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May 24, 2023

Why Beauty Brands Want a Bigger Piece of the $1.5 Trillion Wellness Pie

There once was a time when beauty brands had little doubt where their growth

There once was a time when beauty brands had little doubt where their growth opportunities lay: creams, lotions, lipsticks and other products that promised to improve how customers looked — younger, glamourous, polished. Aesthetic perfection took centre stage.

That's no longer enough for many of today's shoppers. For them, beauty products still must fulfil traditional aesthetic needs, but also improve how they feel — both physically and mentally.

A vast array of products and categories now fall under the umbrella of wellness-inspired beauty. Products might, for example, include ingredients once only associated with homeopathy or natural remedies, or even ancient medicinal traditions. Products can also come in the form of ingestible supplements, devices — such as LED face masks and microdermabrasion tools — and products improving the atmosphere of homes.

For beauty players newer to this part of the industry or looking to expand further into wellness sub-categories, the journey should begin with a careful exploration of why and how new products, marketing or partnerships can make strategic sense.

Since the late 2000s, the self-care concept has captured public attention and spawned a wave of mainstream wellness products and services. This was particularly true in developed markets like the US, where wellness products from high-profile, celebrity-driven start-ups, such as Gwyneth Paltrow's Goop and Amanda Chantal Bacon's Moon Juice, helped fuel interest in the space and erode taboos around topics such as sexual intimacy. The Covid-19 pandemic only furthered consumers’ interest in health and wellbeing.

Worth at least $1.5 trillion today, the global wellness industry is set to grow at a compound annual rate of between 5 percent and 10 percent to 2027. The US is the largest wellness market, worth approximately $450 billion in 2022. China is a close second, at $350 billion to $400 billion, with significant untapped demand. Meanwhile, the wellness market in Europe, at $130 billion, is relatively small, but is expected to expand by close to 10 percent annually.

A global consumer survey that McKinsey conducted in early 2023 sheds light on regional opportunities for wellness-inspired beauty, while also highlighting regional differences. For example, consumers in China use spa services more frequently than their counterparts in Europe, whereas home wellness products such as scented candles are particularly popular in the US, and used by up to 70 percent of US consumers, compared with about 40 percent in China. Overall, the majority of survey respondents from the US, China and five Western European markets said they plan to increase spending on wellness products and services in the year ahead, perhaps a reflection of the rising profile of the "conscious consumer," who focuses on natural ingredients and sustainability.

Consumers’ understanding of wellness today is both broad and nuanced. As a result, wellbeing is extending beyond the day-to-day to include not just diet and fitness, but also mindfulness, mental health and sleep quality — in addition to beauty products. Beauty shoppers are educated and want to learn more about ingredients, while seeking out brands that align with the beauty philosophy they embrace: looking good and feeling good.

Brands, in turn, are responding, often with product portfolios that go beyond "clean" marketing and labelling by blurring the lines between wellness and beauty. For example, ayurvedic beauty brands such as Soma Ayurvedic and Ranavat aim to meet consumers’ growing interest in ancient healing systems. This shift extends to more traditional cosmetics players, too: Lady Gaga repositioned her skin care-orientated cosmetics brand Haus Labs in 2022, emphasising natural ingredients such as argan oil, vitamin E and arnica, a homeopathic staple used to help reduce skin irritations.

The scope of wellness-inspired beauty products is vast, with certain sub-categories already indicating potential opportunities for certain brands. For example, nearly 30 percent of McKinsey's survey respondents said they regularly use sleep-related products and services. For traditional beauty brands, this may be an opportunity to leverage expertise and consumers’ trust in skin care and fragrance lines to launch pillow mists, eye masks and body lotions that promote tranquillity and better sleep. Marketers for beauty service providers such as spas can specifically highlight the sleep benefits of certain treatments.

For example, Rituals, a Dutch brand launched in 2000 and now sold internationally, seeks to enmesh wellness into its home, body and beauty products. The brand offers sleep-focused lotions, serums, diffusers and even sleep masterclasses on YouTube. Additionally, Rituals’ product range expands across everyday living; it now offers candles and bath salts, drawing on self-care practices popular in Asia. The company's product lines and messaging seem to have particularly resonated during the pandemic, with its revenue exceeding $1 billion by 2021.

Sexual wellness is an area garnering increasing attention. Having long been taboo or confined to specialist retailers in many markets, products ranging from vibrators and lubricants to intimate washes and sexual health-promoting supplements can now be found at retailers such as Sephora and Ulta Beauty. Approximately 20 percent of McKinsey's global survey respondents said they use such products today.

Maude, Dame Products and Unbound are all start-ups specialising in sexual wellness; one of the newest entrants is Playground, a line of personal lubricants that counts celebrity Christina Aguilera as co-founder, brand adviser and investor.

As for distribution, Bloomingdale's, Saks Fifth Avenue and other department stores have introduced intimate care sections on their websites and have announced plans to add them to their physical stores.

Sub-category considerations for brands should include both customer interest and brand expertise. For instance, ingestible beauty-related supplements are regularly used by approximately 40 percent of survey respondents; yet this is a sub-category likely better suited to brands with a fitness or nutrition focus, or brands with a science-based approach to beauty. Such supplements today encompass more than vitamins, and include adaptogens cultivated from herbs, roots and other plants, beverages and snacks made with antioxidants — and even intravenous drips.

Whatever the segment, traditional beauty brands will need to determine which, if any, wellness sub-categories they can move into credibly in the eyes of consumers. Not every brand can expand into every part of wellness. For example, highly specialised products, such as those focused on sports or oral care, may be too narrow and incompatible with the overall brand.

Credible storytelling will need to be combined with an attractive value proposition — a combination that Uma Oils, for example is aiming to capture. Entrepreneur Shrankhla Holecek launched her face, body and aromatherapy oils business in 2016, drawing on her experience growing up in India and helping with her family's centuries-old business that harvests essential oils. Uma Oils’ beauty and wellness collections are in keeping with ayurvedic tradition and include niche products such as navel therapy oils.

With each and every wellness launch, brands should assume customers will expect endorsements from wellness practitioners, dermatologists, biologists or other authoritative sources, particularly given the use of novel, science-based ingredients, with which many consumers may not be familiar.

A clear strategy incorporating wellness will be crucial for retailers. In recent years, department stores and other retailers across price segments have begun including wellness sections in their physical and online stores. Ulta Beauty's "Wellness Shop" now includes superfood-infused products, spa-at-home offerings and intimate care; Sephora is following a similar path. Retailers expanding into wellness have relatively few boundaries within which to curate and cement credibility among shoppers, while becoming conduits between consumers and brands. In the years ahead, beauty retailers could become a testing ground for emerging sub-categories by providing well-defined sections within their stores for discovery and entertainment.

Other physical spaces — such as spas, hotels and clinics — can also tap into wellness, including in collaboration with one another or with fashion brands. In 2021, for example, Dior opened a spa in LVMH's Cheval Blanc Paris hotel, offering treatments using Dior's professional skin care products. Brands can position such services as more than a massage or facial, but rather as a self-care ritual that offers customers a transformative mind and body experience.

Brands that understand the advances in the wellness space, their ability to leverage expertise in a unique and credible way, and the influence of wellness on traditional beauty products are likely to gain a competitive advantage in the market as holistic beauty becomes a new benchmark for quality among global consumers.

This article first appeared in The State of Fashion: Beauty report, co-published by BoF and McKinsey & Company.