Consumer (7 of 8)

Beauty and personal care

About 7 minutes to read in full, or 1 minute for the short version belowFacts checked 1 October 2026

In one minute

Companies make and sell skincare, makeup, haircare, fragrance and daily personal care products through stores, websites, salons and online platforms.

The big idea: Beauty products are cheap to make but expensive to sell: a large brand keeps about three quarters of its sales after the cost of goods, then spends about a third of sales on advertising and promotion. Profit comes from brands that shoppers trust and buy again, sold in channels that leave the brand enough of the shelf price.

One unit, in numbers: One USD 60 serum sold through a specialty beauty retailer: USD 33 comes in, and USD 6.60 (20%) is left after its own costs.What is left is the unit's contribution, before the costs of the whole company. See the worked example
Typical margin: About 10 to 20 percent operating margin for large brand owners; about 10 to 12 percent for specialty beauty retailersRoughly how much of every 100 of sales (or income) is left as profit after the running costs. More on margin
Capital intensity: LowLittle money is tied up in buildings, machines or stock, so growing is cheap. More on capital intensity
The number to watch: Like-for-like growthSales growth without acquisitions, disposals and currency effects.

Ask this first in a case

Which tier (mass, prestige, dermatological, professional) and which categories are we in?

Words used above (2)

Like-for-like growth:: Growth without acquisitions, disposals and currency effects.
Advertising and promotion (A&P):: Spending on media, influencers, samples and shop displays to create demand.

The industry's other words are explained in Words to know (11).

On this page (17 sections)

How money is made

Brand owners sell products to retailers at a wholesale price, or directly to shoppers through their own websites and stores.
The price premium comes from the brand, so most of the gross profit is spent again on advertising and promotion to keep demand.
Retailers earn the gap between the wholesale price and the shelf price, and extra fees for displays and promotions.
Online platforms earn a commission on each sale (the take rate), and sell advertising to brands on their pages.
Salons resell professional haircare to their clients alongside their services.
Big groups buy fast-growing brands and push them through their channels worldwide.

Worked example: one unit

Unit economics means the money in and out for one unit of the business. Start from the revenue, take away the unit's own costs, and what is left is its contribution. More on unit economics

The unit: One USD 60 serum sold through a specialty beauty retailer, from the brand's side. Illustrative, rounded figures.
Line	Amount	ShareShare of revenue
Price the brand receives: USD 60 shelf price minus the retailer's 45 percent	USD 33	100%
Minus Cost of goods: ingredients, packaging and manufacturing (26 percent)	USD 8.58	26%
Minus Advertising and promotion (32 percent)	USD 10.6	32%
Minus Selling, general and administrative costs (19 percent)	USD 6.27	19%
Minus Research (3 percent)	USD 0.99	3%
What is left (contribution)	USD 6.60	20%

Check: USD 33 minus USD 26.4 of costs leaves USD 6.60.

So what: The brand keeps USD 6.60, or 20 percent of what it receives. If the retailer takes 5 more points of the shelf price, the brand receives USD 3 less and its profit falls by about 45 percent, so the share of the price kept by the channel is the lever to watch, followed by advertising per unit.

Key measures(7)

Key measures (also called KPIs, key performance indicators) are the numbers people in this industry track. Ask for the first one or two early in a case.

Like-for-like growth
Sales growth without acquisitions, disposals and currency effects.
Typical: About 4 percent at L'Oréal in 2025; about 3 percent organic at Estée Lauder in its year to June 2026[1]
Gross margin
Sales minus the cost of making the products, as a share of sales. Glossary: Gross margin
Typical: About 74 to 76 percent at large brand owners (L'Oréal 74.3 percent, Estée Lauder 75.5 percent)[4]
Advertising and promotion share of sales
What the brand spends to create demand, as a share of sales.
Typical: About 32 percent at L'Oréal in 2025[1]
Sell-in against sell-out
Sales to retailers compared with retailers' sales to shoppers; a gap means stock is building up in shops.
Repeat purchase rate
The share of buyers who buy the product again within a set time.
Customer acquisition cost
The marketing spent to win one new buyer, mostly for brands selling online. Glossary: Customer acquisition cost
Comparable store sales (retailers)
Sales growth in stores open more than a year, plus online.
Typical: About 5.4 percent at Ulta Beauty in its year to January 2026[5]

First questions to ask

When a case lands in this industry, these questions get you to the numbers that matter.

