All is not well in the mass market.
Makeup sales are on the decline in tracked mass-market channels, according to figures from IRI and Nielsen. But it’s not that lower-priced makeup isn’t selling — just that it isn’t selling as well in those specific channels and is instead ramping up sales online and in specialty retailers.
IRI’s figures show unit sales drops of 3.9 percent in facial cosmetics, 4.2 percent in mascara and almost 4 percent in lipstick for the 52-week period ended Sept. 10. Nielsen’s figures show a 3.7 percent decline in eye makeup, 7.2 percent fall in lipstick and 0.4 percent drop in facial cosmetics for the third quarter. There are some bright spots: Concealer and eyebrow products are growing, as are skin care-makeup hybrids. Cover Girl + Olay Simply Ageless Foundation, which was launched years ago, did $56.3 million in sales for the IRI-tracked period, up 17 percent.
But financial experts agree the numbers don’t tell the whole story.
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“When you talk to beauty companies in the industry, they’re like, ‘It’s not as bad as they’re making it out to be, it’s just those channels are down,’” said Jefferies analyst Stephanie Wissink.
“They’re measuring the distribution that is currently under the most pressure,” added Wissink. “There’s nothing capturing the growth markets, which is direct to consumer…it’s not catching [specialty retail] and it’s not catching Amazon.”
That Amazon point is a key one — for the most part, mass-market brands don’t have the same hesitation about selling to the e-tail giant as prestige beauty companies, plus it has been shown to drive sales. Revlon chief executive officer Fabian Garcia called out Amazon on the company’s second-quarter earnings call as a “significant source of future net sales growth” and said the brand had an 80 percent consumption rate on Amazon during the quarter. Garcia also noted Revlon is “underdeveloped” in e-commerce generally, and that online sales are an area of focus for the business.
E-commerce is also an area of focus for Markwins International Corp., though president Bill George described the business as “retailer-centric” at its core. Both Wet ‘n’ Wild and Physician’s Formula, two of Markwins’ core brands, have been testing e-commerce as a way to battle declining foot traffic in stores. Evelyn Wang, senior vice president of marketing at Wet ‘n’ Wild, noted that the brand’s e-commerce business is up 200 percent year-over-year, an indicator that consumers are indeed shopping mass beauty online. Physician’s Formula has significantly ramped up its own e-commerce business, and Markwins ceo Eric Chen told WWD that the brand does well on Amazon.
“There’s a finite amount of space at retail,” said George, of the Physician’s Formula business. “We’ve got all these ideas for innovation and a tremendous portfolio of proven performers, but we’re in a, ‘Which child do you like best?’ scenario. In those respects, the digital solution is great because the warehouse is unlimited.”
“Having e-commerce is a good test for us to see what products really do work for us and that way we can [plan] our smaller [retail] spaces better,” said Alice Chen, vice president of marketing at Physician’s Formula, who noted the brand relies on influencers and social media to drive traffic to its web site, and will be rolling out a “robust media plan attached to digital” next year.
Specialty retailers like Sephora and Ulta Beauty are also sucking shoppers out of mass-market channels, experts noted.
“The specialty proposition is drawing from mass, especially on the Sephora side,” said Wendy Liebmann, ceo of WSL Strategic Research. “The other [channel drawing customers] is digital, and it’s everything from Amazon…to brands like Glossier — these new emerging, smaller brands that have an online proposition [and] are attracting younger shoppers.”
Sephora, which has traditionally focused on the prestige beauty category, has become increasingly experimental with brands on the lower end of the price spectrum. The retailer is launching ColourPop, which sells $6 lipsticks and $8 highlighters, in November, and has toyed with things like the $9.99 Glamspin from Buzzfeed Product Labs. For its mass assortment, Ulta Beauty has recently added E.l.f., Milani and Sleek Makeup, is rolling out Morphe.
“People are preferring specialty because of the ability to trial, but also the ability to move across the continuum of prestige and mass with little effort. You can cross shop Maybelline and NYX within steps of Tarte…it’s mixing high-low, like she does in her wardrobe,” Wissink said, noting the high-low trend has taken hold in the post-recession U.S.
There are also larger lifestyle shifts in play that are affecting makeup sales, experts said.
“In this era of making my life less stressful, making my life easier, people are simplifying routines — including beauty,” said Liebmann of WSL. “We’re seeing people talk about wearing less makeup, we’re seeing people talking about simpler hair care and simpler skin-care products. We’re seeing lifestyle have an impact on purchasing.
“If you look at some of the brands out there — Milk Makeup or Glossier — they are certainly taking a simpler approach to what they’re offering,” she continued. “There aren’t as many [stockkeeping units], a simpler story, a more moderate color palette — they’re basics that you really need that make you feel less stressed about ‘am I getting this right?’”
Stifel analyst Mark Astrachan contends that there’s only so long makeup growth could continue to build. “It wasn’t sustainable,” he said. “You’re now in year three of a pretty strong acceleration in that trend, and it seems like skin care is now starting to do better,” he said. “You could argue there’s a natural progression — makeup creates skin problems to some extent — and people move back into skin, or the influencers online are getting older and focusing a bit more on skin care, so the trends are starting to move in that direction.”
Back in mass-market retail, large corporate consumer packaged goods companies have long been given shelf space based on their size, among other factors. But that doesn’t fly anymore, Wissink noted, and retailers are frequently giving priority to brands based on assortment and trendiness.
