The 2010 Wall Street Outlook
This story first appeared in the December 11, 2009 issue of WWD. Subscribe Today.
Beauty firms are breathing a collective sigh of relief heading into the first half of 2010.
Their financial results for the first half will be stacked up against a painful 2009, marred by foreign currency fluctuations and aggressive inventory destocking by retailers. Glimmers of hope began appearing in the third quarter of this year.
“The lack of inventory destocking will be a positive and make for easier quarterly sales comparisons,” says William Chappell, an analyst with SunTrust Robinson Humphrey, adding there are now “pockets of restocking” as retailers seek to avoid lost sales due to out of stocks. He notes Elizabeth Arden Inc. is benefiting from an “overcorrection” on inventory levels, as retailers fill their fragrance departments for the holiday selling season.
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Chappell says he anticipates the beauty firms he covers—Procter & Gamble Co., Elizabeth Arden and Bare Escentuals—to grow sales over the next two to three quarters as they lap 2009’s destocking activity.
Caris & Co. analyst Linda Bolton Weiser notes that several beauty firms, namely Inter Parfums Inc. and the Estée Lauder Cos. Inc., beat her earnings expectations for the quarter ended September 30. She says Lauder’s business in the Americas continues to improve from a decline of 13 percent in local currency in the June quarter. For the first half of 2010, Bolton Weiser is forecasting revenue in the Americas, excluding the impact of foreign currency, to be flat to up 3 percent.
The improvement seems to indicate shopper malaise is dissipating, at least to some extent. Still, given the uncertain holiday season, Lauder plans to pare back blockbuster gift sets.
Stifel Nicolaus analyst Mark Astrachan says, “The area that I’m most interested in is how quickly the consumer on the high end improves.” He adds that mass retailers’ push toward higher-price beauty products has made it easier for consumers to trade down. Referring to the upscale beauty retail concepts at CVS Pharmacy and Duane Reade, Astrachan says: “There’s a blurring of the line that is directly related to the economy.”
He credits Sephora and Ulta for changing the way women shop for beauty with a mix of prestige and mass brands under one roof. Bare Escentuals, which has an established presence in both retailers as well as its own boutiques and in select department stores, continues to broaden its business beyond mineral powder foundation. It has established Buxom, first introduced as a lip plumper, as a stand-alone brand that now includes mascara and eyeliner.
Chappell says Buxom allows Bare Escentuals to move beyond strictly mineral ingredients, which can be limiting when formulating color cosmetics.
Consumers are showing restraint when it comes to the luxury beauty tier. For instance, during Lauder’s most recent earnings call, the firm said it continued “to experience selective trade destocking among high-price brands in top-tier department store distribution.” BMO Capital Markets analyst Connie Maneaty says Lauder’s comments indicate that even consumers who can afford to spend $200 on a skin cream are affected by the economic downturn.
Direct sellers, such as Avon Products Inc., are exempt from retailer destocking because they sell via sales representatives. “In terms of pecking order of growth, it looks like direct selling is doing better than other channels of trade because it offers an income-producing opportunity,” says Maneaty.
Avon also has a tiered assortment with plenty of items priced at $5 or less, $5 to $10 and at the premium level with Anew Reversalist, an antiaging cream and serum for $32 and $44, respectively.
In the mass market, the establishment rules. “The strongest companies are gaining market share and they tend to be premium brands,” says Maneaty, naming Revlon, particularly in the lip category, and Cover Girl in foundations. The reason for this, Maneaty offers, is a trade-down from department stores and retailers moving toward more efficient assortments. She points out retailers may not get the margin return on a niche brand that has smaller market share and slower-turning products. She anticipates mass retailers will continue to make efforts to move toward a more efficient assortment through the first half.
“Beauty firms are being deliberately cautious about when consumers will begin to spend,” says Astrachan, adding: “Across the board, beauty seems to be a healthier category. And there is growth to tap in developing markets.” -Molly Prior
The 2010 Skin Care Outlook
Spring’s newest skin care products pack a punch with a slew of supercharged ingredients that are backed by the latest science, as brands try to ramp up on the claims front and prove that innovation still sells.
“People are responding to performance, and with every new technology that hits counters, customers’ expectations get higher and their tolerance gets lower for products that don’t deliver,” says Lisa Hawkins, senior vice president of marketing, North America, for Dior Beauty. The LVMH-owned brand is throwing its weight behind the launch of Capture Totale One Essential Serum, which it’s billing as a breakthrough strategy in the antiaging game. With the help of the ingredient Detoxinyle, an algae extract that boosts the enzymatic system responsible for destroying molecular toxins, Capture Totale aims to eliminate toxins from the skin and produce new structures in the epidermis, Hawkins says. Due to hit counters in January, the serum, priced at $95, is expected to generate $5 million in retail sales in its first year on counter, according to industry sources. Dior executives are betting their new tech-savvy product will help rev up sales for the brand, which is up 1 percent year to date and expects to end 2009 up anywhere from 3 to 4 percent.