Which tier (mass, prestige, dermatological, professional) and which categories are we in?
Which channels and countries bring the sales, and what share of the shelf price does each leave the brand?
What share of buyers buy again, and how has it moved?
How much is spent on advertising and promotion per unit sold, and what does it cost to win a new buyer?
Is sell-in running ahead of sell-out anywhere?

Value chain: where the margin sits

The value chain is the steps a product or service passes through, from the first supplier to the customer. Each step below shows how much of the value it keeps. More on value chains

Step 1: Ingredients and packaging: chemicals, oils, fragrance oils, bottles and jars
Medium margin
Chemical and fragrance companies such as BASF, Givaudan and dsm-firmenich; packaging makers
Fragrance houses earn well on their recipes; basic ingredients are traded at thin margins.
Step 2: Research and formulation: design the product and prove it is safe
Margin varies
Brand owners' labs, and contract labs for smaller brands
L'Oréal spent about 3 percent of its 2025 sales on research and innovation.
Step 3: Manufacturing: mix, fill and pack
Thin margin
Brand owners' own plants, and contract manufacturers such as Kolmar Korea and Cosmax
Making the product is about a quarter of a large brand's sales.
Step 4: Brand building: advertising, influencers, samples and shop displays
Fat margin
L'Oréal, Estée Lauder, Unilever, Procter and Gamble, Shiseido, LVMH, Coty, e.l.f. Beauty and many smaller brands
The brand earns the price premium, but must keep paying for it: L'Oréal spent 32.2 percent of sales on advertising and promotion in 2025.
Step 5: Distribution: importers and distributors for each country
Medium margin
Brand owners' own subsidiaries, or regional distributors such as Chalhoub Group in the Gulf
Step 6: Retail and online selling to the shopper
Medium margin
Specialty stores (Sephora, Ulta Beauty), drugstores (Watsons, Boots), department stores, airports, Amazon, Nykaa, Shopee, TikTok Shop, brand websites and salons
A specialty retailer keeps about 39 percent of its sales as gross profit (Ulta Beauty) and about 10 to 12 percent as operating profit.

Profit pool: who keeps the money

Where in the value chain the profit ends up, which is often not where most of the sales are. More on profit pools

Most of the profit sits with brand owners whose brands shoppers trust and rebuy, especially in skincare, dermatological beauty and fragrance, where prices hold. Retailers earn steady but smaller margins from traffic and loyalty, while ingredient makers and contract manufacturers earn the least, apart from the fragrance houses that own their recipes.

Cost structure(5)

The main costs, each as a share of revenue (the money from sales).

Cost of goods (ingredients, packaging, manufacturing): About 26 percent of sales at L'Oréal (gross margin 74.3 percent)[1]
Advertising and promotion: About 32 percent of sales at L'Oréal[1]
Selling, general and administrative costs: About 19 percent of sales at L'Oréal[1]
Research and innovation: About 3 percent of sales at L'Oréal[1]
Operating profit left: About 20 percent at L'Oréal; about 5 percent reported (11 percent adjusted) at Estée Lauder[1]

Benchmarks(5)

Typical figures for the industry, to check a client's numbers against.

Operating margin, L'Oréal (2025): 20.2 percent[1]
Operating margin, Estée Lauder (year to June 2026): 5.2 percent reported, 11.2 percent adjusted[4]
Operating margin, Ulta Beauty (year to January 2026): 12.4 percent[5]
Operating margin, LVMH Selective Retailing including Sephora (2025): About 9.7 percent[6]
World beauty market: About USD 450 billion, expected to grow about 5 percent a year to 2030 (an outside estimate)[10]

Typical cases(6)

Case prompts you might hear in this industry.

A prestige skincare brand's profit fell 30 percent while sales held. Why?
Should a European dermocosmetics brand enter India, and through which channels?
A Gulf fragrance house wants to double its sales in five years. How?
Should a global beauty group buy a fast-growing brand born on social media?
A drugstore chain in Southeast Asia wants to launch its own beauty brand. Should it?
A retailer asks a brand for 5 more points of margin. Should the brand accept?

Common traps(5)

Mistakes candidates make in this industry, and what to do instead.

