I honestly think ebay did multi-variations to unclog site, then when fees lowered they no longer offered quite the appeal. I think also when they started duplicate listings ban some sellers quit using multi-variation then also, as they realized they are being seen once, rather than say if they have 20 color t-shirts in 4 sizes they would be seen much more. (I think they somewhat shot themselves in the foot with some of this)
By the way...your presumptions on the viability of variation listings, is more about how each seller decides to use the function. Some interested sellers on the Clothing & Accessories board did some testing on search algorythms. We learned some interesting details about variation listings. (and misunderstandings) And also some obvious bugs in "Best Match" search, which I am of the understanding, eBay is/was still tweaking at the time.
Just a factoid I learned, again using my winter gloves as an example, but if you search on a "color" of stretch gloves, it will return results on your variation, even though you don't have that "color name" in your listing title. For me personally, saving those listing fee's every month, for each pair of gloves, is worth far more to me, than some hypothetical exposure benefit to having more listings.
As a buyer, I find this format far preferable than having to search sellers other items to see if the item comes in additional variations. In fact today, I made a purchase, on a variation listing. It was fantastic being able to see, at a glance, that certain color variations I may have preferred were simply sold out. Last week, I made purchase from another seller, who like you, also sells "beauty and cosmetic" items. (Avon) Again, it was nice being able to make a selection from similar items, in different scents or flavors from one listing.
As a seller, it allows me to sell lower profit margin items, that I may not bother with, if I had to run multiple listings on them. The listing preparation work only needs to be done ONCE, on a good til cancelled listing. Then I don't have to think about it again...except to FILL orders. Of course, this does require forsight and advance planning, from the sourcing stage. I promote my combined shipping discount extensively, to encourage buyers to browse for other items.
I'm so enthusiastic about the variation listings, that when I buy wholesale inventory, I do so, with the intention of creating variation listings in mind. So far, I have been able to manage my eBay fee's quite well, paying only for a basic store subscription. Presently, I only have 77 active listings, but 174 inventory results in my store, with the variations. (Which is why I pay .20 cents per month, as opposed to your .05 cents per listing.) You pay more for your store subscription than I do.