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Prestige Market Still Reeling

Dismal. It is a picture that many beauty retailers, manufacturers and industry observers painted in describing this holiday season.

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Dismal.

This story first appeared in the January 9, 2009 issue of WWD.  Subscribe Today.


It is a picture that many beauty retailers, manufacturers and industry observers painted in describing this holiday season, which saw the bottom fall out of categories like prestige fragrance and smaller losses in makeup and skin care.

And the spring season will not be much better, at least in the view of one major department store retailer. “The business is going to continue to be difficult more because of the macroenvironment; business in general will be difficult,” said Jon Pollack, executive vice president and general merchandise manager of Belk Inc. “We’re going to be looking at negative growth through the first half of the year — that’s basically how you have to look at it. The business will continue to be difficult. Down is down.”

He added, “We are focused with our assortment and approach and we will be weathering it and dealing with it the best we can. We’re going to take the lumps along with the rest of the luxury market.”

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However he harbors some optimism during traditional gift giving periods, such as Valentine’s Day, Mother’s Day and Father’s Day. “We are getting a response at key gift time frames,” he said. “Consumers showed for Thanksgiving and Christmas — it’s the time frames in between that will be difficult.”

The NPD Group quoted data from November, the latest figures available. Prestige fragrance sales plunged 19 percent in November; skin care was down 11 percent while makeup dropped 10 percent. There were also estimates for December and beyond by industry sources, who spoke not for attribution. December sales for fragrance sold in department stores were down 10 percent to 15 percent, color cosmetics and treatment skidded by 4 percent to 7 percent, while the entire prestige beauty category was down 7 percent for the holiday month.

Looking forward into the spring, industry executives are projecting the first quarter beauty business will be down by 15 to 25 percent. The first quarter represents the smallest business of the year, and they expect the early pain to be eased during the ensuing months by later gains.

Many observers attributed the Christmas collapse to consumer reluctance. Once they did start spending, it appeared to be on themselves.

“The markdown-proof category was on sale as has never been seen before,” said one specialty store executive, speaking not for attribution. “This retail climate represents a drastic change in attitude which happened dramatically fast. Even people who have money are getting spooked and holding tight to their dollars.”

Returns also followed a new paradigm, said the executive. “In the past, if a person received, say, a fragrance they didn’t like, they might have shoved it in a drawer or only used a bit of it. This holiday season, they brought back those unwanted beauty gifts and exchanged them for things they actually needed and use daily, like skin care, foundation and mascara.”

Heading into the holidays and due to a shift in the timing of Thanksgiving versus the retail calendar in 2008, sales during the week after Thanksgiving were predominantly counted as December sales, noted Karen Grant, vice president and global beauty industry analyst for the NPD Group.

“November was tough,” Grant said, noting that in 2007, Thanksgiving fell on Nov. 22. “November results were horrific because of that shift.”

Overall, prestige beauty was down 13 percent in November, and year to date through November, the category was down 3 percent. Fragrance dropped 5 percent, makeup was down 3 percent and skin care was flat.

“It was definitely the first year we saw prestige beauty experience a decline,” Grant said. As for Valentine’s Day, Mother’s Day and Father’s Day, “People will still shop to some degree, but it will be more difficult for them to [part with] discretionary income,” said Grant. “What will drive growth is when people go beyond replenishing.”

The men’s fragrance category did “worse than women’s.” Year to date, men’s was down 7 percent, while women’s was down 4 percent. The bottom fell out of men’s in November, with a 20 percent drop, while women’s was hammered at a 19 percent loss.

On the plus side, there was growth in skin care gift sets, a $185 million business in 2007 that was up by 15 percent year to date for 2008. But it would be quite a long shot for skin care or makeup to overtake fragrance — a $1.04 billion set business, $676 million of which was generated by women’s scent sets in 2007 — as the new gift item, according to Grant. Year to date through November, fragrance sets were down, with women’s decreasing by 5 percent and men’s down 6 percent. Makeup sets were slightly down (minus 1 percent) year to date.

Grant and Lenka Contreras, vice president at the consulting firm Kline & Co., were on the same page.

“It’s been a tough year for many companies, and retail was really hurt,” Contreras said. “I don’t see a rebound until mid-year, if even then. Consumer confidence will need to be restored — however that will depend on the economy and employment.”

An observer in the supply industry, who requested anonymity, said brand marketers are pulling back: fragrance projects that were planned “are now not going to happen,” and the launches of scents that are in development may be delayed.

Returning to the past holiday, Belk’s Pollack said, “We were down in the midsingle digits [in beauty] overall. It was about consumer behavior and price points — there was really strong price point pressure, severe discounting in the whole [store], so competition for the consumer dollar was very difficult.”

As far as discounting, there was some vendor-driven repricing of value sets, but “that had no measurable impact on our [downward] trend.”

Pollack said women’s fragrance, especially because of the performance of new launches and classic scents, fared much better than men’s fragrance due to tough comparisons to 2007 in men’s. “Men’s was difficult,” she said. “There was not a lot of newness compared to the previous year — nothing to offset the prior launches a year ago.”

Much of the Christmas business, Pollack noted, came right before and after the holiday. “The first two weeks of December were difficult but the week after Christmas was the strongest ever for us,” he said. “People did wait until the last minute but they did come. Foot traffic the few days before and after [Christmas] were powerful.

“In general, color and treatment performed better than fragrance for the month of December and also year-on-year. I don’t know if [treatment will overtake fragrance as a gift item] but I do see more of a balance. I don’t see peaks in the fragrance business and that will be an ongoing challenge, because from a price-value perspective, there’s a lot of competition out there.”

Bluemercury founder Marla Malcolm Beck said, “Unfortunately, we never saw the big holiday rush, which usually happens the last 10 days before Christmas.”

She noted that results across her 26-store beauty apothecary chain were volatile, with some stores reporting sales growth of 40 percent over the holiday season, and others with flat sales.

Internet proved to be a bright spot with online sales up 27 percent, said Beck. Skin care and cosmetics were among the strongest sellers, with body and fragrance lagging behind. Beck said gift sets were the worst performing category this holiday, as shoppers focused on replenishment and buying new items for themselves.

Prior to the holiday season, many niche beauty brands had already scaled back their launch plans for spring, said Beck, adding she’ll begin talking to brands about fall 2009 plans in February and March.

“There’s a great selection for spring,” Beck said, adding that Remede, Molton Brown, MD Skincare and Bobbi Brown all have aggressive new product programs. “I’m excited about spring, but I’m worried about fall,” she acknowledged, referring to brands’ launch programs.


More from “Shaking Off the Holiday Blues”:
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