Prestige beauty was one of our call-out categories for outperformance last year, including the 2023 holiday season. Well, the results are in, and prestige was a beauty again.
For Q4 2023, traffic momentum for several of the key beauty retailers grew by +240 basis points, as shown in the table below. Our data aligns with industry tracker Circana, which reported that the prestige beauty category grew by +14% on a dollar basis for 2023 and +15% during Q4 2023.
We discussed the momentum at Ulta, Sephora, and Sephora at Kohl’s several times last year. Note that Kohl’s visitation figures are for its three-month period ending Jan. 27, including low-single-digit declines during November and December before steeper declines (-16%) in January (a month that was negatively impacted by inclement weather across much of the country). Given that the average basket size and intent to purchase are far higher in November/December compared to January and that January is the month of returns (a debit to sales), we forecast that Kohl’s brick-and-mortar sales will be flat to up low-singles, ahead of its department store peers.
This week, holding company L'Oréal reported double-digit growth for its prestige category in the U.S. Estée Lauder reported double-digit growth in its specialty-multi channel (which includes Ulta, Sephora, Blue Mercury, among others), offset by declines in department stores (not a new story). The M.A.C. brand was down which likely reflects share losses to emergent influencer “ankle-biter” brands and its low exposure to specialty-multi. In general, the full M.A.C. lineup can only be purchased at its own retail locations, and department stores like Macy’s, Bloomingdales, Nordstrom; however, its availability is increasing at Ulta, Sephora, etc. Estée Lauder had resisted opening up to the specialty channel--a stance reversed during 2023--which partly explains Estée market share losses (i.e., flat sales growth in a +15% market). M.A.C. is also “off-cycle” as it relates to fashion at the moment, where consumer focus is "cleaner" products (health and environmentally friendly), plus a far more natural finish and look. Other brands are also being opened up to specialty-multi, which will drive growth for Estée while also being a market share mover from department stores to specialty-multi. Also of note, Estée will step up investment behind Aveda–which is losing a lot of market share, as it needs to contemporize the brand.
A proof point on the above is influencer-powered e.l.f. Beauty, which is very focused on specialty-multi (as well as mass, direct-to-consumer, and Amazon). On its most recent quarterly update, e.l.f. CEO Tarang Amin noted, “We grew net sales by 85% and market share by 305 basis points...We have more than doubled our market share from about 4.5% in 2019 to 10% in 2023, placing us as a #3 brand nationally.” (305 bps is a lot.) e.l.f. is also winning share because the consumer is currently preferencing value and lower price points (something we've heaard for other retailer and restaurants). Coty was also able to produce outperformance during its most recent quarter, with its prestige business up over +20% in the U.S. led by fragrance (Hugo Boss, Calvin Klein, Gucci, Chloé, Marc Jacobs and Davidoff). Its outperformance also reflects its success with influencers and its high exposure to that fast-growing fragrance market.
Lastly, beauty isn’t just for the young. L’Oréal CEO Nicolas Hieronimus observed, “We remain confident on the outlook for Europe and North America. You may be surprised to hear me talk about Europe and North America as growth drivers for the group, given that they used to be below group average in the past, but that has already started to change in 2022 and 2023, and both regions still hold a lot of growth opportunities for us. Both regions are aging. Boomers account for 21% of the population in North America and for 18% in Europe. And boomers are truly booming with the strongest beauty dynamics in generations. They buy more products and more expensive products. They say that 60s are the new 40s. As I just turned 60, I would tend to agree with this. This is an incredibly good news for the beauty industry, and it plays to our strengths, given our best-in-class access to data on aging hair and skin. Our unparalleled research-driven innovation pipeline and our increasing focus on better understanding the issues and opportunities around longevity. North America has the highest percentage of affluent consumers in the world. This clearly supports the continued dynamism of the beauty category. And given our brand portfolio skewed towards middle and upper-middle-class consumers, we're particularly well placed to benefit from this trend.” Readers will recall one of our enduring themes, which we introduced in 2022, that global brands were turning their sites onto the U.S. consumer as other regions (China, Latin America, etc.) were becoming too fraught with risk–a positive development for U.S. commercial real estate.
