Taking advantage of the ‘lipstick index’: investing in the beauty sector
“…Amirose develops formulations for personal care products. The company serves some 75 customers and 200 brands across the skin care, deodorant and fragrance lines, and has a particularly strong presence in the hair care sector…”
Through lockdowns, the rise of online shopping, and today’s economic and geopolitical uncertainty the beauty sector has continued to demonstrate its capacity to shine brightly in challenging economic conditions.
Estée Lauder heir Leonard Lauder coined the term the ‘lipstick index’ to refer to the phenomenon of beauty brands holding up and even prospering in the wake of the 2008 financial crisis. Recent research indicates the theory continues to hold good, as consumers turn to luxuries such as beauty and skincare products through economic thick and thin. That means opportunity for investors willing to look closely at personal care brands and the companies that support them.
Making space for personal care in tough times
Barclays’ most recent paper on the UK industry, for the year to August 2024, reported that health and beauty thrived amid the challenges facing the wider retail sector, consumer spending on personal care rising by 7.3pc year-on-year.
The pandemic, the subsequent rise of remote working, and consumers’ increasing immersion in social media drove a significant and sustained increase in spending on cosmetic products, capital market insights firm Pitchbook reporting that over $1.5bn was invested in beauty companies in 2021, some $600m more than in 2019.
Barclays found that more cosmetics products are being sourced and purchased online, noting that 27pc of those surveyed have bought beauty and skincare products and 17pc fragrances on platforms such as Facebook and Instagram.
And as sales have increased beauty products have become ever more entrenched in consumer spending patterns: almost half of respondents said they now rank health and beauty products to as an essential product category, comparable with groceries and childcare. Consumers have maintained or even increased their spending on pharmaceuticals (68pc), hair care products (66pc), body care products (62pc) and fragrances (54pc). Indeed nearly a quarter have cut back on clothing and accessories so that they can spend more on health and beauty.
Customers’ capacity to continue to buy beauty products within straitened budgets had been facilitated by the increased availability of ‘dupes’, affordable products that mirror more expensive versions in quality, formula and appearance. Almost a third of respondents have been able to find cheaper alternatives through viral videos on TikTok and other platforms.
Barclays’ report follows research by McKinsey published last autumn reporting that global beauty market retail sales grew to $446bn in 2023, up 10pc from 2022, beating industry forecasts across nearly all regions. The consultancy expected the beauty sector to grow by 6pc year-on-year, reaching $590bn by 2028.
McKinsey found strong growth in both established and emerging markets. Retail sales in North America, which accounts for a fifth of the overall beauty market, grew by 9pc over the previous year, and growth was up 10pc in Europe. Indian sales increased 10pc, driving the performance of the Asia-Pacific, the largest region by retail sales. The MENA and Latin America regions recorded the fastest growth, up 18pc and 17pc respectively.
New challenges, new opportunities
This year the picture has been somewhat clouded by economic uncertainties regarding the imposition of tariffs, and continued geopolitical tensions, with major brands such as Coty (NYSE:COTY), LVMH (EPA:MC), L’Oréal (EPA:OR), Estée Lauder (NYSE:EL) and Shiseido (TYO:4911) reporting sluggish growth. But the market continues to offer opportunities for nimble operators. As TikTok and Amazon pressurise ‘traditional’ full-price retailers consumers are becoming ever more attuned to deals, discounts and promotions, and are able to choose from an ever wider variety of enterprising independent brands with the street smarts to take advantage of online channels. It is clear that innovation and individuality will more than ever in the future.
Over in the US beauty group e.l.f Beauty (NYSE:ELF) has made waves by paying $1bn for rising star Rhode, led by Hailey Rhode Bieber, entrepreneur (and wife of Justin Bieber) with more than 55 million Instagram followers. And in the UK the Frasers Group is pursuing branded cosmetics firm Revolution Beauty (LON:REVB), popular among younger consumers through collaborations with TV shows such as Love Island. Revolution put itself up for sale last month after struggling with the fallout of investigations into its accounting practices and an expensive settlement with founder Adam Minto. But Frasers, owner of retailers ranging from House of Fraser to Evans Cycles, is focused on the fundamentals, recognising Revolution’s potential to bring a new dimension to its retail empire.
