Why a Downturn Could Give Beauty Services a Boost

A wave of beauty start-ups is betting that customers will still want their fillers and facials, even in a recession.

Glossy storefronts from Botox and filler purveyors like Ever/Body and Peachy, as well as facial spots like Glowbar and Heyday are popping up all over New York, hoping to take procedures out of the dermatologist office.

“We can’t seem to keep up with demand … We have a waitlist at many of our studios, many days a week,” said Rachel Liverman, Glowbar’s founder and chief executive.

At a time when many brands are struggling to raise capital, investors are willing to make bets in the beauty service space: Heyday closed a $12 million round in December 2022 and Glowbar raised a $10 million round in January. Ever/Body closed a $55.5 million round in 2022, bringing its total funding to $110.5 million

The concept is not new — Glowbar, Peachy and Ever/Body were founded in 2019, Heyday debuted in 2015 — and, it already saw a boost during the pandemic as people spent more time staring at their own reflection on Zoom. But fresh factors are setting the stage for renewed growth. TikTok spawned extra interest amongst young consumers. Economic circumstances have more investors looking to beauty for its relative stability. And landlords and retailers, hoping to hedge against potential decreases in foot traffic, are welcoming providers. It’s the same dynamic that fuelled the rapid growth of an earlier generation of services chains, including Drybar, in the wake of the 2008 financial crisis.

Expansion brings new challenges, including finding and retaining talent; increased competition from both single-service providers and legacy beauty labels; and acquiring new consumers in a business built on habits and loyalty.

The Service Surge

While Zoom deserves partial credit for beauty services’ rise in 2021, in 2023, it’s TikTok that’s responsible.

With its get ready with me and day-in-my-life videos, TikTok puts people’s faces front and centre. To boot, more treatments are available and consumers are indulging, furthering that content flywheel.

“Ten years ago, even the most avid beauty service connoisseur was getting a facial, what, every six weeks?” said Alexis Wolfer, associate partner at McKinsey & Co. “Now it’s the facial, the laser, the chemical peels, the Botox. All of those require regular cadence, that is all driving growth.”

Services also offer a safety net to retailers prepping for a decrease in footfall. Nordstrom’s New York flagship partnered with Dr. Dennis Gross, and Saks Fifth Avenue inked a partnership with New York-based Skinney Medspa in 2022 to put concepts in its New York, Miami and Houston stores.

“In a recession, you shy away from big things … you don’t forgo the $100 investment in your monthly facial,” said Chris Kenny, managing partner of growth equity firm L5 Capital Partners, which led Heyday’s latest funding round and its franchising initiative.

That perceived stability and the venture backing many companies come equipped with makes them appealing to landlords looking to fill empty storefronts. These providers often offer membership models, which guarantee regular visitors and cash flow. Because they’re considered amenities, they add value to other tenants.

“This is something that drives traffic to a building. If you have a facial place next to a cafe, more than likely your shoppers are going to get a coffee afterwards,” said Corey Schuster, broker at Douglas Elliman.

Botox and filler shops are jumping at the opportunity for better lease agreements. Alchemy 43 plans to add 26 locations this year, while facial bars FaceFoundrie and Skin Laundry announced plans to substantially increase their brick-and-mortar count by the end of this year. Service companies are intent on crossing borders too. Canada’s FormulaFig, which does facials and fine line treatments, touched down in California in November 2022, while face muscle workout concept and tool purveyor FaceGym set its sights on a deeper expansion into Europe, Australia and the Middle East.

The Money Follows

The beauty services sector is expected to grow at a compound annual growth rate of 7 percent through 2027, according to McKinsey. And where consumers go, investors follow.

“A lot of those decentralised clinics are not sharing best practices,” said Brian Yee, partner at VC Acme Capital, which led Ever/Body’s latest funding round. “They’re all competing with each other. It gives you more surface area to build an inflection point, and scale from there.”

With their formats, companies also feel they’ve tapped a consumer that’s entirely new to beauty services: around 30 percent of Heyday’s first-time customers have never had a facial, said Adam Ross, Heyday chief executive.

Outside opening more doors, brands are buoying margins by introducing their own products. Ever/Body has a few of its own products, and sees it as a big opportunity for growth, said chief executive Amy Shecter. Heyday will start debuting its own products in June. Margins for services sit around 5 to 20 percent, while for beauty products range from 55 to 80 percent, according to McKinsey.

Kenny added that the information collected through personalised facials and ensuing product sales could set Heyday up for better product partnerships, and eventually, a stronger exit.

The Road Ahead

Despite positive momentum, the next phase will present new challenges.

For one, many concepts are concentrated in cities like New York and Los Angeles. Whether those companies can generate as much success in the suburbs remains to be seen. Procedure regulations often vary by state and could change as the industry firms up, which would make expansion more costly and complicated. Ever/Body has started creeping out of New York by opening a location in Washington DC. Heyday inked plans to open 30 franchised locations across the US, including Texas, Florida and Colorado.

Competition for consumers — who tend to stay loyal to the provider — is fierce. And, bold expansion plans could precipitate a war for talent as a labour crisis looms in the backdrop.

“This is what I hear CEOs in the space talk about the most: How are we going to acquire the right talent to deliver the level of services we want to provide?” said Wolfer.

The category is already promotional, and more attention from venture capitalists could set off a race to the bottom with heavy discounts to gain market share, said Yee. While finding a balance between manageable and winning growth is always challenging, the timely and hyped nature of the category could make that even more difficult.

“I have watched so many services businesses grow too fast, and lose control and then flounder,” said Liverman. “It’s important to me to make sure we were building something that’s sustainable.”