There is the odd sign of hope here and there but the US C&T market has definitely been feeling the pinch. Faye Brookman takes a look at where C&T is suffering and where it's showing the best signs of survival
The downward beauty trend that began in 2008 continued well into 2009. However, as retailers headed into the months leading up to the holidays for 2009, some research offered at least a glimmer of hope. But there’s no denying that the category has taken a hit.
NPD numbers published in May 2009 showed that the only channel expanding was the internet which gained 1%. Further research from NPD and Information Resources Inc, which tracks mass market volume, proved what many thought – that channel shifting is occurring. It was notable to the two market research companies teamed up since NPD had long tracked prestige sales and IRI mass. Together, the firms identified and published data about what is calculated at a $19.1bn US beauty industry. That represents about 60% of the total US beauty market. “For the first time we have the ability to take a broader view of the US beauty industry,” says Diane Nicholson, president, beauty, The NPD Group.
Armed with these statistics, NPD/IRI observed that department store sales of make-up declined while make-up sales expanded slightly in food, drug and mass. This suggested that in tough times women did indeed leave Bloomingdales or Saks for the local CVS or Target. Still, it was not clear sailing at mass stores either, though mass merchants are experiencing slight gains. Cosmetics sales for the 52-week period ended 11 July 2009 (including Wal-Mart) rose 2.4% to $4.2bn.
Department stores got creative trying to bring back beauty customers. And mass stores got more aggressive too, offering more buy one get one free sales. But the sad reality at mass is that beauty is coming under the knife. As part of stock keeping optimisation programmes, the beauty department as a whole is being reduced at chains such as Wal-Mart and Walgreens. Walgreens, for example, sliced several brands from its inventory including Physicians Formula, Jane and Bonne Bell. Other brands such as Revlon were reduced in footage.
As for speciality stores, Sephora continued to expand, including its outposts in JCPenney. In fact, JCPenney opened its first unit in Manhattan complete with a Sephora within the store. Ulta gained more recognition and now has 320 stores including a showcase facility in downtown Chicago. With the tough economic environment, some shoppers gravitated to the mix of mass and class at Ulta. CVS now has four of its Beauty 360 stores which featured upscale brands not found in its drugstores. Some of the units are connected to CVS stores while others are freestanding. The game plan calls for more than 30 by the end of 2009.
Bargain hunters
The other major trend emerging in the US is a further down trend to dollar stores for beauty. Most of the nation’s dollar stores don’t sell items exactly for a buck, but beauty is cheaper in those doors than any competitor. And the brands showing up these days are recognised by most shoppers. Visits to any trade shows reveal more and more dollar store executives showing up and finding manufacturers willing to talk to them about excess pre-packs and special offers.
“Most of the cosmetics companies are doing special packages for dollar stores,” said Mike Botterman of 99 Cents Only Stores at the recent National Association of Chain Drug Stores’ Annual Meeting. He added that his firm’s stores are known for a more upscale dollar image than many others with speciality foods and other accents. Food is actually the fastest growing category at dollar stores, and as shoppers stop in for food, they could be enticed to buy higher margin beauty too. Additionally, dollar stores are expanding at a time when most retailers are scaling back, leaving prime real estate for this up and coming channel.
Visits to stores including Dollar General, Five Below and Family Dollar confirm that major manufacturers are muscling in. Brands found include Maybelline, Revlon and Cover Girl. There are brands such as LA Colors situated and created for value stores. Most manufacturers are looking through their portfolios for opportunities. At Wet ‘n Wild, for example, president Bill George said the company can pull out the AM Cosmetics logo to expand in dollar stores. Several companies have smaller lines that can be extended into the dollar channel. Buyers for dollar stores said they used to walk trade shows with their badges hidden – now they proudly strut the aisles and get the same respect as Wal-Mart.
Most dollar stores allocated a small percentage of footage to beauty; perhaps less than 5% of the total store. However, that category occupies prime front space, usually in fixtures off to one side at the entrance. According to one executive this is because beauty isn’t a destination but a great impulse at dollar store pricing.
Information highways
And, as mentioned earlier, the internet emerged as a bigger resource for beauty. Although the beauty category was slow to take off online, the internet now has a higher ratio of women saying they spent more, relative to those who said they spent less on beauty in the past year. The average annual beauty spend per woman is $86 for this channel. The ease of shopping online and product availability continues to drive internet shoppers who spent more via this channel than in the previous year. Women who spent more on the internet also told NPD that they purchased more beauty products in general and that they started buying more expensive brands and products than in the previous year. Higher fuel prices also had a positive impact on internet spending. More consumers opted to shop for and buy beauty products online instead of driving to a store. Many shoppers also said they research beauty products online.
