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Marketing Matters: Fuel Costs Affect Beauty Buys

By: Liz Grubow
Posted: October 9, 2008, from the October 2008 issue of GCI Magazine.

It is difficult to ignore the constant chatter in the media, in the office or in our own homes about how the high cost of fuel, the mortgage crisis and the credit crunch are changing the way we live. Higher gas prices, in particular, are driving large numbers of Americans to modify their lifestyles. According to BIGresearch, 86% of people admit to making different choices due to high fuel costs.

Research indicates that Americans are concerned with many economic issues: job uncertainty, foreclosures, the stock market, the November presidential election and increased gas and food prices. All of these factors affect consumer confidence. Every economic downturn changes shoppers in some way. Economists say that the new spending behavior is the most dramatic and extensive that they have seen since the mid-1970s. More than half of Americans revealed that they are concentrating on the things they need, not the things they want, which certainly affects beauty care products and services.

Consumers are also leveraging the Internet to either research products online and avoid the drive to the store and/or purchase online. For beauty product shopping, the Internet is one of the fastest growing channels, according to The NPD Group. As several mass merchandisers trim their beauty inventory to boost profitability, the Internet will be a welcome alternative for shoppers. Unfortunately, two issues are looming that could jeopardize online shopping retailers and potentially reverse consumer behavior: shipping charges and sales tax. Currently, many beauty care retailers, such as Sephora, have a free shipping policy (often contingent on a minimum spending plateau). But with rising fuel costs, will online retailers be forced to charge for all shipping orders to improve their bottom lines? In addition, as more states start to tax online purchases (New York being one recent example), it could diminish the cost savings benefit that consumers currently enjoy.

In the world of beauty products, 59% of consumers have curbed their spending, compensated by using less, trading down to cheaper brands or finishing the absolute last of an item before discarding. In past downturns, cosmetics have been the last splurge to go. Even in a weak market, consumers would regularly purchase an expensive tube of lipstick as their little luxury. This time around, however, the Lipstick Theory, proposed by cosmetics giant Leonard Lauder of Estée Lauder, isn’t proving true.

Some questions we need to explore once the economy recovers are: Which habits will shoppers maintain, and which will they drop? In hair care, will consumers continue to purchase a value brand like Suave or revert back to a category-leading, premium mass brand such as Pantene? Will families continue to buy only one shampoo for all family members instead of several to suit individual requests? Will consumers see products like Olay Definity Color Recapture, Regenerist 14-day Skin Intervention or Regenerist Micro-Sculpting Cream as products that perform at a good value versus department store brands tagged at $150 or more? The last big recession in the early 1990s generated a paradigm shift in retailing as affluent consumers shopped at discount retailers as well as upscale stores. Hunting for bargains seems to be popular this time around, too. Wal-Mart announced a hearty 5.8% increase in same-store sales, its best June performance since 2002. Department store same-store sales, though, plunged 4.1%.