Expert's Opinion

A New Set of Rules for the Beauty Industry

By Irina Barbalova, Industry Manager, Beauty and Personal Care, Euromonitor International | July 15, 2010

Irina Barbalova of Euromonitor International investigates the marketplace.

While there are clear signs of improvement in the economy, with many companies reporting improved first quarter results, the road to a full recovery for the beauty industry is likely to be slow. Industry players and retailers alike are adjusting to a new set of rules, which are here to stay at least for the near term.

The Mindful Consumer

Manufacturers are grappling with a profound shift in consumer buying habits. According to a Mega Trends study released by marketing group WSL Strategic Retail earlier this year, "Americans have changed how and where they shop, first through necessity, then through choice. They no longer live to shop, but shop to live."

Consumers, particularly in the developed world, have a new set of shopping values that are entrenched, certainly for the near term and the habit of opting for less expensive products and low-end outlets will be tough to break. Many are shopping across different channels and are on a constant lookout for promotions, discounts and vouchers to save money. Indeed, the tendency towards promotions and discounts in which many players have engaged in the last couple of years is probably the biggest challenge for the industry. It is an unstoppable force, which has altered the consumer mindset. Consumers are now taking discounts and promotions for granted. They no longer consider them as an extra incentive, but actually expect them.

The Savvy Retailer

Retailers have been quick to adapt their strategies to this new consumer environment. They are becoming more brand-oriented in their approach and are adopting similar multi-tiered pricing strategies to branded manufacturers. Protect & Perfect Beauty Serum from UK drugstore Boots is a particular case in point, having recently launched an improved and more premium-priced Intense Protect & Perfect Beauty serum, which retails at a very similar price to some lower-end premium lines. This multi-tiered pricing system is helping acquaint consumers with the concept of paying a slight premium even for private label beauty, which helps to improve perceptions of higher quality and image.

Retailers have also been destocking and rationalising SKUs, making stores less cluttered. They want brands that turn over quickly so they have ready cash in hand instead of holding excess inventory. Wal-Mart reduced its assortment by up to 30% through the Project Impact initiative in 2009. Walgreens delisted 3,500 SKUs per store as part of its new Customer Centric Retailing initiative in the same year. Naturally, this means more space for private label and less shelf space for brands. However, it could also be seen as beneficial as it forces branded manufacturers to dispose of their underperforming lines and be rewarded for those providing genuine innovation.

Those that are likely to suffer from this are smaller players and more niche brands. And indeed there have been some casualties in the U.S. already. Mass color cosmetics brand Jane & Co. filed for bankruptcy citing destocking issues as the main cause. Physicians Formula also lost the Walgreens account last year.

Consumer focus has also become paramount, with successful retailers led by the motto 'providing the right assortment, to the right consumer at the right time'. This has manifested itself through offering more experience-oriented services, loyalty schemes, social media, a variety of channels and aggressively promoting their cheaper status – Sainsbury's in-store slogan is "20% less expensive than brands," for example.

The New Redefined Brand Proposition

There has been increased focus on the mass market, as well as offering unique innovation at lower prices. A number of players have announced that mass product development would be paramount in the coming year. Thus, the industry can expect to see players bringing out affordable lines aimed at the most cash-strapped consumers as well as value-added masstige offerings to benefit from those consumers trading down from the lower end of the premium segment and those trading up to the upper end of the mass segment.

Another trend we are seeing is brands making efforts to introduce mass-market lines that offer some of the sophisticated R&D and ingredients found in their premium portfolios. L'Oréal's Youth Code ($16), for example, relies on much of the same R&D and gene technology as L'Oréal-owned Lancôme Génifique ($60). Olay has borrowed from its anti-age skin care technology to recently expand its bath and shower range with an anti-ageing line.

On the other hand, companies are looking to engage their category expansion activities around less sophisticated products, requiring lower investment in R&D and which can be sold at lower price points. L'Oréal expanded its Garnier deodorant range in Western Europe last year and Beiersdorf has stated that it will concentrate its marketing efforts for Nivea on basic products, such as shower gels and face creams, and will expand its Nivea deodorant range.

Deodorants seem like a lucrative area mainly due to their wide marketability – in developed markets as well as fast-growing markets and to male and female consumers. The price point makes the product more accessible to a wider range of consumers – those that increase their consumption and trade up, as well as those that may trade down from fragrances to body sprays, for example.

This increased focus and active innovation seen in the category, as well as a significant upsurge in fast developing markets, made deodorants the fastest growing segment in the beauty industry in 2009.

Innovation Still Paramount, Focus on Lifestyle

So, while the industry needs to be a lot more mindful of how the new value proposition is perceived by the consumer, focus on innovation and distinguishing brands by offering unique features will continue to be paramount.

For example, the recovering market will find a consumer that is used to getting by with less and increasingly interested in a more sustainable lifestyle and more responsible consumption. Brands that impart sustainability and a more ethical status to their offerings could give consumers a greater sense of purpose. Such recent examples include Estée Lauder's pureDKNY fragrance launch, which comes in a 100% recyclable bottle and its core vanilla ingredient is sourced from Uganda in partnership with CARE, a leading humanitarian organization fighting global poverty. The brand's advertising slogan "...more than a fragrance, it's a state of mind, a way of being and a way to make a small difference, pure and simple" should serve to inspire similar product launches in the future. This concept seems to fit well with consumers' greater focus on lifestyle and experience, not just the purchase itself.

About the author
Irina Barbalova manages the research programme for the global Beauty and Personal Care industry at Euromonitor International, which she joined in 1999. In her current post, Irina has direct responsibility over the content, quality and evolution of Euromonitor’s Beauty and Personal Care research, which provides strategic analysis of the global market and in-depth coverage of the industry in more than 80 countries worldwide. Before heading up the Beauty and Personal Care industry in August 2008, Barbalova also managed the research programme for the Household Care and Disposable Paper Products industries for seven years, with regular contributions to leading international industry events and publications.