Gen-Z beauty trends drive Estée Lauder downgrade

By

Robin Driver

Published
Oct 30, 2019

Multinational investment bank Piper Jaffray has downgraded New York-based cosmetics company Estée Lauder from overweight to neutral, citing the changing beauty habits of teenagers, who are opting for more minimal makeup looks and one-stop products.

 
Piper Jaffray analysts Erinn Murphy and Eric Johnson highlighted the growth of the “VSCO girl” trend among Gen-Z consumers as a driving force behind softer cosmetics sales this year in a research note cited by CNBC on Monday.
 
Named after photo editing app VSCO, the trend involves a uniform summery look achieved through strong brand association, with VSCO girl favorites including Birkenstocks, Crocs, Pura Vida bracelets and Fjallraven Kanken backpacks.

More importantly for Estée Lauder’s rating, however, VSCO girls are moving away from color cosmetics, preferring natural looks using minimal or no makeup.
 
According to the Piper Jaffray analysts, the kind of beauty products that the Gen-Z adherents to the VSCO trend are interested in include lip glosses from the likes of Burt’s Bees, Glossier and Carmax, and face sprays from brands including Mario Badescu and Too Faced.
 
Murphy and Johnson were keen to highlight that the growth of this trend doesn’t have to mean the end for Estée Lauder.
 
“We continue to believe EL has significant room to grow from here,” said the Piper Jaffray analysts, pointing out that the company’s La Mer, Mac and Origin brands were “extremely strong” in Q1.
 
As noted by CNBC, it’s also worth bearing in mind the global strength of skincare, which accounts for more than 40% of sales at Estée Lauder, whose large and varied beauty brand portfolio also includes the likes of Clinique, Prescriptives and Bobbi Brown.
 
It’s certainly a segment that the company has high hopes for. Estée Lauder forecast sales growth in the range of 7% to 8% for fiscal 2020 after its skincare sales rose 15% to $1.59 billion in the fourth quarter ended June 30, 2019.
 
China – a rapidly growing market in the beauty sector –  also represents an interesting growth opportunity for the company, whose Asia-Pacific region saw sales increase 18% in Q4. On this point, Piper Jaffray also noted that the beauty group’s cosmetic retail sales remain promisingly strong in China despite ongoing trade tensions.
 
Estée Lauder is scheduled to report its full first-quarter financial results on October 31.