by Faye Brookman
Is there a recession looming? If so, what does it mean to the beauty business?
The National Retail Federation calmed nerves recently when it announced that despite two consecutive quarters of decline, the U.S. economy does not appear to be in a recession. The NRF also gave hope that a recession remains “unlikely to enter this year.”
NRF’s chief economist Jack Kleinhenz reports the economy lost momentum heading into the second half of the year, but economic data is not yet consistent with a typical recession.
“Our view is that while the economy is functioning at a slower pace it is likely to avoid a recession this year. Despite ongoing uncertainties, we believe the underlying strength of the economy is strong enough to deal with inflation and keep a recession at bay – or short-lived even if we are wrong.”
The most recent results in the beauty industry, particularly the high-end, suggest that the industry remains resilient—recession or not. The premium sector is faring better that mass—suggesting even if consumers tightened their belts, they aren’t doing it in beauty. The often quoted “lipstick index,” lives on.
In past recessions, there was evidence of shoppers trading down to masstige or mass. But that’s not what the latest forecast suggests.
Digging into the numbers, the luxury beauty market is outperforming mass. The latest results from the NPD Group reveal that prestige beauty sales in the U.S. grew 16% to $6 billion in the second quarter. There was double-digit growth in across most categories.
Higher-income shoppers are growing in number and supporting premium sales, according to NPD. Theories are that mass market consumers are harder hit but rising gas and food prices.
The prestige makeup business is especially strong, up 18%. That’s good news for an industry that was pinched by a decline in makeup usage over the past two years.
On the flip side, the mass market beauty industry is struggling. A handful of brands such as E.l.f. and L’Oréal buck the trend; but most mass brands are trending down. Jefferies research noted Coty and Revlon are feeling the impact of the mass slowdown, with sales for the most recent four-week period down 7.6% and 5.6%, respectively. At the other end, E.l.f. Cosmetics hit a sweet spot with shoppers posting dollar volume that grew 14%. Always on the cutting edge, E.l.f. just became the first brand to use the photo-sharing app called BeReal. E.l.f. was also an early adopter of TikTok which continues to fuel its sales.
According to recent NielsenIQ numbers for the four-weeks ended July 16, 2022, overall beauty sales advanced only 0.2% The silver lining is that mass beauty sales are still up versus 2021.
Makeup sales dropped almost 2%. Cosmetics sales, according to research from Stephanie Wissink, equity analyst at Jefferies Research Services, are tracking below pre-pandemic levels. Skin care held its own in mass, up 3.8%.
Slowing sales cascaded into layoffs at Walmart where about 200 have been cut, as per CBNC. The layoffs came one week after Walmart issued a profit warning. Escalating costs of food, Walmart executives said, impacted shoppers’ ability to spend on other categories. Other mass market retailers, such as Target, also were impacted by excess inventories as well as high costs to offset supply chain issues.
The mass market beauty stagnation comes at a tricky time for the beauty industry as chains are trying to go more upscale. Walmart is experimenting with products from SpaceNK, Target has Ulta Beauty assortments and CVS just revealed a premium skin care set with brands like Blume, Wander Beauty and Volition—in addition to brands that have been in the lineup like LaRoche-Posay.
Those upgrades could be fruitful if a recession kicks into full gear and shoppers are willing to trade down. Where will this all end up? No one could have ever predicted the events of the past two years. And it is hard to tell which way the beauty market will trend. But for the moment, at least, shoppers are putting their dollars into premium brands—perhaps to help them feel better, at cost less than a trip to Greece, rather than trade down to a mass brand.
About Faye Brookman
Faye Brookman has reported on the beauty and personal care industry for more than 35 years. She contributes to beauty industry publications including Women’s Wear Daily and CEW Beauty News. Her articles have also appeared in USA Today, The Wall Street Journal and The Washington Post. She also is a frequent moderator for discussions of the beauty business and retail industry.
A graduate of Syracuse University’s S.I. Newhouse School of Public Communications, Brookman resides in Skillman, N.J.
In case you missed it, check out Faye’s previous article about Why Brick and Mortar Still Matters.
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