Can beauty be greater in 2024?

Wars can rage, inflation and interest rates can rise and fall. But it still seems mostly blue skies ahead of beauty.

As macroeconomic trends approach an election year, beauty has begun 2024 as a store for the 2023 holiday season, as well as the months before that. Circana reports that the prestige beauty market grew 14 percent for the nine months ending September 30, 2023, while the mass market rose 8 percent.

More from WWD

Analysts and retailers agreed that the upward trajectory should continue in the coming year, driven by TikTok and increased consumer interest in the category. Emerging economic fears – including deflation and subsequent inflation, student loan repayments and credit card debt – are expected to have minimal, if any, impact on beauty, especially since that interest rates and grocery prices are skyrocketing.

Much of that confidence comes from how beauty companies fared last year amid rising interest rates and the revaluation of student loan payments. “In fiscal 2023, we still had plenty of resilience. The vast majority of companies did well,” said Raymond James analyst Olivia Tong. “Coty did well for its fragrances, L’Oréal continued to do well, and Elf Beauty and Ulta were very strong.”

Macy's Dadeland luxury beauty destination, Wednesday, Nov. 29, 2023 in Miami (Jesus Aranguren Images/AP for Macy's, Inc.)Macy's Dadeland luxury beauty destination, Wednesday, Nov. 29, 2023 in Miami (Jesus Aranguren Images/AP for Macy's, Inc.)

Gucci fragrances at Macy’s Dadeland store.

Tong said that while external factors may come against consumer spending, engagement with the category remains high. “Interest rates are really high right now, and debt grows faster as a result,” she said. “Does that put pressure on margins? Yes. But is that the end of the fascination with beauty? No.”

Even if consumers tighten their wallets, they are expected to use beauty products – albeit more selectively.

“Beauty shoppers will be very careful about what, where and how much they spend,” said Wendy Liebmann, retail analyst and chief executive officer of WSL Strategic Retail. “Shoppers are in ‘just in case’ mode, despite improving macroeconomic trends.”

Others admitted that consumers would think twice before buying products, but they are still bullish. “In general, among the consumer, there is a great war between the need to spend more on essentials, including food, energy costs and consumables, and wanting to spend on discretionary items. Interestingly, beauty fits into essential goods for many consumers,” said Oliver Chen, retail analyst, TD Cowen.

“The consumer is at a crossroads, and it’s being very thoughtful about how they think about shopping and also being selective,” Chen continued. “There are positives and negatives. The positive is that the consumer has $800 billion in spending power and consumer unemployment is below 4 percent. The labor market is tight, and the consumer has wage growth.”

Another factor is the deflationary environment that is emerging in parts of the economy, mainly in grocery.

While US consumers are used to sky-high prices due to soaring inflation, which will reach a 40-year peak in 2022, that has been easing recently.

In November, the consumer price index was 3.1 percent higher over the year, according to the Bureau of Labor Statistics and US economists. That figure was more than 7 percent in November 2022.

That is still above the Federal Reserve’s target of 2 percent, but economists expect this to continue to ease in 2024.

With inflation at its peak, many beauty players such as the Estée Lauder Cos., Procter & Gamble and Coty were among the companies that raised prices due to soaring supply chain and transportation costs.

While deflation puts more emphasis on beauty unit sales, it also focuses on more discretionary spending.

“Deflation is a positive thing for beauty. When you have this tug-of-war, and you 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 streams in through other categories,” Chen said. “The challenge for that sector is to increase units as prices come down. But overall, when the consumer has more free dollars, it’s a positive thing for the entire beauty industry.”

Creighton Kiper, Walmart’s vice president of beauty marketing, said, “We always strive to have the best value in the market and the lowest prices. We will consistently drive down costs so we can get it right for our customers.”

At Walmart, the winning price points are two-way between the cheaper end of the supermarket and its prestige and luxury businesses.

“We’re going to continue our momentum into 2024,” Kiper said. “We’ve seen a big boom in price points. We’ve seen strong growth at $10 to $12 price points, and below that, great unit growth.”

The other end of the spectrum is also performing well, said Kiper, who noted that the $50 to $100 price range is doing very well digitally. “Last holiday, we sold more Dyson [hair tools] than we usually sell in full quarts, which are over $300 each,” he said.

The overall strength of the holiday season has boosted retailer confidence for 2024 — especially in luxury. Ulta Beauty, which unveiled its luxury offering last year, announced its partnership with award-winning makeup brand Charlotte Tilbury last week. Macy’s has gone much wider in the market, unveiling a new luxury concept in Miami last month and more on the way in 2024.

“We had a strong holiday season in beauty, and we were focused on achieving 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. continue to invest in the beauty category, focusing on luxury, but across different axes.”

That expectation is in line with Circana data, which showed consumers were trading up in skincare and makeup while ditching fragrances for lower-priced scents, as reported.

Shoppers are finding value at Macy’s, Dvir said, whether in gift sets or products that can justify steeper price points. “It’s not about a discount or a promotion, it’s about the value you get, whether it’s through a gift set or an additional service,” she said. “The customer is willing to pay when they see the value of the product and we have not seen a trade up or down when the product deserves the price point.”

Although inflation has been a concern in recent years – and could be higher after last year’s inflationary environment – Tong was optimistic. “You’ll probably see a higher percentage of sales coming from promotions than last year,” she said. “In beauty, we are still below the levels of 2019. Compared to that period, the promotion is close to what was considered normal, pre-pandemic.”

Chen agreed, calling the trend “normalization” since discounting prices were scarcer. “Consumers are going back to the shops. Promotions are worse in other categories. Beauty was very healthy,” he said. “The attractive thing about beauty is that companies can use it as a tool to get traffic in stores. It can be used 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 the launch of TikTok Shop, beauty accounted for 84 percent of sales, according to NIQ data.

“When you think about ‘get ready with me’ type videos, it leads to more products. There are a few underpenetrated categories, like primers, and when you look at these products that mimic filters, you need different regimens,” said Tong. “We have such a proliferation of products, and there are people who can educate and build a system for a hungry consumer.”

From a retail perspective, brands also seem to be finding better ways to predict and embrace virality online. “Brands are getting better at predicting demand or even chasing it, which will help us make the most of it,” said Dvir, noting that the phenomenon is quite specific to beauty. “This happens in all categories, but beauty is not very strict about size. Many people can wear Clinique Black Honey. A lot of people can use lip oils, and that’s what makes these things so popular.”

The best of WWD

Leave a Reply

Your email address will not be published. Required fields are marked *