Shiseido’s new Bio-Performance Super Corrective Serum, designed to emulate advanced cosmetic procedures, claims that its time-reversing effects are noticeable after just one day of use. Safflower extract and super bio-yeast extract play a key role in the formula, which purports to strengthen fibroblast proliferation and boost skin’s production of collagen, elastin and hyaluronic acid. Other powerful ingredients include rose apple leaf extract, a natural antioxidant said to help fibroblasts fight oxidative damage; super bio-hyaluronic acid, a Shiseido exclusive humectant designed to hydrate skin, and super plant bio-exfoliant, a natural resurfacing complex said to retexturize the skin’s surface.
Lancôme, meanwhile, is upping the gene-boosting ante with the introduction of its $89.50 Génifique Youth Activating Cream Serum, which combines the potency of a serum with the hydration of a moisturizer. The brand is billing Génifique as a means to make skin of all ages look younger by boosting gene activity and bringing skin cells back to the protein levels of younger skin. Its star ingredients include bio-layst, a good bacteria, and phytosphingosine SLC, a building block in skin lipids. There’s also a salicylic acid derivative to smooth skin, glycol for hydration and silicone and polymers designed to provide slip.
Clinique is turning its attention to hyperpigmentation with its Even Better Clinical Dark Spot Corrector, and is claiming the new product’s results rival that of prescription-strength products. “We have been able to prove that this product is equal to the performance of 4 percent hydroquinone, which is what would be prescribed by a dermatologist if the primary concern was dark spots or hyperpigmentation, but without the irritation,” says Janet Pardo, senior vice president of product development worldwide for Clinique. Due out in March and priced at $49.50, the formula for Even Better Clinical Dark Spot Corrector centers on a botanical extract called Dianella ensifolia, which is part of Clinique’s patent-pending CL-302 complex, and is used in tandem with the brand’s existing hyperpigmentation technology to reduce the appearance of dark spots and age spots.
Clinique’s decision to home in on hyperpigmentation is strategic: Brightening is the fastest-growing segment of skin care in the U.S.—ahead of antiaging—experiencing a 28 percent sales increase in the prestige category from 2007 to 2008, according to The NPD Group. “Hyperpigmentation is the number-two skin care concern, second only to antiaging, and we know it’s a growing consumer trend in North America,” says Pardo. So much so that industry sources are expecting $30 million of the product’s total estimated $50 million in first-year retail sales to come from the U.S. market.
Procter & Gamble’s research and development team continues to focus on genomics, and will add a new firming protocol to its highly successful Olay Professional Pro-X franchise in March, with a new supercharged ingredient called Lys’lastine, which is said to improve the skin’s loxyl gene—the primary gene that helps maintain elasticity in the skin. P&G will implement the new ingredient in its two latest products, Olay Pro-X Intensive Firming Treatment Mask and Skin Tightening Serum, to battle looseness and loss of elasticity associated with sagging skin. The products, which will be sold together for $62, are designed to improve skin’s volume and reduce the appearance of wrinkles. – Gillian Koenig
The 2010 Hair Care Outlook
Hair care could use a rebound in 2010 as both the mass and professional channels have shown weak sales due to the challenged economy. Mass sales, for example, are down almost 3 percent, according to Information Resources Inc., while professional sales are down in the double digits, say industry experts.
Subsequently, value options have become top of mind for several hair care players, including Rusk, with its aptly named Being Sensible line. For just $7.99 per 20-oz. container, Rusk has created an opportunity for the salon customer watching her wallet, or for the mass consumer to trade up. Each of Being Sensible’s three shampoo formulas addresses a different issue: unhealthy, fine or dry hair. There’s also a conditioning stockkeeping unit, Balancing, that Rusk says is suitable for all hair types. Being Sensible launches in salons and Ulta stores in January.
