Youth-focused cosmetics brands are shining, but loyalty remains a challenge

“I want to be a lifestyle influencer one day. I see so many girls putting on makeup in front of the camera. When I see a new brand on Instagram, I make sure to buy it," she said.

Backed by venture capital and private equity interest, India’s cosmetics industry has seen roaring success in the past few years, with a clutch of new brands looking to offer world-class products.

Now, these brands are directing their attention to an emerging cohort of users—Gen Z, or individuals aged between 12 and 24. This represents a fresh challenge, since Gen Z’s consumption patterns differ widely from those of previous generations.

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Listed player Honasa Consumer, which owns skincare brands Mamaearth and Aqualogica, launched Staze, an affordable, youth-focused colour cosmetics range earlier this year. Last year, A91 Partners-backed SUGAR launched SUGAR Play, targeting teens and pre-teens.

Social media drives trends

Kaushik Mukherjee, co-founder and chief operating officer at SUGAR, told Mint, “With increased exposure to global fashion and beauty trends through social media and the internet, teenagers in India are becoming more conscious of their appearance and grooming. This led to a higher demand for cosmetics and skincare products tailored to their age group."

Venture capital (VC) investors are also looking to cash in on this growing opportunity. Delhi-based clean-beauty brand Blur India is in talks with several consumer-centric VC firms to raise pre-seed capital, according to a person in the know. Typsy Beauty, another youth-focused brand, has also been talking with investors, this person added.

“The new colour cosmetics startups being built are aimed at Gen Z-ers, who are more demanding. Founders in this domain will need to be as nimble as their consumers," said Archana Jahagirdar, managing partner at early-stage investment firm Rukam Capital.

Bumper growth

India’s cosmetics and grooming industry is projected to grow to $35 billion by 2035, with the consumption of cosmetics by teenagers increasing rapidly, according to a joint study by Assocham and MRSS India.

SUGAR Play saw its revenue grow more than 218% in the April-June period compared to the previous quarter, Mukherjee said, without sharing exact figures. It’s expected to be SUGAR’s fastest-growing range in the next 18-24 months, he added.

“With an overall cumulative quarterly growth rate of 173% across the last four quarters, we see our hypothesis around 100% alcohol-free, vegan, and cruelty-free [products] play out faster than we had imagined," the executive said, noting that the company is looking to double down on its bet by expanding the current portfolio.

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SUGAR Play’s current contribution to the firm’s overall revenue is only in single digits, but Mukherjee expects this to grow to the high double-digits in the next two years. He added that its importance to the overall brand can’t be overstated as it has attracted a completely new audience that is even younger than SUGAR’s median customer age of 24.

Gurugram-based Swiss Beauty is also seeing good traction from its year-old Craze brand, which has prompted it to hive it off as a separate brand under the parent firm, co-founder and director Mohit Goyal told Mint.

“We’re seeing good traction with the line, so it makes sense to let it have its own visual identity. While it will derive some attributes from the parent brand, Craze will continue focusing on the ever-changing trends among Gen Z," Goyal added.

Loyalty challenge

Rukam Capital’s Jahagirdar believes that while the youth cosmetics segment is growing quickly, brands need to figure out how to build a sustainable business around a customer base that is spoiled for choice. A distinct characteristic of Gen Z is that they are open to experimenting with brands, she said.

“User retention will play a key role in unlocking the next phase of scale for these brands. To achieve this, introducing out-of-the box products with a shorter turnaround time is essential," Jahagirdar added.

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Swiss Beauty’s Goyal said the company aims to launch new products every month and will keep up this momentum for Craze as well. “We plan to launch 10-12 new products in the next 2-3 months," he said.

Another key problem area for these companies could be their ability to keep up with trends. In the age of social media, new-age cosmetic brands could face the heat from ever-changing beauty trends, which could force them to speed up innovation, according to Jahagirdar.