Treating a 75 percent gross margin as profit. Most of it is spent again on advertising and selling.
Counting sales to retailers as demand when stock is building up in shops.
Assuming a brand that grew fast online will keep growing when advertising gets dearer or its creators move on.
Forgetting that a product claiming to treat a skin condition may be regulated as a medicine.
Reaching for a generic framework instead of the real driver of this industry. Instead, follow the shelf price down to the brand's profit and ask which step moved: the channel's share, the cost of goods, or the spend to win each sale.

What changed, 2024 to 2026(6)

Recent changes a case could turn on.

Growth slowed: McKinsey estimates the beauty market grew about 7 percent a year from 2022 to 2024 and expects about 5 percent a year to 2030; L'Oréal grew 4.0 percent like-for-like in 2025.[10]
China and airport shops cooled: L'Oréal's North Asia region grew only 0.5 percent in 2025, and Shiseido reported China and travel retail sales down 4.3 percent and an operating loss for 2025 after a large goodwill write-down on businesses it had bought.[9]
Fragrance led growth: Estée Lauder's fragrance net sales grew 10 percent in its year to June 2026, and L'Oréal completed its EUR 4 billion purchase of Kering Beauté, including Creed and 50-year licences for Bottega Veneta and Balenciaga, on 31 March 2026.[2]
Specialty stores gained: LVMH's Selective Retailing business, led by Sephora, grew 4 percent organically in 2025 and Sephora opened about 100 stores, and Ulta Beauty's comparable sales rose 5.4 percent and it bought the UK chain Space NK.[6]
Social media brands became takeover targets: e.l.f. Beauty agreed to buy rhode, which sold USD 212 million in its latest year mostly through its own website, for up to USD 1 billion in May 2025.[7]
New regions drove growth: L'Oréal grew 10.9 percent in South Asia, the Pacific, the Middle East and Africa in 2025, and India's Nykaa grew revenue 26 percent to INR 10,022 crore in the year to March 2026.[8]

Players by region(6)

Well-known companies in each region. You do not need to learn them by heart; they help you picture the market.

Global: L'Oréal
Estée Lauder
Unilever
Procter and Gamble
Shiseido
LVMH (Dior, Guerlain, and Sephora)
Coty
Beiersdorf (Nivea)
AS Watson (Watsons, Superdrug)
Europe: L'Oréal
Beiersdorf
Puig
Chanel
Douglas, Boots, dm and Rossmann (retailers)
Middle East: Chalhoub Group (Faces, and distribution for global brands)
Arabian Oud and Ajmal (fragrance)
Huda Beauty
Sephora and Noon
India: Hindustan Unilever (Lakmé, Dove)
L'Oréal India
Honasa Consumer (Mamaearth)
Nykaa
Reliance (Tira)
Purplle
Southeast Asia: Paragon (Wardah, Indonesia)
Watsons and Guardian (stores)
Shopee, Lazada and TikTok Shop
Sociolla (Indonesia)
United States: Estée Lauder
e.l.f. Beauty
Procter and Gamble
Ulta Beauty
Sephora
Walmart, Target and Amazon

Words to know(11)

Linked words have a fuller entry in the glossary.

Prestige beauty: High-priced beauty sold in department stores, specialty stores, airports and brand shops.
Mass beauty: Lower-priced beauty sold in supermarkets, drugstores and general online stores.
Dermocosmetics: Skincare sold in pharmacies and recommended by skin doctors.
Like-for-like growth: Growth without acquisitions, disposals and currency effects.
Advertising and promotion (A&P): Spending on media, influencers, samples and shop displays to create demand.
Sell-in and sell-out: Sales to retailers, and retailers' sales to shoppers.
Direct to consumer: Selling through the brand's own website, social shops or stores.
Customer acquisition cost (glossary entry): The marketing spent to win one new buyer.
Travel retail (glossary entry): Duty free and airport shops, important for prestige beauty and fragrance.
Contract manufacturer: A factory that makes products for other companies' brands.
Licence: The right to use another company's brand name, paid for with royalties.

Business model patterns

The ways of making money this industry follows. Spot the pattern in a new industry and you already know the first questions to ask.

Sources(13)

Facts checked on 1 October 2026. Worked examples are illustrative, shaped by these sources rather than one company's figures.

Go deeper and practise

Go deeper

The full lessons behind this brief, with sources and worked cases.

Practise it

Same pattern elsewhere

Industries that make money in a similar way. What you learned here carries over.

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