This is crunch time for beauty retailers.
This story first appeared in the December 19, 2014 issue of WWD. Subscribe Today.
Merchants are readying for a final push in beauty during one of the busiest and most important selling periods of the year. And the stakes are high: 30 percent of the year’s fragrance business is done in December, and 20 percent of annual sales are made in the last two weeks.
“Consumers are telling us that they’re looking to spend more in fragrance than in the past,” said Karen Grant, vice president and global industry analyst for the NPD Group. “And it’s not just in gift sets. They’re buying the fragrance by itself.”
Fragrance, which has been running 1 percent ahead for the year, seems to be showing more strength than in 2013. Grant predicts that the department-store scent business will finish the year with a gain in the low- to midsingle digits.
But makeup, which has been running 6 percent ahead for the year, continues to maintain its pace, with increases for the year expected to be in the mid- to high-single digits. The drag on the year has been skin care, which has had a listless year, apparently due to a relative lessening of product innovation, with the exception of standouts like Clinique’s Smart Custom Repair Serum, Shiseido’s Ultimune Power Infusing Concentrate and Olay’s Regenerist Luminous Collection. Grant speculated that, in department stores, the treatment category could finish the year flat. There have been indications from market sources that the skin-care malaise, combined with the pronounced rise of indie players, has put pressure on the major skin-care and makeup brands.
According to Grant, the outlook for retailers is bright. Sales began early this year, at least a week before Black Friday, she said. Though indicators are strong, retailers must manage a few challenges. First, they must balance online sales with brick-and-mortar purchases. “Beauty stands out tremendously online. Last year, while the overall beauty category grew 4 or 5 percent, the online environment grew about 19 percent,” said Grant. “So, it’s really important for retailers to be able to get people into the stores and really drive it home online, too.” She predicts that total prestige beauty is expected to finish in midsingle digits, probably about 3 percent ahead. “It should be a good year,” she said.
Bloomingdale’s is “continuing on a fairly positive trend in general, although there are pockets of business doing extraordinarily well, as well as some parts of the business that are quite tough,” said Howard Kreitzman, vice president and divisional merchandise manager of cosmetics and fragrances. “We are feeling pretty good about the fragrance business,” he added, citing high-end limited distribution brands like Acqua di Parma, Tom Ford Private Blend, Bond No. 9, Creed and Hermès. Also doing well are exclusive launches like Narciso Rodriguez’s Narciso women’s scent, which Kreitzman described as “a standout.” Likewise, business has been performing well for the premium-priced skin-care brands, such as La Mer, Sisley, SK-II and La Prairie. The sales trend also has been “pretty good” with the combined color and skin-care houses like Dior, Giorgio Armani, Trish McEvoy, Nars and Chanel. He described MAC Cosmetics as “OK.”
Bloomingdale’s loyalty-card program is finally getting traction with consumers, and beauty’s online business continues to show growth. “Given the overall state of the retail business, we are not unhappy with where we are,” Kreitzman said. As for how the season will end, Kreitzman noted that, “I think we will come out in the plus.”
At Saks Fifth Avenue, Kate Oldham, senior vice president and general merchandise manager for beauty, intimates and swim, said the store had implemented a new omnichannel strategy that resulted in the beauty business performing well in the third quarter.
“We have seen a boost in holiday sales due to an increased focus on store experience, an emphasis on holiday programing and the shift in the calendar of Hanukkah later in December,” she said, noting the launch of a number of new initiatives, such as new black-and-white packaging and personal appearances by brand founders, including Bobbi Brown, Kilian Hennessy, Laura Mercier, Trish McEvoy and Laurice Rahme.
“This fall, we continued to see fragrance as an important driver,” Oldham stated. “Within the category, high-end luxury haute perfumery brands [Jo Malone, Kilian, Bond No. 9, Creed and Le Labo] generated positive results with our customers, while exclusive launches — like Viktor & Rolf Bonbon, Bond No. 9 Queens, Jo Malone’s Wood Sage & Sea Salt as well as Tom Ford Velvet Orchid — drove buzz and excitement on our floors.”
The fall launch of Agent Provocateur’s Fatale fragrance, timed to coincide with the opening of the brand’s new lingerie shop, provided a lifestyle angle, Oldham observed.
According to Marla Malcolm Beck, cofounder and chief executive officer of Blue Mercury, the specialty store has experienced its highest growth ever this year. That success bodes well for holiday. “We’re where we want to be in terms of our inventory,” said Malcolm Beck. “I would never predict ‘off the charts,’ but it’s certainly not going to be a bad season.”
In terms of what’s selling, Malcolm Beck said antiaging skin-care and home items are at the top of consumers’ lists. “If you’re buying antiaging skin care and home, that means [consumers] are buying more for themselves and for the ambiance,” she said. La Mer The Illuminating Eye Gel sold out in its first week in-store, and Nest Fragrance’s Birchwood Pine candle has been one of Blue Mercury’s top selling products for the past six weeks, she added.
