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The beauty business ain’t singing no double-dip blues. The more dismal the financial news, the more the numbers dance down at the local store.
This story first appeared in the October 14, 2011 issue of WWD. Subscribe Today.
“The business right now is incredible,” says Karen Grant, vice president and senior global industry analyst at The NPD Group. “We’ve never seen anything like it.”
Total beauty is up 10 percent for year to date through August in U.S. department stores, according to NPD, and market reports for September are strong. This compares with only a 2 percent gain for the same period last year. In the mass market—not including Wal-Mart—beauty and personal care sales are up 2.4 percent in units and 1.3 percent in dollars for the last year, a mark that outstrips all other categories, such as health care, that are tracked by the SymphonyIRI Group, according to consumer trends editor Susan Viamari. She notes that a host of innovative products, ranging from skin care to eye and face makeup to at-home beauty treatments, are stealing business from department stores and salons alike.
“It’s the result of a bifurcation of the economy into tiers,” says John Demsey, group president of the Estée Lauder Cos., who sees the market split between those economically squeezed consumers of moderate means and those who can afford and are increasingly indulging themselves in “small luxuries,” which Grant defines as costing $200 or less.
Estée Lauder chairman William Lauder envisions the typical consumer as saying, “I’m not going to spend my money on a new blouse or a new handbag, but I will spend some money on myself to make myself look and feel better.”
Demsey notes, “We’re seeing interest in high quality products, trusted brands and things that are new.”
Grant, whose analysis coincides with those of Demsey and others, observes, “People are spending less often, but spending where it’s worth it to them.” She adds that sales are strong in both the high and entry price points; consumers are looking for emotional gratification. Grant notes that there has been a unit growth of 6 percent, but the average price being paid is up 4 percent, which means the consumer is trading up to higher value products. Or as Grant says, “affordable indulgences,” which also has been seen in footwear and handbags.
Wendy Liebmann, chief executive officer and chief shopper of WSL Strategic Retail, says not only are the products viewed as affordable by those who are able and willing to spend money again, but innovation is a key driver, too. Couple this with the fact that companies have become more aggressive with their advertising (magazine pages are up 10.8 percent for this year, according to the Publishers Information Bureau) and making more muscular use of social media. Online channels are also stepping up the pace. Liebmann notes that the major beauty companies have decided, “We’ve got to get on with it. We need to innovate, we’ve got to create value and we’ve got to create a value experience.”
Grant agrees, “The manufacturing companies have taken more of a lead in product ideation, showing slightly more inventiveness and playfulness that has been lacking, and taking a stand.” Don Loftus, president and ceo of P&G Prestige, Inc., says, “Both the retailer and manufacturer have done an excellent job of carefully choosing their investment priorities, developing sound strategies and then executing strategies with perfection. Even the shopping environment has improved, with renewed focus on training, merchandise assortments and customer service.”
It’s working. According to Grant, the skin care and makeup categories have already surpassed prerecession figures for 2008 and fragrance could follow suit in the third and fourth quarters.
Thus far this year, the fragrance category is up 11 percent year to date, compared with last year’s minus-2 percent. Skin care is rocketing ahead with a 13 percent gain this year, ahead of last year’s plus-7 percent. Makeup is ahead by 9 percent for 2011, eclipsing last year’s 2 percent gain.
Some manufacturers give Macy’s credit for spurring the resurgence. “We have had a robust spring season and the fall is starting off better,” says Muriel Gonzalez, executive vice president and general merchandise manager for cosmetics, fragrances and women’s shoes at Macy’s. Strength is seen across all categories, especially in skin care and the high-loyalty category of foundation. Gonzalez says the business is continuing on a record pace and “fragrance is very positive as well,” adding that the store has done very well with the new high tech serums and creams from Lauder, Lancôme and Clinique. “We think it will be a very good holiday,” Gonzalez maintains.
At Nordstrom, Laurie Black, executive vice president and general merchandise manager of cosmetics, declares, “We are planning to our trend,” which is “better than last year.” Pointing to Lancôme’s Visionnaire, Lauder’s Idealist, Chanel’s foundation and Clinique and MAC products, she says, “Every brand has really, really strong items driving the customers into the store. There are so many hot items in the market and we are going to go with those. The customer is responding so we are going to go for it.”
Apparently, that goes for classic brands, too. Joel Ronkin, vice president for North America at Elizabeth Arden, observes, “When times are tough, consumers go back to brands that they can trust.” But not without a bit of newness, so Arden did some reinvention. Its 1989 fragrance, Red Door, was dressed in a new bottle and advertised on TV for the first time. The result? Sales jumped 20 percent.
David Greenberg, president of Maybelline New York-Garnier at L’Oréal USA, noticed that nail color was leaping 20 and 30 percent in June and July. He saw it as a bellwether of what he now calls “a year of accelerated growth. Everyone is making a full-court press with ambitious goals,” he says, adding that mass retailers are even adding food items to increase foot traffic.
There are lingering fears, however, that the market could precipitate another downturn by doing something rash, like slicing inventory. “We could be talking ourselves into the worst recession since the Twenties,” says Bernd Beetz, chief executive officer of Coty Inc., who says he gets upset whenever he reads the news. “But when I look at my company numbers,” he notes, “I get very joyful.”