Consumer “Hiccup” In Q1 Keeps Prestige Beauty Sales Down For First Half

The prestige beauty industry had a wild ride in the first half of the year, with U.S. sales dipping in the first quarter only to surge in the second for the strongest quarter the segment has had in three years, according to market researcher NPD Group.

The strong second quarter did not completely offset losses posted in the first quarter, however. First half sales of prestige beauty reached $3.8 billion, down one percent versus the prior-year period.

Consumer worries about the economy during the first quarter created a "hiccup" where they cut back on prestige beauty spending, according to NPD Vice President Karen Grant.

"Consumers were very concerned about what was going on in the economy. As things began to stabilize, spending began again in the second quarter," Grant told "The Rose Sheet" Oct. 9.

The uptick in sales in the second quarter was additionally fueled by an increase in marketing initiatives in stores, the beauty expert said.

This was apparent in the fragrance category. While fragrance sales declined 3 percent in the first six months, the category posted 2 percent growth in the second quarter. U.S. fragrance sales were $1 billion for the first half.

The second quarter bounce was due to sales of classic women's scents, according to NPD; women's fragrances were up 4 percent in the second quarter, while men's fragrances declined.

Sales were generated by women buying their favorite "classic" scents, or those which have been on the market for more than one year, according to NPD.

In addition, some newcomers are posting good numbers. Coty Prestige's Harajuku Lovers perfume has done "extremely well" by appealing to younger women, a demographic that has been leaving the fragrance category, Grant said.

Though the second half of the year is likely to be affected by the troubled economy, marketers will continue to push hard for fragrance and makeup in the second half, Grant said.

"We are anticipating some strong campaigns - even in makeup - in the second half to really help to energize," Grant noted. The question, she said, is whether those initiatives will be enough to overcome consumers' anxiety about the economy.

In particular there will be big launches in high-end fragrance; Grant cited as an example Clarins' launch under the David Yurman jewelry brand, which will feature jeweled packaging.

Skin Care Staying Strong

Skin care had a solid performance in the first half of 2008, with sales of $1.2 billion, an increase of 2 percent, according to NPD.

Skin-care "fundamentals" such as anti-aging items and facial moisturizers continue to make headway with prestige consumers.

In addition, sales of premium-priced skin care items - those with price tags of $70 and above - surged 8 percent to reach $365.1 million. Market share for such items has doubled since 2002 (¹ (Also see "Premium-Priced Skin Care Continues To Seduce Consumers In China, U.S., EU" - HBW Insight, 30 Jun, 2008.), p. 6).

In straitened economic times, skin care represents affordable luxury. Some women are viewing topical anti-aging items - even premium-priced ones - as a less-expensive alternative to pricey cosmetic surgery, according to Grant.

In addition, rising prices for gasoline and other consumer items have made high prices for skin care seem more reasonable, the analyst suggested.

"When filling up your gas tank is going to cost you, in a given week, almost $100, spending $70-$100 on a cream that will last you a couple months is not so bad," she said. Consumers "expect things to be more expensive today."

In contrast, skin care is posting declines in Europe, though the overall market remains stable, as suggested by NPD data for France and Italy. Beauty sales in France and Italy rose 2 percent and 1 percent, respectively.

Revenue from makeup increased 6 percent in Europe, as trends that have matured in the U.S. - such as makeup artist brands - are just reaching Europeans. Makeup booked $1.6 billion in sales in the U.S., a decrease of 2 percent.

- Molly Laas ([email protected])