In gloomy periods gone by, shoppers continued to seek out little luxuries: a lipstick instead of a designer handbag, or a fragrance in lieu of a gown.
This story first appeared in the June 27, 2008 issue of WWD. Subscribe Today.
This time around, practicality has set in, as consumers begrudgingly absorb the ballooning costs of energy and food prices.
“Beauty is the last sacred cow to go,” said Goldsmith & Harris analyst Gary Giblen, adding that this downturn also has dented sales of children’s goods, pet care and food — categories usually seen as recession-proof.
Industry experts polled said it may be too early to tell whether consumers are curbing beauty spending, but collectively their comments and data underline the reality that the environment is just plain tough.
Traffic has thinned in department stores and in tony beach towns, like East Hampton, N.Y., observed Allan Mottus, an industry consultant. “It’s not a good sign for the economy.” In past downturns, people always seemed to scrape up enough extra cash to splurge on a lipstick. “This downturn is different,” said Mottus.
Wendy Liebmann’s firm WSL Strategic Retail polls shoppers every six months on their confidence levels and what categories they are buying and which they are cutting back on. The most recent study reveals that 65 percent of the 1,500 shoppers surveyed in May said they pulled back spending across the board, compared with 43 percent in the year-earlier period.
“Now it’s as if we got into the last level of cuts,” said Liebmann, co-founder and chief executive officer of WSL, adding that in addition to cosmetics consumers also are reining in purchases of hair care and skin care.
WSL’s findings indicate that 59 percent of women cut spending on cosmetics, compared with 55 percent in the year-ago period; 55 percent lessened skin care purchases, compared with 32 percent the prior year, and 51 percent trimmed hair care spending compared with 32 percent. To compensate, WSL found shoppers are trading down to less-expensive brands and stores, using less and finishing products before buying replacements.
Sheila McCusker, editor of IRI Times & Trends, published by the Chicago-based market research firm Information Resources Inc., declared, “We view this time as an economic transformation.”
She also noted that mass market shoppers are reacting to financial pressures by making changes, including trading down to private label products or lower-priced brands. “Should they do these actions two or three times, they could become habits” — habits that could be maintained well after the storm clouds dissipate, she forecasted.
McCusker, who researched IRI’s recent economic study, “Competing in a Transforming Economy,” said consumers with a household income of less than $55,000, who account for 60 percent of the population, can’t afford their groceries. After all, the price of basic grocery list items — including eggs, pasta and milk — has surged 30 percent since January 2006, according to IRI. What’s more, those little beauty luxuries, like lipstick, have also gone up in price. IRI reports that the prices of mass market lip cosmetics have increased 12 percent during the same time period.
McCusker said IRI is seeing declines across most major beauty categories. In the first quarter of 2008, mass market lip cosmetics sales volume decreased 7.7 percent, women’s fragrances dropped 3.3 percent, hair styling gel was down 7.7 percent and nail cosmetics dipped 4.6, according to IRI, which excludes Wal-Mart. Eye cosmetics inched up 1.7 percent. Demand also is slipping for basic products, like shampoo and conditioner, noted McCusker, as families take a “family usage approach,” buying one shampoo, for instance, instead of several to suit the needs of multiple family members.
“We don’t expect any relief for consumers or the industry until the second quarter of 2009,” said McCusker.
With little extra money to spare, IRI has found many shoppers are heading to super centers (or mass retail outlets with grocery departments) to stretch their funds. In fact, super centers’ share of mass market beauty and personal care sales gained 2.3 points to 20.6 percent in the most recent quarter, which McCusker deemed a “very significant” rise.
Department stores are also feeling the aftershocks of consumers’ spending restraint. In the first quarter of this year, beauty sales slid 13 percent, with all categories struggling, said Karen Grant, global beauty industry analyst at The NPD Group. She said first-quarter results were the worst the tracking firm had seen in a decade. Grant noted that January was particularly bad because there was an extra week in January 2007 versus January of this year, which negatively impacted overall first-quarter trends. However, another significant issue was that sales in February and March also declined, a trend that NPD had not seen in prior years.
Heading into the second quarter, sales began to rebound somewhat as new products began to be launched, and makeup and skin care sales gained momentum.
“Beauty is a category where consumers go for escape,” said Grant. “People gravitate toward it and that’s what we are seeing so far in the second quarter.”
As they have done over the last year or more, department store retailers trimmed inventories to quicken product turns, which in some cases has resulted in out-of-stock items and dampened sales, commented several beauty executives.
But among the storm clouds there are rays of sunshine. Mottus said the success of specialty stores, like Sephora, shows there’s currency in catering to beauty aficionados. Also, sales have followed enterprising beauty executives, said Mottus, naming Bare Escentuals’ ceo Leslie Blodgett; Lyn Kirby, president and ceo of Ulta; Philosophy’s founder, Cristina Carlino, and makeup artist Bobbi Brown.
“They have all have grown small companies into large ones,” said Mottus.
When asked whether beauty firms should rein in new product launches during tough times, or get assertive, Giblen said, “It cuts both ways. On the one hand, given consumers are strapped, newness is the key to sales. On the other hand, spending a lot on advertising could be risky if you are pushing on a string of a weak economy.”