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Mass Firms Prep for Challenges

According to market research firm Information Resources Inc., sales performance for cosmetics will depend on categories.

The numbers might forecast dismal sales, but mass merchants are clinging to the premise that, in this economy, people might drive less, trade down and, therefore, shop more mass retail doors.

“This type of economy does favor the local drugstores, and we are trying to offer more merchandise to take advantage of that,” said Lewis Drug’s chairman, Mark Griffin. He hopes to lure shoppers with beauty items including blockbuster kits and new fragrances.

Research from Deloitte LLP, TNS Retail Forward and The National Retail Federation all point to difficulties, such as the latest economic turmoil, as factors that could hinder sales. Even the buzz created by the election could keep people out of stores, retailers said. Deloitte is estimating sales gains of less than 3 percent, TNS Retail Forward is at 1.5 percent and the NRF expects sales to grow by 2.2 percent to about $470.4 billion. That figure marks the lowest rate of growth since 2002 when sales expanded only 1.3 percent.

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According to data from Information Resources Inc., a Chicago-based market research firm, sales performance of cosmetics items will depend on the category. Cosmetics for the face, such as bronzer, blush, foundation and concealer, are up 3.4 percent to $708.5 million for the year-to-date period ended Sept. 9 in food, drug and mass stores (excluding Wal-Mart), while nail care sales are nearly flat with a dip of 0.4 percent to $413.9 million. Sales gained in eye makeup segments such as mascara, shadow and liner, with a 5.7 percent rise to $706.7 million. Sales of lip items, despite the legend that predicts lipstick sales rise in tougher times, have dipped 4.3 percent.

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And, based on first-half performance, the second half needs to provide a big push in order to make up for sales losses. According to a recent NPD/IRI Cross Channel Monitor report, makeup sales declined 1 percent in the first half, while skin care sales fell 3 percent. Fragrance faced challenges, as well, with sales of women’s scents dropping 9 percent for the half. Men’s scents fared a little better in the mass market, with only a 4 percent decline. Sales of hair care were down by 5 percent for the first half.

Value is one mantra being chanted by a number of manufacturers.

“Value brands that provide not only good prices, but great quality are doing very well in this economic downturn as people look to buy one or two quality items at a good price,” said Lisa Yarnell, chief executive officer of Jane. “Mass cosmetics is an affordable luxury, one that will fare better in an economic downturn than others. Masstige brands view today’s tougher economy as an opportunity.”

Procter & Gamble’s Gina Drosos, president of Global Personal Beauty, said, “Our top-performing mass products offer great value versus prestige alternatives — often superior performance at a much lower price.” She added that P&G Beauty, in tough economic times, actually shifts “even more focus to driving out costs the consumer doesn’t see or care about — costs of manufacturing or distribution — so that we can keep prices reasonable and our quality high.”

Mass merchants are quick to point out that they are repeating an already weak holiday from last year. That means most bought less merchandise or the same amount as last year for the coming holiday — a fact that could help mass merchants have a better sell-through than expected. NRF research confirms that inventories are down since retail container traffic at major ports is expected to drop 6 percent this year. There are murmurs that staffing will be lighter at chains to save budgets, especially in the beginning as retailers see how things stack up.

“I can’t tell you for sure that it’s going to be the worst season in the last decade and a half, but we expect this season to be as challenging as any in recent memory,” said Scott Krugman, an NRF vice president.

Retailers offering a mix of mass, masstige and prestige items acknowledge the tough time ahead, too.

Lyn Kirby, Ulta’s ceo, is preparing for a fourth quarter that will be “as tough as the last three,” but noted that this year’s holiday period will be “jumping over a lower base” from the prior year. Mainly, she is keeping her eye on the election, knowing it is serving as a distraction to shoppers.

By Thanksgiving, she said, she will know which direction holiday is going to take and whether Ulta will “need to be more aggressive” with promotions in December.

“We always have contingency plans for the fourth quarter, and Thanksgiving serves as a good benchmark for us,” she said.

Despite the tough economy, she said Ulta has a “price point for everyone” and that, even though shoppers are watching their purse strings, she is not seeing a trade down from higher priced goods to lower-priced items. She noted that gas prices are figuring into the shopping trip and that Ulta could serve as a one-stop shop with its range of categories. Wal-Mart has found itself in the enviable position of providing what consumers consider value, and sources said Elizabeth Arden had created several door-busting programs for the megaretailer for Christmas. Target, on the other hand, is stressing fashion with its new color lines that have been set up in stores. Target’s prices are higher than Wal-Mart, especially for its new upscale skin care. Walgreens, always known for healthy fragrance sales, has enacted a few programs to drive more shoppers. Recently, the chain held Saturday events with beauty advisers who provided consultations and samples.

One problem facing mass merchants for the holiday could be a lack of must-have items. Indeed, the mass market fragrance business has been bereft of launches outside of the activities of Coty Inc., which primarily focuses on celebrities.

For Christmas, a number of buyers said they want to get off the promotional treadmill and deemphasize buy-one-get-one-free in favor of other traffic-building ideas, such as glossy gift guides. One ray of hope comes from research from Fitch Ratings, which suggests shoppers are willing to still buy certain items — even the more costly options. For example, Alberto-Culver’s Nexxus hair care brand sold briskly in the latest quarter with sales up 13.6 percent, but V05, which is aimed at the lower end of the market, was down 5.7 percent, according to IRI data provided by Fitch. Personal care has not been hit as hard as some other industries, but commodity prices have risen so sharply over the past year that manufacturers have been forced into action. P&G and Colgate have issued price hikes, followed by Johnson & Johnson, banking on the idea that consumers will still buy items they really want.