Healthy Glow in Tough Times

While households have been postponing purchases of larger ticket items until the threatening clouds of unemployment have passed, many recession-weary consumers have sought to alleviate the gloom with smaller indulgences, and the health and beauty sector has benefited.

Specialist health and beauty chains have also been pro-active in fighting the recession by implementing a series of measures to lessen the impact of the global economic slowdown. Retailers like The Body Shop have looked to become leaner through restructuring; some have taken steps to reinforce their positions in established home markets, while others have focused on continued expansion into emerging markets. And Sephora, among others, has tweaked its in-store offer to capitalize on growth in emerging product sectors like male grooming and natural/organic beauty.

Earlier in the year, U.K.-based The Body Shop registered a fairly weak first quarter and noticed a decrease in visitors to its stores. Results improved in the second quarter, which led parent company L’Oreal to declare itself “confident in the improvement” of its activities through full-year 2009. The Body Shop is undergoing a structural review to increase efficiency, better understand customers’ needs and reinforce its innovation process. CEO Sophie Gasperment says The Body Shop “must become quicker, more agile and more efficient.”

In France, LVMH-owned Sephora is having a good year: its $10.92 billion in revenues for the first six months of 2009 reflect a slight increase over the same period in 2008. The retailer registered revenue growth in all its developed markets over the period. These results enabled LVMH, whose luxury goods divisions are suffering during the economic crisis, to benefit from its health and beauty retail banner’s resilience.

Counting on promising markets
Emerging health and beauty markets, including Brazil and China, have proved even more resilient during the downturn. João Carlos Basilio da Silva, president of the Brazilian Perfume and Cosmetics Association, estimates that beauty product sales in his country grew 18 percent in the first half of 2009, prompting the association to revise full-year projections up-ward from 5 percent growth to 11 percent growth, attributing the increase to the industry maintaining its efforts in investment, innovation and new product launches.

As a result, some health and beauty retailers have implemented strategic expansion that places renewed emphasis on emerging markets. LVMH, for instance, now realizes 30 percent of its overall sales from emerging markets. The Body Shop realized its strongest performances in emerging markets — notably in Brazil and Asia, where sales have increased 21.1 percent.

Boots, the U.K.’s No. 1 health and beauty retailer, is forging ahead with expansion into emerging markets, having recently opened its 16th outlet in Dubai, United Arab Emirates.

Grabbing new segments
Another driver has been the growth of the men’s care segment. Men are becoming increasingly receptive to health and beauty products and are now included in ranges where they were previously ignored. Sephora has developed its own range of products for men under the Sephora Men brand, and offers a dedicated space for male grooming on its website.

Additionally, the market for natural and organic care products has grown in leaps and bounds in recent years. Beauty retailers could benefit from the growing number of green consumers willing to pay a premium for environmentally friendly goods.

On the other hand, specialist health and beauty retailers will need to combat the long-term threat that hypermarkets present, especially in emerging markets. Grocers in China are expanding their offerings of health and beauty products, drawn to a sector whose growth rate is more than twice that of the overall Chinese economy. Specialists will need to come up with more attractive loyalty schemes and offer additional services (providing samples and beauty bars, for instance) that hypermarkets are unlikely to offer.