Can the lipstick effect or the perfume effect outweigh inflation? –WWD
The surge in inflation in the United States is impossible to ignore. From the gas station to the grocery store to the house, all aspects of life are affected.
And this is also true for the beauty sector. In a series of summer trade updates, global beauty companies cited inflation as a headwind that drove price increases.
Coty Inc., whose brands include CoverGirl, Gucci Beauty, Lancaster, Kylie Cosmetics and Skkn by Kim, implemented single-digit price increases in the second half of FY22 and is currently in the process of stage further hikes, this time in the mid-single digits.
“That’s how we fight that inflation,” chief executive Sue Nabi said in an interview in August.
At Estee Lauder Cos. Inc., executive vice president and chief financial officer Tracey Travis told Beauty Inc that while the company typically raises prices across the board every year, it did so more this year due to inflation – at an average rate of 5.5 percent. Part of this is reflected in new products that have been introduced at higher prices.
And Ulta Beauty, to name just another, revealed that it received a slew of price increases from partner brands in the first half of this year. He expects to receive additional increases throughout the rest of the year.
So far, this hasn’t seemed to have an impact on consumption, even at the prestige level.
Prestige fragrances from Coty, for example, flew off the shelves, with particularly strong performances from Hugo Boss, Burberry, Chloé, Calvin Klein and Gucci Beauty, which recorded 20% growth in the fourth quarter and helped the entire prestige sector to grow 16% year over year to $662.8 million.
At Ulta, prestige and mass makeup saw double-digit makeup growth in the second quarter, compared to the same period a year earlier, leading the retailer to raise its full-year outlook .
Lauder, meanwhile, continues to see the prestige beauty market grow by double digits in the United States, according to Travis.
Quoting Leonard A. Lauder’s Lipstick Index, the mogul’s theory that beauty product sales increase during tough economic times, she said, “We’re a category where it’s affordable luxury, especially when you make choices about what you would like to buy from a discretionary perspective.
Coty’s Nabi says its latest set of numbers proves it’s more of a scent index than a lipstick. “Fragrance speaks to everyone — regardless of age, regardless of gender, and what we’ve seen, which is the reality of the data and the statistics, is that this beauty market is driven by the consumption of perfume and it is neither feminine nor masculine. It’s both and it’s also mostly Generation Z.”
But whichever measure you prefer, can this resilience last, even as inflation refuses to budge and recession fears mount?
Analysts say the short answer is yes, although the latest official figures showed that while consumer spending rose slightly in July, it was slower than in June.
As seen in previous recessions such as the 2008 financial crisis, although trade has fallen in past recessions, nobody usually leaves the beauty behind.
Olivia Tong, an analyst at Raymond James, said beauty’s resilience has been bolstered by a broad reopening after COVID-19, driving more travel and outings, as well as innovation in the sector. She thinks this trend can continue – as long as there are no serious disruptions to household income, such as job loss.
“Beauty is an affordable luxury. It’s not a car, it’s not a handbag, it’s not a vacation and frankly, a lipstick is cheaper than going out to dinner and lasts longer,” she said. . “So to the extent that you get a small gift for yourself, provided there has been no material disruption in your household, but assuming you are in a relatively mild downturn, your habits may not change as materially as in some other categories.”
Neil Saunders, Managing Director of GlobalData, added: “While the lipstick effect seems like a cliché, it’s based on an ever-present truth that consumers are very reluctant to give up small treats and indulgences. and, indeed, feel like these are deserved rewards for going through a tougher time. Indulgences aside, it’s also true that many beauty and skincare routines are very entrenched in people’s lives, so there’s a great reluctance to cut back on the products associated with them.
He sees some downside risk, but not much, for the beauty segment, which he believes will be one of the winners from the lucrative holiday period.
So while there may be a drop in trade ahead and retailers such as Ulta say they are ready to adapt accordingly if necessary, there is unlikely to be a mass exodus from beauty. anytime soon.
As Olaplex President and CEO JuE Wong says, “You should always wash your face, you should always wash your hair, you should always shower.”