“You were able to buy space through scale, cost structure and margin advantage in mass and drug, and now the retailers are getting smart about what’s driving traffic…it’s this newness factor, so they’re allocating more and more space to these trend brands.”
Slowing foot traffic in the drugstore channel has forced brands to devise strategies that will help draw consumers back into the cosmetics section at brick-and-mortar retail.
“The drugstore has become so grab and go,” said Jeanine Recckio, a trend forecaster for the beauty industry. “The problem is the cosmetics department isn’t set up to be grab and go — it’s complicated, there are so many sku’s, everything is hidden behind plastic. No wonder consumers walk out and wait [to buy] until they get online.”
In California, Markwins is seeing success with both Wet ‘n’ Wild and Physician’s Formula as they navigate declining foot traffic.
“The way we try to solve this is using product innovation and certain exclusives at unique locations so that everybody has something to talk about,” said George. “If we’re not doing that, then look — it’s just as easy to sit in your pajamas and order online.”
Retailer-specific exclusives are one of several strategies that has kept Markwins-owned Wet ‘n’ Wild growing and gaining market share in both a category and channel that are facing continual declines. The brand’s sales grew 13.8 percent in 2016, fueled by blockbuster launches like the Photo Focus Foundation, MegaLast Liquid Catsuit Matte Lipstick and Megaglo Highlighting Powder and concealers.
“If there is something new and interesting at the product level, if you can offer a product that is enticing enough, you can get that foot traffic,” said Wang.
Wang noted that one strategy the brand has been using is to introduce limited-edition product ranges and break up the distribution between various retail accounts. For example, in September Wet ‘n’ Wild launched its limited-edition Fantasy Makers collection. The assortment consists of products created specifically for Halloween, including body crayons, paint pots and character stencils, as well as seasonal shades of existing products that are already proven performers — like the MegaSlicks Lipsticks and glosses, MegaLast Liquid Catsuit Matte lipsticks and a glittery eyeliner. The collection was designed around eight Halloween looks that Wet ‘n’ Wild created, including the Mystic Mermaid, Unicorn Queen, Fantasy Fairy and Catwalk Zombie. The brand seeded products and information about distribution with influencers to generate buzz around the launch and communicate to consumers where each product is sold.
“We know this is something consumers are responding to — we see on social media that consumers will go on treasure hunts to look for launches [at different retailers],” said Wang. Industry sources projected this year’s Fantasy Makers collection — only on sale in the U.S and a few doors in Canada for a period of a few months — will do $7 million in retail sales. Wang noted that Wet ‘n’ Wild launches these limited-edition products and sets multiple times a year.
While exclusivity is a key retail strategy for Wet ‘n’ Wild, Wang emphasized that the brand’s overall “fast-beauty” ethos — delivering trend-driven products at a quick-to-market speed and an attractive price point — is the core driver of its growing business.
“The consumer who is driving mass cosmetics in general is this makeup-enthusiast Millennial, and the interesting thing is that there are all these articles about Millennials spending money on extravagant things like avocado toast. But they actually crave value in their consumer products above all else,” said Wang. “That doesn’t mean they’re willing to buy cheap products with poor aesthetics — they’re looking for products that deliver that [quality] for their dollar. ”
At the helm of Wet ‘n’ Wild, Wang’s focus has been to deliver trend-driven products — think highlighters, glitter and a filter-finish foundation — to market fast, and keep prices down. “We don’t have a hard-and-fast rule on [pricing], but our strategy is to have the better price point for whatever category we’re going into,” Wang said. “For instance, our new cushion foundation is launching at $8.99 — it’s a high price point for Wet ‘n’ Wild, but it’s the lowest-price cushion foundation at mass. It doesn’t mean we have to be 99 cents all the time, but we’re offering value in terms of giving the consumer a super attractive price point she can’t find anywhere else.”
Pricing is key to the Physician’s Formula retail strategy as well. The brand has always been at the higher end of mass pricing and George said customers respond to that — for instance, its Butter Bronzer, up 110 percent in sales year-over-year, retails for up to $14.99. But in a tough retail environment, the company decided to test a more promotional strategy.
“Traditionally we’re not big on a discounting or a couponing strategy. We stand proudly for our masstige positioning in the marketplace and our trustworthy solutions. But every time circumstances arrive, the market needs a little shot in the arm,” said George. “Alice [Chen, of Physician’s Formula] and her team saw this trend back in summer so…we leaned in with a pretty heavy coupon offer [that] is going to drive consumers back to our retail partner outlets.”
The shift in mass seems to be part of a larger cycle in the beauty category.
“The dollars are shifting and the industry has softened,” Wissink said. “That’s a function of the evolution and maturation of the product life cycle. That’s the new beauty world order — this is increasingly a trend-driven business, [so] you’ll see expansion and contraction of the business.”
That cycle is mimicked in consumer shopping habits.
“Either I’ve got it, I’ve seen it and I don’t need it, or I’m getting it somewhere else because it’s a better experience,” Liebmann said.
“You’re going to see share move around more dramatically across channels,” she said. “When there’s newness, she’ll gravitate toward retailers and environments where she can explore…as we move away from this high innovation cycle, she’s going to move to a more replenishment model. She might stay with that retailer…but maybe she doesn’t visit the store as often, and she may compliment that with online purchases. But then something will inspire her again…and she’ll go back to the store.”