Although makeup has had less of an impact, customers are on the hunt for palettes and how-tos. Malcolm Beck added that she teamed up with Trish McEvoy on an exclusive color cosmetics planner, which sold out in three weeks. “We’re seeing this desire to know tips and tricks and how-tos,” she said. Consumers who yearn for these tutorials must have a direct connection to the vlogger space that is driving sales for brands.
“We’re seeing little gifts go really well from brands like Fresh, Bliss and Molton Brown,” said Malcolm Beck. “The impulse space is selling out right away.”
Net-a-Porter, which launched beauty less than two years ago, is still experiencing astronomical growth, with a 200 percent increase over last year. Hair and makeup have driven the business, according to David Olsen, global vice president of beauty. Together, the two categories contribute 60 percent of beauty sales. Major launches like makeup artist Charlotte Tilbury’s color cosmetics collection and Artis brushes have done well for the online retailer. Olsen expects the trend to continue into holiday. “The great thing about these launches is that [the sales are] sustained. We have a big spike, [then] it comes down a bit but still continues to grow after the [product introduction],” said Olsen.
Net-a-Porter has a page dedicated to holiday and, within that, “The Beauty Bar,” a list of its most giftable products. Sales have increased by almost 50 percent for products on that list. “Our consumer responds to discovery, high quality and a high price point,” said Olsen. This season, they’ve also been drawn to the site’s curated beauty box, a collection of 14 “must-have” skin-care, makeup and hair products. A total of 1,000 units sold through in a week.
This year, beauty sales at Barneys New York have been fueled by fragrance, color cosmetics and, in a notable departure from market trends, treatment skin care. “We introduced 111Skin and, in devices, NuFace and Foreo,” said Barneys executive vice president, women’s general merchandise manager Jennifer Sunwoo. “We expect our extremely strong trend to continue through holiday.” Candles also have performed well, with an exclusive launch of 12.29, a line of Limoges porcelain candles, as a highlight.
“Overall, we are really pleased with the customer response to our beauty holiday assortment,” said Claudia Lucas, director of beauty merchandising at QVC. Citing popular items, she named beauty devices from NuFace, Calista and Emjoi as well as sets, such as lip kits and mascara trios. “Surprisingly, we have seen an increase in foundation as a giftable item, especially when paired with a seasonal limited-edition brush or packaging. A good example is the Tarte Amazonian Clay Foundation and Holiday Brush,” said Lucas. QVC has also had success with its exclusive Beauty Christmas Advent Calendar, a set filled with products from various brands such as Bliss, Philosophy and StriVectin.
It’s been a good year overall in beauty for Shelley Rozenwald, senior vice president and general merchandise manager for beauty for Lord & Taylor and Canada’s Hudson’s Bay, and she doesn’t expect that to decline headed into the last few days before Christmas. “Basically, you know by now if sales will be good for the holidays, and they are,” she said. “We’re planning not only for a big Christmas but for a strong week after Christmas, when people are coming in to use the gift cards they’ve been given for the holidays, and a strong New Year’s week, through at least the first 10 days in January.”
Rozenwald said both Lord & Taylor and the Bay are trending very strongly in fragrances and that customers are increasingly preferring the 3.4-oz. size rather than the lower-priced 1.7-oz. version. “We’re seeing excellent growth in classic fragrances, including those by Estée Lauder, Chanel and Calvin Klein, and Viktor & Rolf’s Bonbon has been very strong on both sides of the border, ranking in our top 10.” In color, it’s all about palettes, especially those by Bobbi Brown on both sides of the border and by MAC Cosmetics in Canada. “Also, we launched Chanel’s eye-shadow quads in the U.S. last year and in Canada this year,” said Rozenwald. “Estée Lauder is growing on both sides of the border, especially in skin care — we’ve had a great Re-Nutriv year in both retailers, and the higher-end is picking up. Chanel’s skin care is also doing well.”
While Rozenwald noted that both the Bay and Lord & Taylor do well with gift sets, she’s getting pickier about what she’ll stock. “As a retailer, we have to deliver edited presentations. If there’s no point of view, the customer gets confused. With gift sets, we’re very conscious of delivering a good value component for price. Our private-label sets with nail polishes are flying off the shelves in Lord & Taylor. Estée Lauder has a great blockbuster that’s selling well, as do sets from Arden and Lancôme. Viktor & Rolf’s sets are incredibly animated in their packaging and contents. Chanel doesn’t do gift sets in Canada, but gift sets are huge in the Bay, so we have a packaging program with them where consumers can have any Chanel purchases placed into a Chanel box with Chanel ribbon. That’s been immensely popular. We’re up about 10 percent in basic Chanel product as a result,” said Rozenwald.
“It’s definitely been a good year for us,” said Margarita Arriagada, chief merchant at Sephora. “In particular, it’s been a fantastic makeup year, and what’s resonated all year continues to do so for the holidays. Color has been our star performer, and, within that, eye-shadow palettes, eyeliner and both brow and contour items are doing very well. Devices are also very strong for us right now. Lips have been phenomenal. From an item standpoint, the Nars holiday collection has been terrific, particularly the cheek palettes. Holiday sets from the Sephora brand, as well as Hourglass, Tarte, Urban Decay, Too Faced and others are selling very strongly. We’ve always partnered with brands to do sets, but clients are getting more sophisticated — the perceived value has to be there. For instance, when we did the Alexis Bittar brush collaboration and sold a $175 brush set: Yes, the price points were on our higher side, but [the sets] were essentially pieces of art.”
