Despite growing consumer caution and inflation, the beauty industry is booming. And social media is one reason it continues to thrive, according to an analyst.
"I think social media has been a big game changer for beauty in general," Canaccord Genuity Managing Director Susan Anderson told Yahoo Finance Live (video above). "I think it's really gotten the consumer engaged in the category."
Social media has increasingly become a major advertising channel for companies selling cosmetics, skincare, and other beauty products. With platforms such as TikTok, YouTube, and Instagram, brands can promote products to millions of users while reducing advertising costs compared to other forms of marketing.
In 2022, beauty companies spent an estimated $7.7 billion on advertising, and more than a third of that spending went toward digital advertising.
And while many brands have added social media to their core strategies, e.l.f. Beauty (ELF) has gone even further by starting out as a digital-first brand before moving to traditional media.
That has helped e.l.f. — one of the first beauty brands on TikTok, according to its CEO — to reach younger demographics and deliver 16 quarters of sales growth. Year to date, e.l.f. stock is up more than 65%.
"I think they have done a really good job marketing the brand with social media," Anderson said. "The younger generation, particularly Gen Z, they discover all of their makeup products online. So I think they've really catered to that generation. And now they're moving into more traditional media such as the Super Bowl ad they did this year, and I think that's bringing in even more consumers to the brand."
In addition to helping mass-market brands connect with potential buyers, Anderson pointed out that social media has also made it easier for consumers to discover smaller brands. That competition has boosted the entire industry by pushing brands to innovate and keep up with fast-moving trends.
"It's allowed smaller indie brands to really come up," Anderson said, "whereas 30 years ago, it was really hard for these smaller brands. You had to get into a store such as a Target or a Macy's or something like that. So it's really allowed newness, continued newness, and invention in the category, and I think that's really played a role in driving new products, new categories, and really driving consumers to constantly try new brands and new things."
For now, there's still momentum in the category. Recent data indicates that consumers are continuing to indulge in affordable luxuries despite declines in discretionary spending, a tendency that has been called "the lipstick effect."
"It's really a category that's remained very strong while we've seen some other categories kind of fade such as home and, to some extent, apparel post-COVID," Anderson said. "It's not typically a category that [consumers] cut back on a lot during weaker macro times, and so we expect the strength to continue as we look throughout the year."
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