a little in recent days, but there is an earnings call scheduled for 30 October which could shed some light on the state of the Japanese cosmetics market.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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