Shoppers also continue to like the idea of finding more brands on TV too. While QVC has long set the pace, HSN has kicked it up a notch with relationships with Sephora as well as more launches under the guidance of Mindy Grossman. “Americans have made it clear, they like to cross shop, including TV,” explains Wendy Liebmann, president of WSL Strategic Retail.
Hope springs
Despite the overall gloomy news, a few studies released in the summer did promise some hope. NPD reported in June that women are starting to spend on beauty again, with the exception of black consumers. A study called A Snapshot Report On Beauty Consumers’ Reactions to the Economy found that fewer women are putting beauty products at the top of their “cut lists”. In April 2009, only 42% said they would cut back spending on beauty before other items, versus 45% in November 2008.
“It is very encouraging to see the overall positive shift among beauty shoppers. This tells us that, while we are not out of the woods yet, the greater proportion of beauty consumers are willing to explore spending again,” says Karen Grant, senior global industry analyst and vice president of beauty. “Beauty being so directly tied to a woman feeling better about herself is a vital trigger that cannot be missed in the marketing of beauty products today.”
Another NPD report suggested premium price fragrance and make-up sales were showing signs of life. Although fragrance sales in department stores have been declining, premium fragrance products priced $100 and above represented approximately 9% of total fragrance juice sales in Q1 2009, and generated $26m, a 10% increase from Q1 2008. Make-up products priced at the premium level ($50 and above) have also seen strong growth in Q1 2009, versus three years ago in Q1 2006. Prestige face make-up, which represented 6% of total face make-up sales in Q1 2009, saw dollar volume almost double since Q1 2006, from $14.1m to $27.1m, a 3% increase from Q1 2008. Premium eye products (priced over $35) were especially strong. The launch of MAC’s Hello Kitty Eye Shadow x4, priced at $38, was a key growth driver in premium for eyes.
But every silver lining has its clouds – the same report showed that premium skin care is no longer as recession-proof as thought with premium skin care down 6% in the fourth quarter of 2008.
Fragrance flutters
The fragrance category could use a boost. Last year scent sales were soft in both mass and class. The holiday season was tough and carried into spring. “The business is going to continue to be difficult more because of the macro environment; business in general will be difficult,” says Jon Pollack, executive vp and general merchandise manager of Belk Inc. “We’re going to be looking at negative growth through the first half of the year - that’s basically how you have to look at it. The business will continue to be difficult. Down is down.” Many observers attributed the Christmas collapse to consumer reluctance.
It was especially challenging in the men’s market for the holidays - men’s was down 7% while women’s was down 4%. The bottom fell out of men’s in November, with a 20% drop, while women’s was hammered at a 19% loss. Women’s was bolstered by a handful of launches that caught shoppers’ imaginations such as Gwen Stefani’s Harajuku Lovers, Juicy Couture and Marc Jacobs Daisy.
Department stores got more aggressive with discounting during the holiday season. For example, Lord & Taylor offered friends and family deals of 25% off to all shoppers. Advisors whispered special deals to good clients in department stores to generate sales.
At mass, some drug chains reported a better than expected, though not sensational, fragrance selling period. Many chains promoted earlier and bought lighter.
Perhaps the biggest surprise was a “decent” year in fragrance. The revival of Britney Spears as an artist also provided a lift to her scents. Other fragrances mentioned by a survey of top mass retailers included Hannah Montana, High School Musical and McGraw by Tim McGraw. A return to classics was seen in a spurt of sales for Charlie and even Dana scents, including English Leather. A few buyers said Shania Twain scents suffered somewhat from her lack of stage presence last year, but that Celine Dion items moved well.
The pre-Christmas sales activity seemed to work. Rite Aid, for example, had 50% off designer scents for a pre-Christmas promotion. Walgreens also had sales before the Yule, but drastic reductions came directly after Christmas Day. In its circulars prior to Christmas, Walgreens promoted select scents, such as Celine Dion fragrances Enchanting and Sensational; David Beckham at $10 off; classics including Giorgio Beverly Hills and Shalimar at 50% off; and gift sets like Antonio Banderas for $17.99. Designer scents were featured in advertising with the tag line: “Why pay department store prices?” There was an exclusive “only at Walgreens” of Davidoff Cool Water Freeze Me or Summer Fizz eau de toilette at $10 off.