Suave, the leading value hair care brand in the mass market—and best-selling shampoo brand with Suave Naturals, according to Information Resources Inc.—is building on its Professionals line with several new natural-based items that the brand says rival Aveda. Three new shampoo variants with corresponding conditioners have been formulated, including Almond & Shea Butter Moisturizing Shampoo, which the brand compares with Aveda’s Dry Therapy. There’s also a Rosemary Mint Invigorating Clean shampoo and conditioner, which is infused with 100 percent natural rosemary and mint to rival Aveda’s Rosemary & Mint offerings, and Aloe & Ginseng Volumizing shampoo and conditioner, which was formulated to rival Aveda’s Pure Abundance range. Each duo is packaged with 25 percent postconsumer recycled material and is made with biodegradable cleansers. Items will sell for between $1.92 to $3.99 and will be available in February.
On the style front, volume looks to remain an important end goal in 2010. Reuben Carranza, director of P&G Salon Professional North America, says achieving soft, voluminous waves is the second most desired hair result after healthy-looking hair. New launches include Volupt by Sebastian and Full Thickening Crème by Living Proof, both of which claim to use next-generation technology to achieve voluminous hair without stiffness or flaking.
Sebastian’s Volupt aims to make hair achieve 75 percent more fullness versus untreated hair. The range, which includes a shampoo, conditioner and hair spray, uses cushion-particle technology with two new polymers. Dr. Steve Shiel, director of P&G Global Beauty Care Scientifi c Communications, explains that the “sipernate polymer is silica based and causes roughness and friction on the hair strand, while the microthene polymer is used to get a smooth surface.” Carranza says the innovations mark the first shampoo and conditioner to “deliver volume and softness.” Volupt is priced from $13.95 for the shampoo to $19.95 for the hair spray and is slated to enter 10,000 salons in February.
Full from Living Proof is a styling aid that features Poly Beta Amino Ester-1, a new and patented material founded by the company’s team of scientists. The polymer is flexible and durable, yet strong and elastic, executives say, and looksto provide volume throughout the day without a stiff feel. Full, which industry sources say could generate as much as $20 million in first-year sales, will sell for $24 at Sephora, on QVC and on the brand’s Web site beginning in February.
Items from Garnier and John Frieda look to round out each brand’s portfolio, while also meeting specific consumer needs. Garnier remains tight on new launches, as the hair care mix has been carefully edited over the past year to fix slumping sales. Garnier’s Daily Care Regular Shampoo, for example, dipped 11 percent in sales for the most recent 52-week period ended October 4, excluding Wal-Mart, according to IRI.
But Garnier is readying a new hair color launch, its first ammonia-free variant. HerbaShine Color Crème with Bamboo Extract is formulated to deliver shiny color in 10 minutes. The demi-permanent level-two formula contains bamboo for strength and shine and will launch in January for $7.99.
John Frieda, a brand that seems to be surviving the economic storm, is building on its successful Root Awakening line with a strength-restoring styling range. There’s a smoothing lotion that’s formulated with eucalyptus for manageability, a restoring gel for soft hold and a hair spray for support and shine. Items will sell for $6.49 and will be available in stores in March.
According to Gary Cooper, John Frieda’s vice president of hair care marketing, John Frieda has been faring well over the past year—IRI data shows that shampoo and conditioner sales for the brand jumped 11 and 10 percent, respectively, due in part to Root Awakening. – Andrea Nagel
The 2010 Color Cosmetics Outlook
It looks like from economic green shoots pink and peach buds blossom. For spring, beauty brands have created makeup palettes awash with pretty, understated hues, which, for the most part, seem demure rather than dazzling.
“The colors are not neutrals—neutrals were the colors of the crisis—these are post-crisis colors,” says Pierre-François Le Louet, president of trend forecasting firm NellyRodi, adding springtime colors have been toned down with a hint of white. “It’s not an explosion of color, but rather a kind of bridge between color and neutral.”
“Women are looking for something to make them look and feel attractive and beautiful,” agrees Elana Drell Szfyer, senior vice president of global marketing at Estée Lauder, which teamed up with designer Michael Kors to create its spring collection. “There is a real return to flirty femininity and very pretty colors.” Dubbed the Estée Lauder Michael Kors Very Hollywood Color Collection, the line comprises two looks—Bel Air Beige and Rodeo Pink.
Guerlain also riffed on rosy hues with its Cherry Blossom collection, which comprises a blush, for instance, packed with shades of peach and pink meant to recall a cherry tree in bloom. “This season is not only pink, not exactly coral, [but] a mix, with a touch of lavender, a light green anise color for the eyes,” says Olivier Echaudemaison, Guerlain’s creative director. “The most flattering tone on the face is pink. It works at any age, for any skin color, hair color. Pink is a girl’s color. A touch of pink on the cheekbones to get a fresh look, a coat of pink on the lips to have an innocently sexy mouth—Lolita.”
