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Changing Market Dynamics in North American Beauty

Svetlana Uduslivaia, Euromonitor International
  • Growth for sun care was the direct result of converting non-users to regular sun protection customers by highlighting the risks of unprotected sun exposure.
  • Men’s skin care and bath and shower products benefited from men paying more attention to appearance and exploring unfamiliar product categories. Growth rates of 42% is expected for men’s skin.
  • Health concerns in 2009 benefited certain personal care categories, and even the stagnating bar soaps saw an improved performance in Canada.
  • Though putting off salon visits, more Canadians were choosing premium and salon quality brands sold through mass retail.

The U.S. consumers who felt wealthy from the housing boom had been trading up and treating themselves to indulgences, such as designer handbags and super-premium cosmetics. But as the U.S. fell into a deep economic crisis in 2008, shoppers closed their wallets and started to economize by turning to lower-priced mass brands and private label products. Consumers have also begun to buy less product—waiting until their shampoo bottle is empty to buy another bottle instead of storing several brands in the shower.

Overall, many middle class consumers have become more value-conscious. They are cutting coupons, buying more private label, only using credit cards for essentials, shopping at discounters and online, and utilizing online price comparison Web sites in an effort to stretch their incomes. Some have taken second jobs, while others are selling their cars or choosing to take vacations near home.

Consumer cutbacks hurt sales of hair care, the largest category of the U.S. beauty and personal care market. Value sales of hair care declined by 2% in 2008, for a total value of $10.2 billion. The decline was driven by 1% declines in shampoo, conditioner and styling product sales. Together, these categories represent 70% of category sales, excluding salon hair care. Shoppers’ desire to economize led to fewer trips to beauty salons in 2008. Particularly, salon hair care saw value sales decline by 6% in 2008. Salon hair care was also negatively impacted by continued product diversion into mass market retail outlets such as CVS and Target.

Certain Categories Prove More Resilient

Sun care sales were somewhat recession-resistant, as it was the fastest-growing U.S. beauty category for the fourth year in a row in 2008. Growth for sun care was the direct result of converting non-users to regular sun protection customers by highlighting the risks of unprotected sun exposure to consumers’ health and beauty. In addition to increased household penetration, sun care growth was driven by product innovation in the mass sun protection category.

Men’s skin care and bath and shower products are also fairing well, as both are the beneficiaries of men paying more attention to their appearance and exploring unfamiliar product categories. While the metrosexual fad has passed, American men (especially those in their 20s) have become more knowledgeable of and comfortable with various skin care products than the previous generation.

The outlook for the U.S. is challenging. With high unemployment and foreclosure rates expected to put the brakes on consumer expenditure, the U.S. beauty market has a forecast compound annual growth rate of negative 1% (in real value terms) between 2008 and 2013, to reach $50.5 billion in 2013. Despite the bleak economic outlook, some categories are still expected to grow in the future. Men’s grooming products, in the areas of skin care, bath and shower products, and hair care are expected to continue showing good growth in the 2008–2013 period, with expected real value growth rates of 42%, 21% and 15% respectively.

Canadian Recession Shaping Beauty Industry

Recession was one of the key factors that shaped the performance of the Canadian beauty industry. Although many retailers and brand owners had high expectations for strong consumer demand for beauty care even in tough times, product sales did not quite meet these expectations. The premium segment was particularly affected, and sales of many brands plunged.

However, not all was doom and gloom. Helped by health concerns linked to the H1N1 flu scare, personal care products such as soaps were doing well, and even the stagnating bar soaps saw an improved performance in Canada in 2009. Although premium skin care suffered a setback, mass brands picked up the slack. And in the ongoing battle with wrinkles, antiaging skin care continued to thrive.

Also, while putting off salon visits to attend to their hair care needs, more Canadians were choosing the next best thing—premium and salon quality brands sold through mass retail. On the strength of this trend, brands such as John Frieda and Nexxus were navigating through the recession with sufficient confidence.

In the realm of fragrances, which has been living through tough times for a number of years now, all-time classics such as Chanel remained on the top of the game, and a number of new premium scents, such as Lola by Marc Jacobs, which launched in the midst of recession, are doing well.

Svetlana Uduslivaia is a research analyst in Euromonitor International’s Chicago office. She manages the research program on Canadian consumer markets and coordinates a team of in-country analysts located in Canada. She has a master’s degree in sociology from Lancaster University, UK, and Central European University (Hungary).