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Believing in the Beauty Boom

As the crucial second half gets underway, Pete Born takes the temperature of America’s top retailers.

Buzz can kill. That is the fear creeping into the beauty market as the fall retail season gets underway. There is an uncomfortable contrast between fact and feeling. Business is thriving; retailers from Wal-Mart to QVC to Macy’s to Lord & Taylor to Bloomingdale’s to Saks Fifth Avenue exude much more than their usual confidence. On the eve of the launch of Lady Gaga’s highly provocative new fragrance, innovation is running rife—particularly in makeup and skin and nail care—and the sales trend in the U.S. prestige market is holding solid, although some retailers felt a softening in June. As John Demsey, a group president of the Estée Lauder Cos. Inc., points out, skin-care gains spiked at 23 percent in March and the industry is now basking in the best fragrance business in at least a decade.

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But there is a chilling sense of uncertainty brought on by a sluggish economic recovery, foreboding news out of Europe and a sharply divisive Presidential election. “There is a lot of uncertainty and fear around the category,” says Karen Grant, vice president and global industry analyst at the NPD Group. “In each category, the big brands are supporting the category.” She speculates that the key factor in making fall a success is “convincing the consumer to come out and spend,” amid an abundance of innovation. The critical factor is getting the message across. “It’s the awareness,” Grant says. “Beauty has got to be the shining spot.”

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The year certainly got off to a promising start. According to NPD, total beauty in the prestige market was running 10 percent ahead through the end of May for year to date. That pace matches the 10 percent trend of 2011 for the same period. But last year’s gain was won against a much easier comparison—2010 eked out a mere 2 percent gain through May. This year has been “accelerating at the same pace as 2011 on a bigger base,” Grant says.

Wendy Liebmann, chief executive officer of WSL Strategic Retail, expects the consumer to be “waiting to exhale” in terms of holding back on spending for the next three or four months. “It is going to be not just about the economy, but the economy coupled with the election. There’s just going to be so much noise out there that people are saying, ‘Okay, leave me be. Wake me when the hairdresser comes.’” Until mid- November, Liebmann predicts consumption will be minimal as shoppers make do with purchases that are absolutely necessary. Then normal patterns will return.

Demsey acknowledges that the consumer is a bit flustered. “She’s confused,” he says. “She wants to spend; she’s a little nervous.” He describes the mood of the consumer right now as “craving value—but not at the expense of innovation.” She also is in a “promiscuous mood,” he continues, open to switching brands and with “a genuine appetite to experiment, to express herself.”

As a by-product of the product innovation, the fragrance market has “bifurcated” with an expanded consumer base of “young customers and new connoisseurs.” Artisanal brands like Tom Ford and Frederic Malle form the top, designer scents hold up the middle and celebrity fragrances add drive. Demsey also spots a connection in the resurgence of lipstick and increased activity in eye shadow— “gilding the lily.”

Although there may be some trepidation in the market after Labor Day, Demsey predicts “a powerful November and December,” once the election vote has been counted and the political tumult is over. He points out there will be one more shopping day before Christmas and a 53rd week in the retail year.

Perhaps, the shoppers most attuned to value can be found at Wal-Mart, where “the forecast looks very promising for the back half (of the year),” says Carmen Bauza, vice president of beauty and personal care at Wal-Mart Stores Inc. She has noticed “tremendous appetite for color,” with nail enamel leading the charge.

“Skin care has shown incredible growth,” she adds. “The pipeline is loaded with tremendous investment in R&D.” The innovation stretches from BB creams to antiage products to spot correctors and complexion-evening products. One big plus in Bauza’s mind is that Procter & Gamble’s Cover Girl has made a resurgence. The accent on value will be seen during the holidays when Wal-Mart expands its assortment of gift sets.

“The consumer is looking for newness, innovation and value,” says Claudia Lucas, director of beauty merchandising at the QVC home shopping network. “Since gift purchasing typically starts early at QVC, we will begin to roll out our holiday assortment in October.” Lucas says that the network is adding more airtime for beauty merchandising through the season. “Our approach this year is to be more targeted with our gift items, focusing more on depth rather than breadth of assortment.”

Muriel Gonzalez, Macy’s Inc.’s executive vice president and general merchandise manager of cosmetics, fragrances and shoes, is also upbeat. “I’m feeling very good,” she says. Although last fall’s huge numbers will be challenging to match, Gonzalez says Macy’s is loaded with ammunition in major introductions from Clarins and Lancôme, the new Lady Gaga Fame fragrance and a new Chanel No. 5 media campaign. The store is planning a more aggressive TV campaign, and Macy’s sales always peak during the holidays. Moreover, being a department store, Macy’s can build traffic with, say, a one-day sale, much more easily than a specialty store. “All in all, our business is solid with no question,” she says.

“Although the business has become somewhat softer in the last few months, we are still quite optimistic about the fall season,” agrees Howard Kreitzman, Bloomingdale’s vice president and divisional merchandising manager of cosmetics, noting the optimism stems from “the strength of our new initiative in our loyalty program, the continuing strong performance in the top end in skin care as well as what appears to be an ongoing strong women’s fragrance business.”

Greater innovation is also key at Saks Fifth Avenue, which, as a result, will be more aggressive this year in putting together its holiday gift assortment, according to Deborah Walters, senior vice president and gmm for cosmetics, fragrance and intimates. In terms of new fragrances, the store will be showcasing collections by By Kilian, Bond No. 9, Oscar de la Renta, an exclusive with the new Reem Acra fragrance, the addition of Le Labo and a Frederic Malle boutique. Jo Malone and Penhaligon also figure prominently in the gift picture. “The holidays look fantastic,” says Walters.

“We are pretty optimistic,” says Barbara Zinn Moore, group vice president of cosmetics for Hudson’s Bay Co., which covers The Bay and Lord & Taylor. The retailer is putting on a parade of sizeable launches, such as Lady Gaga Fame and Viktor & Rolf ’s Spicebomb, as well as Chanel’s new women’s scent. “We are planning strongly in a tough economy,” Zinn Moore says, noting that periods of softness are usually caused by lack of product. “As soon as we get new product in,” she says, “the customer responds.”