“Delicate peach, petal pink or bluey pink shades, slightly iridescent like the morning dew,” adds Tyen, Dior’s creative director for makeup, of the colors he considers key for spring. The French fashion brand also flirted with an overtly feminine feel in its packaging by adding lace detailing on its color palettes for spring. The Poudrier Dentelle illuminating face powder, for instance, which is decorated with lace prints, has a seemingly pink sheen, but once it’s applied to the skin, leaves a subtly shimmering, colorless veil. “For spring 2010, lace is the inspiration for Dior’s new look so that every woman feels evermore feminine when applying makeup,” says Tyen.
Aaron De Mey, Lancôme’s artistic director for makeup, tapped a plethora of inspirations when working on the French brand’s spring collection, including Nouvelle Vague cinema, Meryl Streep in Out of Africa, a young Charlotte Rampling and camouflage, plus artwork by Andy Warhol and Roy Lichtenstein. “It’s about bringing something fresh and dynamic,” he says. The collection includes Pop ’N Cheeks, a blush compact comprising pink and coral hues, and B.B. Kiss, a lip crayon that is presented in matchbox-like packaging and can be used wet or dry.
Peter Philips, global creative director of Chanel makeup, meanwhile, created a lovely collection centered on the color beige.
Sally Stokes, head of education at Shiseido, notes smoky pastels are a hot trend for the season, and pointed to the Japanese brand’s Luminizing Satin Eye Colors, while Pat McGrath, Procter & Gamble’s global creative design director, says Cover Girl’s Smoky ShadowBlast double-ended eye color sticks pick up on backstage looks for the season.
“Women today are too busy for labor-intensive, fussy makeup looks that are time consuming and complicated,” says McGrath. “This pared-down approach to makeup is a breath of fresh air for women everywhere who want to look chic and fashionable without all the high maintenance.”
While McGrath may be cutting back on the amount of products needed to create a look, 2010 will see a flurry of activity at makeup bars. Makeup artist Ellis Faas will introduce her futuristic signature collection in the U.S. in January, Chanel will unveil its Rouge Coco lipstick line in the spring and makeup lines from Burberry, L’Occitane and Topshop are also scheduled to launch. – Brid Costello
The 2010 Fragrance Outlook
What happens when the economy goes south and fragrance sales quickly follow? Surprisingly, beauty firms announce they are planning the launch of even more scents for 2010, many of them star powered.
From the spring slate of launches—which includes SJP NYC, a new pillar this spring for Sarah Jessica Parker at Coty Prestige; Beyoncé Knowles launching her first as-yet-unnamed fragrance (at Coty Beauty); Mary J. Blige’s My Life from Carol’s Daughter, and the introduction of Kim Kardashian’s first fragrance, set for a February launch from Lighthouse Beauty—you’d never know there was a recession.
Even the blockbusters of past seasons are revamping for a new run at retail this spring: among them, Gwen Stefani, who gave her blockbuster-from-2008 scent quintet Harajuku Lovers a new look and five completely new juices for the spring selling season, and Sean “Diddy” Combs, who took to HSN’s airwaves to promote his scent portfolio.
Will the heavy slate of fall 2009 launches—and the promise of a better 2010—boost manufacturers, retailers and oil houses out of what has been a dismal year? According to The NPD Group, in the first nine months of 2009,
U.S. prestige men’s and women’s fragrances together generated just over $1.38 billion in sales, a decline of 11 percent as compared with January through September of 2008. A few bright spots did remain, including scents priced between $75 and $99.99 and juices priced at $100 and higher, which grew 2 and 4 percent, respectively, in dollars. Men’s fragrance sales were down 10 percent, while women’s slid 11 percent.
But all is not yet lost. “Typically, the fourth quarter—October through December—is the biggest quarter of the year for prestige fragrance,” says Karen Grant, vice president and global industry analyst for The NPD Group. Tempering her comments, she adds: “But with the overall prestige fragrance industry showing double-digit declines in the first nine months of the year, we’ll have to wait and see what happens.”
Indeed, it’s likely this year’s fourth-quarter sales will be eagerly awaited and scrutinized. Analysts agree strong holiday sales will bode well for spring launches.
Retailers, manufacturers and oil houses can take heart in a NPD BeautyTrends consumer study done in November, in which 19 percent of consumers said they planned to buy fragrance as a gift for the 2009 holiday season, a two-point increase from 2008. “It will be interesting to see how all this translates into prestige department store fragrance sales, especially as we have seen a number of important new women’s fragrances begin to roll out and retailers [are] also offering consumers attractive promotions,” says Grant. – Julie Naughton