As the credit crunch tightens its grip on the US economy, America’s beauty industry is feeling the pinch, says Faye Brookman
Exorbitant fuel prices, high unemployment and sinking property values have all sapped retail sales in the past year. Beauty in particular was hard hit, despite the conventional wisdom that women will still buy a new lipstick even if they can’t afford a new dress.
Department stores are big losers as women trade down to dollar stores and mass merchants. And some think that shoppers may not return even as the economy improves. “Shoppers are forming new habits,” says Wendy Liebmann, founder of WSL Strategic Retail. “They are using more coupons, stocking up only on sales and trading down and sometimes out. They are shopping closer to home and less often.”
Department store beauty sales, according to NPD, were held to a 3% gain in cosmetics. And, even though mass is picking up some of the business, cosmetics sales are soft there too. For the 52-week period ended 12 July 2008, sales of cosmetics in food, drug and mass merchants (excluding Wal-Mart) were $2.78bn, up only 2.4% over the previous year.
The economy whacked many powerful names in the US. L’Oréal, for example, saw North America sales decline, while Clarins struggled and was being shopped around for new owners. Many US brands looked for overseas growth to stay afloat.
That’s not to say that there weren’t highlights in retail over the past 12 months. Natural and organic beauty products started emerging at both mass and class while minerals proved they offered rich opportunities. Celebrity scents showed they had staying power and a few novel products hit shelves, such as SPINLASH, a battery powered rotating mascara.
Target once again shook things up by nabbing Jemma Kid, Napolean Perdis and Petra Strand to create speciality lines for its stores as it tried to duplicate its success with exclusives in other categories in beauty. The lines will come with testers – still a tough feat to pull off in the mass market. Target also added prestige skin care such as Clarins and Kiehl’s to selected stores.
It was also a year when many Americans started looking for beauty blogs and the bloggers became as powerful as magazines in telling women what to buy.
NATURAL PATHS
Products claiming to be natural or organic were among the fastest growing products in the past year. Nearly 25% of Americans now say they buy organic items at least once a week.
However, there are still many questions swirling around what really is organic and to date the US has no regulations on claims. There are actions to introduce a seal that would help consumers know what really is natural, but at the moment there’s nothing written in stone. Some marketers are taking it into their own hands, such as Horst Rechelbacher, the creator of Aveda whose new Intelligent Nutrients line will bear the USDA organic seal.
In prestige, Kiehl’s and Aveda are out to prove to shoppers that they can deliver the same impact as lab generated products. Among the newest is Aveda’s Green Zone, a line-up of facial treatments.
It is a free for all in the mass market though. Many companies are rushing products they call natural to market. Some retailers are taking it slowly as they aren’t sure of customer demand. “We are trying to figure this out and see what labels become important and if consumers feel they are as efficacious as other products,” says CVS’s divisional merchandise manager of cosmetics, Sherry Saffert. However, companies are banding together to devise a true natural label and the recent development of the OASIS seal has gone some way to achieve this.
In the mass channel, Physicians Formula has been fast out of the gate with its cosmetics line called Organicwear. The products are merchandised next to the firm’s Mineralwear line. Revlon has also announced a natural line for Almay called Almay Pure Blends. An added upscale boost as it has a hang tag instead of blister carding.
Another beauty line in the works is from Jane called Aquaceuticals. “We wanted to add something missing in beauty – water,” explains company president Lisa Yarnell. Combining natural and celebrity is Natural Beauty by Carmindy, a mass line fronted by Carmindy famed for her appearances on What not to wear.
A great deal of the natural beauty items are skin care lines such as Alba, Avalon, Giovanni and Burt’s Bees, while Target, Wegmans and Walgreens are among the chains installing natural departments under their roofs. The only obstacle to green growth, added one buyer, is that consumers are so strapped they might not be willing to pay more at this point in time.
THE GROWTH FACTOR
Bare Escentuals introduced the concept of mineral formulations, but many other companies brought the make-up to the masses. In drugstores today, there are at least ten different mineral formulas from big companies such as L’Oréal down to smaller firms such as Jane. Mineral formulas are pacing much of the growth and are said to account for as much as 40% of colour cosmetics sales, buyers estimate. But many think a shakeout of brands is in the offing.
If there is one area of beauty generating news, it is mascaras. A niche item called SPINLASH worked like a spinning toothbrush. Then Estée Lauder created Turbo Lash, a battery operated vibrating mascara said to plump up lashes. Jane, Cover Girl and Rimmel are among those with plumping formulas shaking up the mascara business. Also in the colour world, Coty made a big acquisition by buying Del Cosmetics and is now the owner of three colour lines – Sally Hansen, Rimmel and budget line NYC.
