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Major Beauty Companies Play Down Inflation Fears

Inflation in the U.S. is at a 40-year high.

Inflation fears are dominating the news, from higher prices at the pumps to the rising cost of food at grocery stores, with President Joe Biden warning Tuesday that it is “sapping the strength of a lot of families.”

But major beauty companies appear to be less worried about its potential impact on both their top and bottom lines despite inflation reaching a 40-year high in the U.S.

Speaking at the Deutsche Bank Access Global Consumer Conference in Paris, L’Oréal chief executive officer Nicolas Hieronimus told an audience of investors that he believes inflation is something that the world’s largest beauty company can “manage.”

“We are managing inflation. We’ve seen neither a slowdown today or a trade down,” he said, explaining that there were some price increases at the beginning of the year. “And if there is a trade down ever then we have the mass market products that are there to cater for consumers, who may need this to have more affordable products.”

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For now, he added, “people seem to be trading up a bit more than down so we can do another one in July on the relevant products so it’s a very progressive approach and we are making sure that we keep growing our volume and our value and the fact that we have these four divisions and within the divisions different price points allows us to be accurate and tactical in the way that we manage our price increases.”

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Chief financial officer Christophe Babule echoed this confidence, stating that “inflation seems to be a very new thing in Europe or in North America, but as you can imagine where you’re already in 150 countries, we’ve been managing inflation for many, many years so we know how to tackle that.”

Over at the Estée Lauder Cos., CFO Tracey Thomas Travis stressed that the fact that the company is in the prestige and luxury category gives it pricing power. “It is a key enabler and a key benefit, if you will, of being a luxury and prestige company. And we do expect to take pricing, as well as we have accelerated some of our cost-saving programs to offset the impact of inflation.”

This year, recognizing that it would be facing a higher inflationary environment, on average, prices increased around 3.5 percent. Nevertheless, it continues to see consumers, particularly in emerging markets, trading up into prestige beauty.

And at Coty Inc., whose products include Covergirl, Kylie Cosmetics and Lancaster, among others, CFO Laurent Mercier said: “Of course it’s a reality. We shared in Q3 that it’s an impact of about 150 basis points in our gross margin. Having said that, you just saw the results. After three quarters our gross margin is improving by more than 450 basis points.”

Their comments fit in with those of Dave Kimbell, CEO of Ulta Beauty, who spoke to WWD last week in an exclusive interview.

“We are optimistic about the path ahead,” Kimbell said. “We see stronger-than-planned growth for the year. We are trying to stay very connected to our guests in the macro environment, which is a composite combination of influences that we’ve never seen before. There’s a lot coming at consumers, which does introduce uncertainty.

“But I also think that it can lead to continued engagement in the beauty category,” he continued. “Even in this environment, people still want to go out and be around others and beauty is an important part of that. But we’ve also seen that in times when consumers want to take care of themselves, beauty plays a role in that.”

 

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