Arriagada also cited the Christian Louboutin nail-polish launch as a top seller for Sephora. “It’s one of those things that looks amazing on your vanity,” she said. Skin care is also trending well for the retailer; Arriagada praised offerings from Glamglow and Hourglass, adding that masks were the fastest-growing skin-care offering at present.
Retailers on the West Coast still expect to end the year with an increase as they enter the final selling days.
Sales for the season and the year at Costa Mesa, Calif.-based Planet Beauty are expected to be up in the double digits, according to John Dick, director of store operations. The 37-store chain’s cosmetics business has seen traction with brands such as Anastasia Beverly Hills, Jane Iredale, Smashbox and Bare Escentuals. Skin care has seen a lift with the popularity of products from Tata Harper and Perricone MD.
Still, to drive traffic into stores, the chain got aggressive with promotions during the Black Friday weekend, when sales rose 15 percent from the prior year. “Traffic is still the biggest challenge for most retailers, but our average ticket is up substantially, and that’s what’s driving sales,” Dick said. “We really focused on price-driven items for that holiday weekend, so we’d make up sets for as low as $10, which is unusual for us. We focused on that $10, $15, $20 [price range] to draw customers in, and that really helped us drive traffic.” It was the first year the retailer rolled out the more aggressive pricing, and it ended up selling out of the lower-priced merchandise by 11 a.m. on Black Friday. Those deals are likely to be brought back next year, Dick said.
The overall $55 ticket size for the year is still about 10 percent higher than last year, according to Dick.
“This year, in terms of buying, we really focused on pricing for customers on those holiday cosmetics sets from Bare Escentuals, Too Faced — those prices that help customers at this time of year,” Dick said.
Competition continues to grow as consumers get savvier about product ingredients and use the Internet for other research. “The consumer is visiting less places because they’re doing more research, and that’s why traffic is generally flat or down [across the industry],” Dick said. It’s helped Planet Beauty’s e-commerce business, which is the fastest-growing revenue stream, up 30 percent. It accounts for about 5 percent of the company’s overall sales.
“Each year, it becomes more dominant, but at the end of the day, when it comes to beauty products, many customers still want to come in, sit down, talk to someone they trust and be able to touch and feel the product,” Dick said.
E-commerce is also a growing part of the Pharmaca business, albeit relatively new for the company. The 27-store chain, headquartered in Boulder, Colo., is set to see sales up about 5 percent for the season, according to vice president of merchandising Dave Janowicz.
That’s been aided by holiday inserts in November and December flyers that highlight seasonal product and an e-mail campaign for loyalty-card members. “We try and hit from 360 degrees,” Janowicz said, “not just in-store or just in e-mail or direct mailers.”
The highly promotional environment before, during and after Black Friday has impacted early shopping patterns, according to Janowicz, who said customers generally fall into more traditional shopping trends in the last couple of weeks before Christmas. “We see a slowdown compared to historical years, and then it builds back up,” he said.
Pharmaca, much like Planet Beauty, turned to price-point-sensitive product this year to drive traffic. These included gifts, such as hair accessories, priced under $20, and the company’s seeing a higher sell-through rate of those items than in previous years. That’s translated into a slowdown in gifts above $50. Items priced in the $49.99 to $20 range are doing OK, Janowicz said. “High-end beauty gift sets — we’ve seen a slowdown on those types of items and more stocking-stuffer, pick-me-up-type items,” he said. “With us, it’s a reaction to what we’ve seen the past couple years: a slowdown in more costly kits and sets and [a] pickup in more of the unique, giftable items.” Brands that have benefited from this shift include Caldrea, Zum bath products and Pacifica. Natural cosmetics, facial and skin care, and outdoor skin care have been standout product categories for Pharmaca during the year. Among the existing lines the company’s stores carry, the outstanding brands include Dr. Hauschka and Sanitas, along with Jane Iredale in cosmetics. Newer brands for the chain that have seen sales lifts include W3ll People and Paula’s Choice.
Retailer Ron Robinson said his Apothia boutique business is trending positive for the year, with the retail business up about 3.75 percent. The Apothia brand’s wholesale business is doing even better, up roughly 16 percent from last year, driven by both domestic and global demand. “Our view is quite positive, our trend is quite positive, and we’re very excited about that, obviously for good reason,” Robinson said. Skin-care products have become more focused and limited than in the past.
“We’re focused not on the major corporate brands; we’re focused purely on the creative and interesting boutique-ish-type brands,” Robinson said. The Apothia business is also now in fine fragrances, with three offerings that have seen a pickup in sales.
Premium home fragrances are also doing well. “People are finding that if you spend 5 or 10 percent more, you really get 100 percent better value in these premium products because of not only how long they last but also the quality of the fragrance,” Robinson said. “It’s not about price — it’s truly quality. I think, generally speaking, there is a trend in the consumer to buy smart, to buy quality. It’s not that they’re buying a lot; it’s that they’re buying good.”