The business of beauty has seldom been more alluring.
The value of the global market in cosmetics, moisturisers and perfumes is forecast to rise by 5 per cent a year to reach $590billion by 2030.
So maybe you should ask yourself: Does my portfolio need a glow-up?
As we learnt this week, Sephora – the beauty retailing arm of French luxury giant LVMH – will be opening shops in 100 Marks & Spencer stores.
M&S, which has a 1.3 per cent sliver of the £5.2billion UK beauty market, is taking on the might of Boots, which has the fattest slice.
It’s a move analysts say should enhance the appeal of Marks to Gen Z, among whom beauty is a cult.
Boots owner Sycamore Partners, meanwhile, is close to selling the brand to Canada’s Weston family for $9billion.
Elsewhere, Unilever is saying goodbye to Hellmann’s and other foodstuffs to focus on faster expanding brands such as Dove, Tresemme and upmarket make-up house Hourglass.
The business of beauty has seldom been more alluring
Behind this embrace of beauty lies not only the ‘lipstick effect’, in which consumers are happy to splash out on small indulgences in straitened times.
Indeed, make-up and skincare are fast becoming regarded less as treats and more as staples, which people will prioritise in almost any circumstances, save a deep recession, as David Coombs of Rathbones argues.
But there are other reasons why beauty is in the spotlight. Coombs comments: ‘This is a sector that won’t get disrupted by AI.’
Companies are using the technology to ensure their wares are at the top of the list when consumers use ChatGPT or another AI system to ask which products are the most effective.
Driving searches such as ChatGPT and its rival Claude is the ‘skin-ification’ of hair, which involves applying as many potions to your locks as to your complexion.
The thinning of hair caused by weight-loss drugs is amplifying the trend, too. Three beauty stocks are stashed in my Isa – Estee Lauder, L’Oreal and Elf.
I followed my own advice in this column, taking a gamble on recovery in a field where the right mix of ingredients, celebrities and marketing can have stunning results.
Last year Elf snapped up model Hailey
Bieber’s Rhode make-up house for $1billion. In the third quarter of this year, Rhode contributed $160m, or one-third, of sales. Analysts rate Elf a ‘buy’, but which other beauty shares are looking good?
Unilever
Shares in Unilever, the £97billion FTSE 100 conglomerate, are down by 8 per cent this year at 4,484p, partly due to worries over the exit from food.
But Unilever has a long expertise in beauty, as Madeline Wright, deputy portfolio manager at Finsbury Growth & Income Trust, points out. Dove, a brand set up in 1957, is alone worth some €5bn.
Wright comments: ‘Divestment in foods should enable the leaner Unilever to grow at a faster rate.
‘Unilever’s beauty and wellbeing division grew revenues at 4.3 per cent last year, with half of that coming from volume growth. Revenues from food grew by 2.5 per cent.’
Uncertainty means most analysts consider Unilever a ‘hold’. But brokers Bernstein believe the shares could go to 5,800p – appealing if you want to back companies that should thrive in the age of AI.
L’Oreal
L’Oreal, the €199billion French giant, is one of the companies being aided by the ‘skin-ification’ of hair which has boosted its Kerastase premium range, as chief executive Nicolas Hieronimus told investors.
Coombs likes L’Oreal’s relentless commitment to its luxe and other products which include Aesop, CeraVe, Garnier and Lancome.
More of this merchandise is being bought thanks to L’Oreal’s partnership with ChatGPT maker OpenAI.
Yasemin Senai, analyst at the Guinness European Equity Income fund, says: ‘L’Oreal has decades of scientific research, strong dermatological credentials and a large innovation and marketing engine behind it.
‘This creates a deep pool of credible information – and could make its brands more likely to surface in AI-led recommendations.’
The link with OpenAI is the reason why brokers Berenberg think L’Oreal shares could rise from the current €373 to €447.
Estee Lauder
A bet on this $33billion American company relies on the successful continuation of its Beauty Reimagined turnaround.
Estee Lauder’s fortunes in China are reviving. Its Clinique, Bobbi Brown and other products now feature on TikTok shop, a popular channel for beauty sales.
And there is brisk demand for its more expensive scents such as Le Labo, at £122-plus a bottle.
In May, Estee Lauder failed to merge with Puig, the Spanish group which has a substantial stake in the £1.2billion Charlotte Tilbury line.
Sephora – the beauty retailing arm of French luxury giant LVMH – will be opening shops in 100 Marks & Spencer stores
But, in August, Estee Lauder shares soared when the company reported the end of a run of three straight falls in sales.
At $91, the price is 31 per cent up over six months. Deutsche Bank rates Estee Lauder a ‘buy’ with a target price of $117.
For the moment, Puig seems to be plotting an independent future. But the shares are rated a ‘buy’. After all, its Jean Paul Gaultier perfumes are some of the hottest things on TikTok shop.
Ulta
This $23billion US beauty retailer is Coombs’ other pick because it is making the most of AI – and because it is moving into ‘wellness’, counselling its clientele on vitamins and supplements in its 1,500 suburban strip mall stores.
Coombs observes: ‘Ulta is a trusted brand at a time of scandals over the advice being given by online wellness “experts”.’
It has also gone international with the acquisition of British chain SpaceNK.
Ulta shares have risen by 7 per cent over the past six months to $541. But analysts are now targeting an average target price of $630. It seems as if they are as enthused about the prospects for the company as chief executive Kecia Steelman wants Ulta to be ‘the destination of a lifetime’.
Shiseido
Not so long ago, Shiseido, the 1.3trillion Yen Japanese owner of brands like Nars, was a star of the sector. But it has recently been held back by the ill thought-out purchase of the Drunk Elephant line – and the stellar ascent of the Korean skincare companies.
The shares are up by 43 per cent this year to 3,261 Yen with Shiseido pinning its hopes on new offers such as The Vital Perfection Intensive SculptDefine Serum, advertised by Anne Hathaway.
Analysts suggest the shares are a hold until this unguent works miracles on Shiseido’s bottom line.
If you want to take a chance on the continued clamour for Korean cleansing routines, they are stocked in M&S, and more will be available when Sephora arrives next spring. In the hope of a sales boost from this designed to ‘dump the frump’ at M&S, analysts rate the shares a ‘buy’.