What: The Economist takes stock of the new standards in the Beauty category and how DTC brands are performing.

Why it is important: DTC are attractive on paper: they are smart, lean, digitally-native and able to talk to the younger customers. But their model, adapted to a pre-Covid context, might not be able to pass the test of time without the support from older companies.

The Economist reviews how the $500bn beauty market has evolved in the recent years, with well-established groups, which have a time-honored marketing strategy and often in-house production capability in addition to a dual sales channel (wholesale, retail), are being challenged by Direct to Consumer brands.

They have been the cool kids quite for a while, as they came in with a new business model: direct online sales, lower margins, better knowledge of the customer, leaner organizations. However The Economist suggests that this might be a model adapted to a context only, and might not be relevant in the “new normal”: influencer-based marketing strategy works well to encourage initial purchases but not to repeat them, outsourced production capability might prove difficult in a world with inflation and supply-chain difficulties, and physical stores remain the place where customers purchase their products.

This might explain why new brands are being purchased (or sold to) beauty giants, who find in them interesting and cool brand names, while the brands themselves find a way to continue their expansion which might be otherwise difficult.

The truth about young beauty brands’ business model