The continued strong performance of another leading brand, Warpaint (LON:W7L), is also exciting markets. Warpaint, which has increased in value by more than 500pc over the past five years, sells products tailored to different demographics under names including W7, Technic, Man’stuff, Body Collection and Chit Chat. It acquired a new cluster of brands, including Skin & Tan, Super Facialist, Dirty Works and Fish Soho, earlier this year.
The company’s growing strength was highlighted by a well received annual report published earlier this month, which reported expected sales for the six months to the end of June of just over £50m, up from £45.9m for the previous six months. Warpaint is selling at a significantly higher margin than in the previous year, and expects sales for the full year to be heavily second half weighted as new products are rolled out through in time for Christmas. The company continues to report a strong balance sheet, with no debt and cash of £15.8m, up from £5.5m year-on-year. A research note by analysts Shore Capital notes Warpaint’s resilience through headwinds generated by tariffs and broader consumer uncertainty, praising the company’s capacity to demonstrate ‘excellent control in choppier waters’.
Amirose London: an opportunity beyond the big name brands
Warpaint’s performance highlights the opportunities presented by lesser known companies that play a vital role within the industry through the provision of contracted services. Amirose London Holdings (AQSE:ALH), which joined the Aquis Exchange earlier this month, is particularly well established, offering a full suite of manufacturing and advisory services for a host of global and boutique premium brands, including Warpaint, from a manufacturing base that opened in 2000.
Amirose develops formulations for personal care products, sources packaging, bulk manufacturing, filling and distribution, and helps clients navigate the regulatory and compliance framework required to bring a product to market. Or in other words, everything necessary to bring a product from the drawing board to the retailer.
The company serves some 75 customers and 200 brands across the skin care, deodorant and fragrance lines, and has a particularly strong presence in the hair care sector, big name clients including Philip Kingsley, Murdoch, Umberto Giannini and Nicky Clarke. As such the company is well positioned to benefit from the continued growth in the hair care industry propelled by the so-called ‘skinification’ of hair: the introduction of elaborate routines and specialised products imported from the skin care sector.
Amirose joined Aquis on 6 June at 3.25p, raising £300,000, by means of a reverse takeover by investment company File Forge Technology, which had previously invested in biotech, life sciences and cryptocurrencies. The newly-listed company wants to use the capital generating opportunities presented by the IPO to pursue a fresh strategy focused on taking equity stakes in its high profile clients.
Amirose’s leadership includes Non-Executive Director Mitchell Field, a well known industry figure with more than 50 years of experience of building firms within in the health and beauty manufacturing sector. Mr Field is the co-founder of cosmetics firms including Richards & Appleby and Prestige Personal Care, and has recently negotiated acquisitions of spa wellness company Pevonia UK and premium haircare brand We are Paradoxx. CEO and CFO Michael Heath has more than 10 years of experience in the personal care manufacturing industry, and Non-Executive Chairman Aleksandra Binkowska is founder and CEO of London-listed Hydrogen Utopia International PLC.
Speaking to TMS earlier this month Mr Field said: ‘By taking interests in brands we secure the value of the company because we’re basically getting two bites of the cherry. We get one with our investment in the brand itself and our participation in the equity of the name, the trademarks. And of course, we also make a decent margin in the contract manufacturing, and we foolproof our competitive element. It also means that if the brand gets sold we have some interest in the outcome of that sale.’
He said that after undertaking a rigorous programme of shedding low margin businesses Amirose is more profitable than it has ever been. The company reported turnover for the year ended 30 March 2024 of £12.7m. Sales and profitability in 2025 are already showing improvements with average monthly sales Feb>June at around £1.3m which is above 2025/26 estimates.
Mr Field said: ‘What makes us stand out is that the facility is 25 years old, it has mature systems, and a very wonderful bank of formulations developed over many, many years, updated regularly with innovation. It’s got all the processes and software, and an expert team.’ The company’s lean model offered a basis for rapid growth: ‘By rationalising we’re now only using 18pc of the capacity of the business … we should be able to reach £50m turnover without much investment.’
The fast moving and resilient beauty sector presents a treasure trove of opportunities for enterprising investors willing to do their research and take calculated risks. New brands are continually arriving through online channels, and well known names responding to the challenge. But investors can be sure that though the names may change, the figures show the human desire for beauty is constant, through tough economic times as well as good.
Amirose is deepening its collaboration with celebratory clients, fostering more intimate and tailored partnerships. Listen here to non-executive director and significant shareholder Mitchell Field explain more.
