With the UK economy contracting in the last three months of 2012, dire warnings of a dreaded triple-dip recession and the most optimistic forecasts for 2013 predicting a paltry 0.3% growth, you’d think the horns of Armageddon are blowing across the UK high streets.
However, when it comes to health and beauty it’s certainly not so. In fact the sector has never been so healthy. Cosmetic Executive Women UK estimates the UK beauty industry is worth £15bn, the best shape it has ever been in. It seems the UK shopper is determined to look as beautiful as possible despite, and possibly on account of, the clouds of recession.
Even market research company Mintel is forecasting growth in beauty retailing, with its most conservative forecast predicting an upward trend. The sector’s main players are also jostling to ensure they remain in pole position by reshaping strategies and adopting new focuses.
Mass market players
Boots, the market leader in health and beauty sales, is continuing its strategy of focusing on core beauty products and its own brand No7 and 17 items. A recently launched major customer care programme, and market credibility, helps differentiate it from other mass market players. In its 2012 financial year, the company’s UK trading profit for health and beauty rose by 5.2%, though as Mintel points out, it can’t afford to become complacent given the rivals snapping at its heels.
For example, Tesco, with 12.3% of the market compared to Boots’ 16.8%, according to Mintel figures, is upping its game in the health and beauty sector, though at a seemingly slower pace than it originally planned. In 2011 the supermarket behemoth was talking up its plans for in-store Your beauty salons in around 70 Tesco Extra stores.
However, a Tesco spokesman says: “We have beauty salons or offer salon services in 20 Tesco Extra stores and offer beauty services including hairdressing, nail treatments and a brow bar we plan to extend the Tesco beauty concept, as well as the treatments we offer, to more stores in the future.”
The size of Tesco’s beauty salons varies from store to store but the average is 646 sq ft, indicating a substantial development at least. However, the slower beauty salon roll-out may indicate that Tesco is still trying to find the sweet spot when it comes to providing specific services. Are Brazilian waxes the thing, or do vajazzles get the ladies, or men, of Lincoln going?
Fast-paced expansion
One company that is having no such problems is The Fragrance Shop, the UK’s largest independent perfume retailer. Nigel Lawmon, managing director, reckons the UK is now the world’s fastest-growing market for perfumes. In its last financial year to March 2012, it notched up sales of £1.4bn with reported profits of £9.3m.
The popularity of perfumes is driving the company’s fast-paced expansion. When it unveiled its 2012 financial figures, The Fragrance Shop announced a 100-store expansion drive over the coming five years. To date it has opened a further 13 stores and is seeking prime high street and shopping centre locations. It’s looking for anything between 300 and 1,200 sq ft with an optimal size of between 400 and 1,000 sq ft.
Like the other players in this market, The Fragrance Shop is investing in a multi-channel strategy with both online and bricks-and-mortar sales. Mintel says that so far there seems to be little appetite for the relatively new mobile commerce among consumers but this is set to change as more retailers develop mobile-enabled websites and easy-to-use apps. This will complement rather than oust retail sales, however.
Superdrug, which lost out to rivals in 2010, has steadily been gaining ground and over the past few years has posted impressive results. With around 900 stores in the UK, and positioned as the affordable, fashionable beauty retailer, the company has recently switched its marketing focus to customer care.
The feelgood factor
IGD, a US-based consumer goods research organisation that dips its toes into the UK market, reckons the “feelgood” factor generated by health and beauty retail is helping the sector remain buoyant and points out that this is also driving innovation on the part of retailers keen to exploit the sector.
Hilary Monk, senior retail analyst at Mintel, concurs with this but adds that despite the growth in the sector, consumers are still likely to cut back on beauty spending and shop more on price given the uncertain economic conditions. She further says that retailers in the sector will have to deliver tangible points of difference in the quality of product and service, hence Superdrug’s decision to drop its celebrity-based advertising and follow in the footsteps of Boots by placing customer service at the top of its to-do list.
Clearly, retail rents that have historically focused on continued growth and “reckless” consumer spending are now reflecting the cautionary economic environment. Rapid growth in online spending, which now accounts for 12% of retail sales, has also had a deleterious impact, mainly at the expense of conventional shops, supermarkets and department stores, resulting in even lower spending in physical retail stores.
However, despite Monk’s warnings and the growing tide of online retail sales, the health and beauty sector still presents lucrative opportunities. Harvey Nichols, for example, took the plunge in Liverpool by opening a 22,000 sq ft, Beauty Bazaar, in Grosvenor’s Liverpool ONE.
Miles Dunnet, senior asset manager, Grosvenor Liverpool Fund, believes the sector is almost recession proof and adds that with the right type of offering, there is room for growth. Beauty Bazaar has a catchment area of 4.1m people and a 27% higher catchment growth compared with 2010.
He says: “The Beauty Bazaar offering fits into growth patterns in the health and beauty sector and it is attracting shoppers at the high end of Mosaic profiles as well as those looking for affordable products.”
He also believes there is room for growth and points to metropolitan areas such as Newcastle, and even the West Country, where the concept could be successfully expanded.
It might be assumed that given the health of the sector it would attract overseas competitors. Sephora, a French brand and chain of cosmetics, considered adopting a similar approach to Harvey Nichols, but in a smaller way.
However, soaring rental costs, out-of-town store locations and a lack of new brands seemed to have taken their toll and the company closed its nine stores.
Despite the general downward trend across the UK retail sector, the health and beauty market is holding its own, and is in fact bucking the trend with growth projected across all categories, from nails, hair and eyes, to perfumes and beauty treatments.
It would appear that as the economic gloom gets deeper the nation turns to various kinds of war paint, body waxing, hair styling and teeth whitening to brighten its mood, which ultimately can only be good news for a rental market that has certainly seen its share of losses.
