2012 Predictions

2012 Trends Beauty or Beast ?

Understanding the beauty buyer as both the consumer and a shopper will be the key to unlocking wallets in the year ahead.

Written by Victoria Gustafson, SymphonyIRI

By all accounts, 2011 was a tough year for the American consumer. In addition to the “new normal” of 9% unemployment and 3% consumer price inflation, consumers were being squeezed further with stagnating income and increasing retail prices. More important, the understanding that recovery will take a long time to come was settling with consumers, who were preparing themselves for a long ride.This created both challenges and opportunities for the beauty industry.

During this prolonged recession, consumers are re-defining the meaning of value and re-evaluating what is “nice to have” and what is essential. We’ve seen a return to branded beauty products as consumers started looking beyond just the per unit cash layout to define value; admittedly, this trend was also fueled by the higher level of in-store promotions. Consumers are telling us that beauty products are not essential; however, beauty and personal care was the best performing non-edible department, growing at three times the rate of total non-edibles. Latest research also shows these re-definitions are highly personal. Some consumers are cutting spending across the board; some combine severe cuts in some categories with splurges in others. Deep, granular and comprehensive understanding of the beauty buyer as both the consumer and a shopper will be the key to unlocking wallets.

In 2011, we saw strong evidence of the hourglass theory, which means that consumers will buy on the low and the high end of the spectrum, squeezing mid-priced brands. We don’t have to look further than two largest beauty sub-categories to see it. Out of the top 30 brands in facial skin care, six grew double digits in dollar terms in food, drug and mass outlets, excluding Walmart (FDMx). Only one had per unit pricing within 10% to category average.Four of these brands carried a per unit price premium in excess of 50%. One had units that cost 30% less than the category average. This picture is almost identical to what we see in hair care.

In addition, 2011 brought further proof that innovation and creating excitement for the category will result in increased sales. In the color cosmetics category, every single one of the top 10 brands posted growth in dollar terms in FDMx. What is more amazing is that the lip cosmetics category, which has been in decline for years, has turned itself around and posted a solid 4% growth in the first three quarters of 2011.

The fragrance category had unique challenges with sales in FDMx steadily declining during the last decade. In the SymphonyIRI’s 2010 Beauty Survey, consumers identified this category as the least affordable and chose to leave the category altogether and not purchase fragrance in FDMx. Notably, within the top 10 fragrances, two exhibit double-digit growth. By far the fastest growing segment is alternative designer fragrances, which are an affordable alternative to higher end designer fragrances that retail for less than $10 a unit.

In 2012, we expect further polarization of brands along the pricing spectrum as beauty manufacturers are repositioning their brands to adapt to the new economic reality. Mid-priced brands will be challenged to prove that they should have a place on the shelf through differentiation, relevant innovation and pricing actions.

We also expect that 2012 will be a pivotal year in redefining trade spending. The ever-escalating levels of promotion are simply unsustainable. Not only are they putting extreme pressure on manufacturers’ bottom lines, but they are also detrimental to building long-term consumer brand loyalty. The category is ripe for re-definition of promotional strategy that makes sense to manufacturers, retailers and consumers and does not sacrifice long-term health to short-term, incremental sales bumps.

We expect big news from the fragrance category. The category lost more than $100 million of value since 2007 in FDMx, due to a combination of consumers dropping out of the category, switching to purchasing ancillaries from stores, such as Bath & Body Works, or, for those with higher income, leaving FDMx for prestige channels. Success of more affordable brands is sending a message to fragrance manufacturers to develop a very specific strategy to lure lapsed fragrance consumers back.

Finally, 2012 will be a year of change and opportunity. It is poised to be a year of getting back to basics and delivering on changed consumer needs through improved brand positioning, well-defined pricing strategies rooted in granular analysis and a retail environment beneficial for all.

About the Author

Victoria Gustafson is the leader of the SymphonyIRI Beauty Vertical. During her 15-year career, she has held various key commercial and research roles across a number of industries, with the last three years focused exclusively on the beauty industry.