Can Beauty Get Bigger in 2024?
Wars may rage, inflation and interest rates rise and fall. But it still seems like mostly blue skies ahead for beauty.
As macroeconomic trends ebb and flow heading into an election year, beauty has kicked off 2024 as a darling of the 2023 holiday season, as well as the months prior. Circana reports that for the nine months ending Sept. 30, 2023, the prestige beauty market grew 14 percent, while the mass market rose 8 percent.
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Analysts and retailers agreed that the upward trajectory should continue in the year ahead, driven by TikTok and heightened consumer fascination with the category. Looming economic fears — disinflation and the ensuing promotionality, student loan repayments and credit card debt among them — are expected to impact beauty minimally, if at all, especially as interest rates and grocery prices plateau.
Much of that confidence comes from how beauty companies fared last year amid rising interest rates and the reprise of student loan payments. “In fiscal 2023, we still had a lot of resilience. The vast majority of companies did well,” said Raymond James analyst Olivia Tong. “Coty did well because of fragrance, L’Oréal continued to do well, and E.l.f. Beauty and Ulta were very strong.”
Tong posited that while external factors could rail up against consumer spend, engagement with the category is still high. “Interest rates are really high right now, and debt increases more quickly as a result,” she said. “Does that push on margins? Yes. But is that the end of the interest in beauty? No.”
Even if consumer tighten their wallets, they’re still expected to shell out on beauty products — albeit more choicefully.
“Beauty shoppers will be very mindful about what, where and how much they’ll spend,” said Wendy Liebmann, retail analyst and chief executive officer of WSL Strategic Retail. “Shoppers are in ‘just in case’ mode, in spite of improved macroeconomic trends.”
Others acknowledged that consumers would think twice before buying products, but are still bullish. “Generally, with the consumer, there’s a bit of a tug of war between needing to spend more on essential goods, including food, energy costs and consumables, and wanting to spend on discretionary items. Beauty, interestingly, fits into essential goods for many consumers,” said Oliver Chen, retail analyst, TD Cowen.
“The consumer is at a crossroads, and is being very considered in how they think about shopping and also being choiceful,” Chen continued. “There’s positives and negatives. The positives are that the consumer has $800 billion in spending power and consumer unemployment is below 4 percent. The labor market is tight, and the consumer is experiencing wage growth.”
Another factor is the disinflationary environment emerging in parts of the economy, predominantly in grocery.
While U.S. consumers have become accustomed to sky high prices on the back of soaring inflation, which hit a 40-year high in 2022, lately that has been easing.
In November, the consumer price index was 3.1 percent higher over the year, according to the U.S. Bureau of Labor Statistics and economists. That figure was more than 7 percent in November 2022.
That’s still above the Federal Reserve’s target of 2 percent, but economists are expecting this to continue to ease in 2024.
At the height of inflation, many beauty players like the Estée Lauder Cos., Procter & Gamble and Coty were among the companies raising prices on the back of soaring supply chain and transportation costs.
Although disinflation places more importance on beauty unit sales, it also points to more discretionary spending.
“Disinflation is actually a positive for beauty. When you’re having this tug-of-war, and you actually want discretionary items, you have more money to spend on non-food,” Chen said.
For retailers, that can mean lower prices in other categories. “But you can get higher margins and revenue flows in through other categories,” Chen contended. “The challenge for that sector is increasing units as prices come down. But overall, when the consumer has more dollars freed up, it’s a positive for the whole beauty industry.”
Creighton Kiper, Walmart’s vice president of beauty merchandising, said, “We always seek to have the best value in the market and the lowest prices. We will consistently put downward pressure on costs so that we can get it right for our customers.”
At Walmart, the winning price points are bifurcated between the less expensive end of the mass market and its prestige and luxury businesses.
“We are set to continue to our momentum into 2024,” Kiper said. “We’ve seen a strong bifurcation in price points. We have seen strong growth on price points $10 to $12, and below that, phenomenal unit growth.”
The opposite end of the spectrum is also performing well, said Kiper, who noted that the $50 to $100 price range is performing especially well digitally. “This past holiday, we sold more Dyson [hair tools] than we usually sell in a whole quarter, which is over $300 each,” he said.
The strength of the holiday season overall has buoyed retailers confidence for 2024 — particularly in luxury. Ulta Beauty, which unveiled its luxury offering last year, announced its partnership with prestige makeup brand Charlotte Tilbury last week. Macy’s has also gone wider on the high-end of the market, unveiling a new luxury concept in Miami last month with more on the way in 2024.
“We had a strong holiday season with beauty, and we’ve been focused on securing that position as a leading beauty destination — especially with a focus on luxury,” said Nata Dvir, chief merchandising officer, Macy’s Inc. “We’re going to continue to invest in the beauty category, with a focus around luxury, but across all of the different axes.”
That outlook is in line with Circana data, which showed consumers trading up in skin care and makeup while paring back in fragrances for lower-priced scents, as reported.
Shoppers at Macy’s are going for value, Dvir said, whether it be in gift sets or in products that can justify steeper price points. “It’s not about discount or promotion, it’s about the value that you get, whether it’s through a gift set or an added service,” she said. “The customer is willing to pay when they see the value in the product and we haven’t seen a trade up or a trade down when the product deserves its price point.”
Though promotion has caused concern in recent years — and could uptick following the past year’s inflationary environment — Tong was optimistic. “You’re probably going to see more percent of sales coming from promotion than last year,” she said. “In beauty, we’re still below 2019 levels. Relative to that period, promotion is close to what would’ve been considered normal, pre-pandemic.”
Chen agreed, calling the trend a “normalization” from when price discounting was more scarce. “Consumers are going back to stores. Promotions are more worrisome in other categories. Beauty has been very healthy,” he said. “The thing about beauty that’s attractive is that companies can use it as a tool to get traffic in stores. It can be utilized strategically.”
TikTok, which unveiled its own in-app shopping platform earlier this year, will continue to drive growth and christen new cohorts of beauty shoppers. As reported, at TikTok Shop’s launch, beauty accounted for 84 percent of sales, per NIQ data.
“When you think about ‘get ready with me’-type videos, they result in more product. There are a couple of underpenetrated categories, like primers, and when you look at these products that mimic filters, you need different regimens,” Tong said. “We have had so much product proliferation, and there are those who can educate and build a regimen for a hungry consumer.”
On the retail side, it also looks like brands are finding better ways to predict and assume virality online. “Brands are getting better at predicting demand or even chasing it, which can help us maximize on it,” Dvir said, noting that the phenomenon is fairly beauty-specific. “This happens in every category, but beauty isn’t size-intensive. Many people can wear Clinique Black Honey. Many people can use lip oils, and that’s what makes these things go so big.”
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