Will Beauty Bounce Back?

May 29, 2020
Will Beauty Bounce Back?

Will beauty bounce back?  In the midst of the COVID-19 lockdown, many people are not spending as much time or money on some of the daily routines like shaving, hair styling, or elaborate makeup.

Many beauty purchases revolve around going out and socializing, which the current crisis has curtailed.  Forecasting for the beauty industry in the upcoming months may prove challenging, as so much remains up in the air.

Video Spotlight: Huda Kattan: Coronavirus has fundamentally changed the beauty and blogging businesses (Apr 24, 2020, Yahoo Finance)

This post is based on the CNN article, Our grooming habits are changing, by Fiona Sinclair Scott, May 6, 2020, and the YouTube video in the Spotlight. Image source: Plush Studios/Blend Images LLC

Discussion Questions:

1. What changes in demand have the beauty industry experienced in recent months?

Guidance: Sales of some beauty products are down, including color cosmetics, fragrance, and lipstick, as women spend more time at home, and public mask-wearing becomes commonplace.  At the same time, sales of eye makeup on retail sites is up, with Alibaba reporting 150% increase in mid-February.  Since the eyes are the most visible facial feature while wearing a mask, women are making the most of them.

On another note, splurging on small luxuries like face creams, hair treatments, or bath products has been popular at a time when salons have been closed and shopping for clothing or handbags may seem superfluous.   With salons closed, Amazon reported that nail care sales were up 218% and hair coloring sales were up 172%. Globally, Zalando, Europe’s e-commerce giant for fashion and lifestyle purchases, reported that sales in similar categories, including skin care, were up 300% as compared to last year.

2. What type of pattern will businesses in many industries, including cosmetics, see when they look back on demand from the last few months and think about forecasting for future periods?

Guidance: The dramatic spikes in demand experienced by many businesses, ranging from nail care and hair dye in the beauty industry or toilet paper and hand sanitizer in the personal care industry, are examples of irregular variation.

Unlike random variation, which occurs for no particular reason, irregular variation has an identifiable cause, in this case, the COVID-19 pandemic.  For some businesses, a downward plunge in demand from the same cause will be the irregular variation they see when they look back on this time.  Restaurants, theme parks, and other retail businesses forced to shut down have had little to no demand in recent weeks.

In addition, on a broader scale, the U.S. economy plunged from one of the strongest in recent decades, with some of the lowest unemployment figures on record, to extremely high rates of unemployment as stay-at-home orders shut down much of the country.  Thus, the business cycle has also been dramatically affected by the coronavirus, and that cyclical variation may impact the U.S. economy for a long time as we seek to dig our way back out of the crisis.

3. What should be done with the irregular variation when companies develop future forecasts?

Guidance: For companies that rely on time series forecasting techniques which look for patterns in historical data, the normal way to deal with irregular variation is to remove the data points.  If, for instance, demand for restaurants drop because of an unusual weather related disaster,  like a hurricane, restaurants would remove those data points when forecasting for the next year.  Similarly, if businesses believe that the COVID-19 crisis will have passed by this time next year, they would want to remove or adjust the data for much of this year and perhaps look back to a time when more typical demand was present in order to create a forecast or an aggregate plan.

If, on the other hand, they think that demand for their particular type of product will remain at the new levels for a while, for instance if women are still substituting masks for lipstick, they may want to leave some of the data points in their forecasts.  Right now, aggregate planning is difficult, because there is so much uncertainty about the depth and length of the COVID-19 crisis as well as the economy and the severity of the recession or depression left in its wake.

4. What type of recovery is the beauty industry expected to make?

Guidance: In the past, some segments of the beauty industry bounced back quickly from downturns, in part because many products are viewed as “little luxuries” that people want to treat themselves to when other things may be out of reach.  Thus, even in the short term with the economy reopening, consumers may splurge on little things that make them feel special or beautiful.  It is also hard to know if consumers will feel comfortable venturing out to salons or barbers, or if they will prefer the DIY at-home methods for a while longer.


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