The promotional activity helped, says Mary van Praag, senior vice president of sales at Coty. “Coty Beauty Fragrance had a very strong volume increase the week prior to Christmas. While overall fragrance sell-through was down slightly versus the prior year, which is not surprising given current economic conditions, there were [retailers] that were clear winners with unit volume ahead of the previous year. The winners were those that got out early and had strong brand presence and price point distinction. Our key top-selling gift set brands were Celine Dion, Tim McGraw, Adidas and Playboy. In addition, we had strong sell-through in our value sprays and omni coffrets.”
The eye effect
The biggest news in colour cosmetics was eyes. Eyes took centre stage away from lipsticks, leaving some to think eye products are the new barometer to sales versus the long held theory of the lipstick index. The theory suggested that women would buy a new lipstick even in tough economic times. Now, it seems, eye products are more important. Lancôme and Estée Lauder had big hits with pulsating mascaras and Maybelline has brought the trend to the mass market.
Pharmaceutical firm Allergan hit a chord with consumers unhappy with faint eyelashes with its Latisse which has now been knocked off by non-Rx versions from class firms such as Rapid Lash. Latisse is being promoted by Brooke Shields and is the first FDA approved treatment for hypotrichosis. Apparently the Shields ads are encouraging women to get hold of the product, which has a suggested price of $120 for a 3ml, one month supply bottle. Sales of Latisse in the first quarter of this year were $12m, which includes stocking of both physicians’ offices and pharmaceutical wholesalers, according to the company. Sales of Latisse could reach between $30m and $50m this year and eventually global sales could hit $500m per year, according to Robert Grant, Allergan corporate vice president and president of Allergan Medical.
“The trend is taking hold on TV shopping [channels] and in spas and salons,” says Virginia Lee, senior research analyst at Euromonitor International. She notes that HSN sells Serious Skin Care Lash Booster and Talika Eyelash Lipocils and QVC offers Peter Thomas Roth Lashes to Die For Eyelash Treatment, along with A-D Real Lash Conditioning Eye Lash Treatment and Tarte MultiplEYE Lash Enhancer. Peter Thomas Roth and Fusion Beauty tell similar stories about their respective lash enhancing products, namely the $125 Lashes to Die For, which entered stores a year ago, and the $89 StimuLashFusion, which was released in April. Both products are included in an endcap display that Sephora is rolling out to showcase lash items. Talika Eyelash Lipocils, Too Faced Lash Injection, Tarte MultiplEYE Lash Enhancer and Cargo LashActivator are also in Sephora’s lash assortment. At mass, Rapid Lash should hit sales of $5m to $10m by year end. The $50 product is now sold in CVS, Harmon and Duane Reade.
Skin & hair
Upgraded products sold in mass market skin care are eroding some of the business in prestige. Items such as Olay Regenerist, Vichy and other lines now in drug stores are grabbing shoppers. In department stores, however, there was growth in skin care gift sets, a $185m business in 2007 that was up by 15% for the year to date for 2008.
More department stores started adding upscale hair care products to offset losses in other areas and initial results show this could be promising. In mass, most segments of hair care were down, even colouring, which has long been expected to benefit from the ageing of America coupled with breakthrough technologies such as Perfect 10 and Root Touch Up.
The natural category has taken a bit of a hit because of the economy. While some natural brands are still growing, especially in Whole Foods and Whole Body, many retailers say they are holding off on natural expansion. The US also continues to sort out issues of how to verify to shoppers that a product is natural.
Male explosion
Where retailers aren’t holding back is in men’s. Several companies such as P&G and Beiersdorf’s Nivea have made men their number one market goal. P&G even added a special men’s zone area at a major drug store meeting to tout its products. A few months ago, P&G furthered its commitment in premium men’s with the purchase of Zirh. P&G plans to build “the world’s premier male grooming company” and took steps in this direction earlier in 2009 through the acquisition of The Art of Shaving, a Miami-based male grooming business.
Market research firm Mintel has stated that male specific product sales are growing at the expense of unisex toiletries. With the introduction of luxurious, high end men’s anti-wrinkle creams and products marketed only for men, P&G is tapping into a real growth market. Changes in lifestyle and employment will propel growth in men’s toiletries, adds Mintel. It says that over four in five male respondents buy their own toiletries and are mostly buying products that have been designed specifically for men. The rush to deliver products for men is happening at both mass and prestige levels with drug chains also adding more sections devoted to male grooming.
