Beauty-Industry Sales Start To Look A Little Better
NEW YORK (Dow Jones)–Sales of beauty products are starting to show a glimmer of improvement after a sharp dip during the recession, suggesting consumers may slowly be getting more willing to reach out for these small discretionary purchases.
In recent weeks, several beauty companies have had better-than-expected sales. Estee Lauder Cos. (EL) said in mid-October that sales were better than expected in its fiscal first quarter. Parlux Fragrances Inc. (PARL), which holds the licenses for such brands as Paris Hilton fragrances, announced an 8% rise in second-quarter sales. And Inter Parfums Inc. (IPAR), which distributes perfumes and cosmetics under license from such brands as Burberry and Jimmy Choo, recently announced third-quarter sales above estimates.
“These are data points that would support the view that beauty is getting better,” said Linda Bolton Weiser, an analyst at Caris & Co.
To be sure, there has not been a dramatic rebound in beauty sales so far. And consumers are likely to stay frugal even as global economies rebound, prompting beauty companies to warn that any recovery will be slow. But even small improvements could help the sector.
The beauty industry is “still down, but there has been some improvement in the cosmetics business,” said Karen Grant, an analyst at market research firm NPD Group. “September was one of the best performing months of the year … particularly for skin care.”
According to NPD data, between January and June, skin-care sales were down 6%, makeup was off 7% and fragrances down 10%. There has been some pickup from those declines. From the start of the year through the end of the third quarter, skin care is now down 5%, makeup is down 6%, although fragrance continues to struggle and is down in the double digits. “I see it as some improvement, [but] it’s still a challenging time for the industry,” Grant said.
Sales of beauty products held up well in previous recessions. One theory is that women spend more on small extravagances, like lipstick, in tough times. But that resilience didn’t come through in the latest downturn as sales, particularly in upscale department stores, slumped. Companies exposed to the beauty industry range from the upscale Estee Lauder to Procter & Gamble Co. (PG), which sells such products as Olay face cream and Pantene shampoo. These companies stand to benefit from any pickup in beauty sales.
“I think globally you are seeing some of the growth [in beauty] coming back, particularly in Asia. In the U.S., it’s still a little early to see consistent category growth returning. You are seeing some companies doing better than others,” said Sanford Bernstein analyst Ali Dibadj. Some beauty companies may do better than expected, he said, but they are not yet back to the levels they were at before the recession.
Caris’ Bolton Weiser says the signs of improvement in beauty could “indicate some better things for P&G.” Procter’s more discretionary lines of beauty products – like fragrances – were hurt by the slump in consumer spending. P&G sells premium fragrances through tie-ups with brands like Hugo Boss.
Similarly, direct-seller Avon Products Inc. (AVP) is another potential beneficiary of improvements in beauty. Avon, Estee Lauder and P&G all report earnings in coming days.
Estee Lauder, while disclosing better-than-expected sales, said it is staying cautious in its expectations on consumer spending. Along similar lines, St. Ives lotion and Nexxus hair products maker Alberto-Culver Co. (ACV) has warned that any recovery in consumer spending will be slow, particularly for premium products.
At the beauty counters of a New York City department store, saleswomen recently said they have seen some pickup, but that consumers are still a little tight fisted. “They buy only when they need,” said one saleswoman, adding that women are still not stocking up as much as they used to on these little luxuries.
-By Anjali Cordeiro, Dow Jones Newswires; 212-416-2200; anjali.cordeiro@dowjones.com
Copyright (c) 2009 Dow Jones & Company, Inc.
From the most recent PBA report:
Q3 results are in for the Salon/Spa Tracking Survey and the Salon/Spa Performance Index (SSPI). Unfortunately, the Listserve system does not allow inclusion of the report as an attachment. For those interested in a copy, instructions are at the end of this email.
Some of the more notable findings in the reports:
Salon/Spa Performance Index
- The beauty industry outlook remains positive in the 3rd quarter as the Salon/Spa Performance Index shows modest gain.
- For the first time in 2009, salon/spa owners report net increase in service sales.
- Retail sales remain soft.
- Fully seven out of 10 salon/spa owners said they expect to have higher service sales in six months.
- 61% are also much more optimistic about stronger retail sales in the months ahead.
Salon/Spa Tracking Survey
- Sales performances differed across sales categories in Q3.
- 57% of salon/spa owners in the $500,000-$999,999 sales category reported higher service sales in Q3.
- In contrast, just 30% of owners with sales of $2 million or more reported higher service sales in Q3.
- 42% of owners with annual sales of less than $250,000 reported lower sales in Q3.
- Salon/spa owners continued to report lower retail sales volume in Q3 with 47% reporting lower retail sales.
- Owners in the highest sales volume category reported the softest retail sales in Q3.
- 47% of owners in the $1 million – $1.9 million sales category reported higher retail sales in Q3, while 40% reported lower sales.
- On average, salon/spa owners reported a 1.5% increase in back bar costs in Q3.
- 16% of salon/spa owners said they increased service prices in Q3.
- 28% percent of salon/spa owners said they made a capital expenditure for equipment, expansion or remodeling in Q3.
- Looking ahead, 46 percent of owners said they plan to make a capital expenditure for equipment, expansion or remodeling in the next six months.
- Salon/spa owners reported a reduction in customer traffic levels in Q3.
- Owners reported slightly higher staffing levels for the second consecutive quarter.
- The also reported a decline in the average workweek of their employees.
- Top challenge for salon/spa owners: “building and maintaining sales volume”.
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