Skin care is also coming up roses. High-end formulas are selling from Sephora to CVS. And Target put its footage behind the trend with 500 upscale stores selling Clarins, Kiehl’s and Origins. Even price tags approaching $100 don’t seem to be out of the question in mass doors when it comes to skin care. Coty is also going fast and furious with a new Home Skin Lab line. But instead of seeking traditional retail, the line is going to be marketed via Home Shopping Network.
In mass, skin care is showing the most vibrant growth with sales up 4% to $3.2bn for the 52-week period ended 12 July 2008, according to ACNielsen (excluding Wal-Mart).
FAME SELLS
The celebrity fragrance machine shows no signs of letting up. Tim McGraw hopes to sing a tune of $40m for his new scent from Coty, while JLo is branching into men’s scents.
Arden’s line-up has expanded to include Usher and it is also eyeing more designer names for expansion. Meanwhile Puig unleashed its fifth product bearing the Antonio Banderas logo. And of course the Beckhams are making waves in the scent world with the launch of Signature for Her and Signature for Him under the House of Beckham brand (Coty).
Celine Dion has a new scent called Sensational, while Gwen Stefani went the whimsical route with Harajuku Lovers. And Sarah Jessica Parker has a follow up to the successful Lovely with Covet. In the US today if a celebrity doesn’t already have a scent they’re probably working on one. Although retailers think the celebrity treadmill is running out of steam, consumers seem to be willing to flock to a new celeb offer.
HAIR CARE CLEANS UP
While salon hair care is ubiquitous in the mass market, companies such as Procter & Gamble claim to be clamping down. Sebastian, in particular, is one place where it is looking to clean up distribution. Still, most chains have major salon fragrance departments and even bumble and bumble and Fekkai have been spotted in Target. Walgreens has Supreme Head, its own line from super luxury stylist Sally Hershberger.
In hair care in general the market continues to be splintered. Suave regained its number one selling position thanks to the American quest for value.
Hair colouring was rocked by the debut of Perfect 10 from Clairol, a ten minute colourant, perfect for in between salon visits or as a main colouring option.
DYNAMIC DISTRIBUTION
Last year’s move for Sephora to open in JCPenney – something that has worked well according to Penneys – attracted others. Bloomingdale’s will open in-store shops with products from SpaceNK, starting with Bloomie’s 59th street store.
Moreover green isn’t only hot in products, chains such as Target opened LEED certified stores complete with recycled shopping carts.
Retailers who tried adding more name brands, such as Bath & Body Works, decided to focus on growing proprietary brands. Mass merchants continued to look for exclusive lines, with Rite Aid gaining baby brand Mustela while CVS created a wrinkle treatment sold exclusively at its stores called 24.7. CVS is also said to be working on a very upscale beauty department inspired by Canada’s Shoppers Drug Mart.
However, the economic downturn has hit some retailers hard and several chains, battered by the economy, have announced plans to shutter stores or even reduce plans for acquisitions or new stores.
The year also saw many faces in executive suites change. One of the biggest was at L’Oréal. Carol Hamilton took on the role of president of the beauty giant’s luxury products division. Hamilton, president of L’Oréal Paris, will oversee brands such as Lancôme, Kiehl’s Since 1851, Ralph Lauren Fragrances and Parfums Giorgio Armani in department stores and prestige outlets, and she is largely credited with building L’Oréal Paris into beauty’s largest brand. She will be the third executive to hold the post in five years.
TURN ON, TUNE IN, SPEND
Estée Lauder’s BeautyBank division created a home shopping exclusive, Eyes By Design, an expansion of the brand previously sold exclusively in Kohl’s. And it wasn’t the only company putting a focus on home shopping.
The Home Shopping Network, owned by IAC Retailing, hasn’t been the same since Mindy Grossman joined as chief executive officer in 2006. Under Grossman, HSN has taken an upscale path, especially in beauty where Sephora has joined the line-up. Also, a new deal was recently inked between HSN and Coty to market and sell select Coty prestige brands.
Much of this activity is thanks to Grossman’s vision for the channel. “We offer a unique opportunity to build brands and businesses and to leverage technology that can create a new dynamic for the beauty industry. And I think we’re in fact the new retail frontier,” Grossman says.
HSN now carries 27 brands as part of its Presented By Sephora programming, including Clarins, Two Faced, Ula Hendrickson, Cosmedicine, Oscar Blandi, Dior and others. “I feel very strongly as we develop these new branded partnerships, communicating the history, that the legacy and the story behind the brands is critical to bringing them to life. Our production team travels all over the world to film and create content to tell the real story behind the brand. And a great example of this is Korres,” she adds.
At QVC, beauty remains a focal point. The home shopping network continues to be a major distribution point for many beauty firms. Both QVC and HSN have internet counterparts and shopping on the web in general swelled in 2007 as Americans sought to save on fuel.