As we continue in the back half of the year, retail categories that shouldered much of the industry have shown some signs of softening, even as foot traffic growth continues. Beauty has been an illuminating bright spot in specialty retail, even as others softened in the post-pandemic period, unwavering in its growth over the last few years. But we’re starting to see and hear signs of softening across the category. We reported a few weeks ago that Sephora’s growth has slowed, and its gain in market share could signal a crack in Ulta Beauty’s dominance across the category.
As we stand at the end of July 2024, foot traffic to beauty and self-care chains is up 3% year-over-year. By contrast, at this point in 2023 traffic to beauty chains was up 15% year-over-year; the 2024 comparisons against the last two years are more difficult to surpass as the industry dominated. The industry has been bolstered by Ulta’s successes and the benefit of collaborative partnerships such as Ulta + Target and Sephora + Kohl’s as well as the rise of "masstige" beauty as consumers become more value oriented while also trying to retain those small indulgences. But how are other brands in the category faring in the shadow of these flashy performances?
Looking across a few different retailers, from beauty supply to bath to luxury, traffic performances year-to-date form a slightly different narrative, contributing to the softer growth category wide. Bath & Body Works has seen a 6% decline in traffic year-over-year so far in 2024, following strong performances in 2022 & 2023. Sally Beauty Supply and Bluemercury traffic trends are slightly more positive, with traffic up 3% and flat respectively compared to last year.
From the outside, the performance of these three beauty retailers aligns to larger trends we’ve observed across the retail industry. Sally Beauty Supply benefits from the professional side of the business as opposed to just relying on discretionary spending. However, the retailer services a lower median household income than other beauty retailers. The median household income of visitors to Sally Beauty Supply lags behind the average of beauty and self-care chains by $10,000, and performance of this chain may be a barometer for future beauty trends with lower income shoppers. The retailer has the highest percentage of loyal visitors of the three chains we reviewed, with 6% visiting at least 2 times per month, although it's still around half of the percentage of loyal visitors to Ulta Beauty.
Bluemercury, although just flat in performance, appeals to a higher income household shopper, although it also faces steeper competition from department stores, Ulta Beauty and Sephora. In its Q1 earnings release, parent company Macy’s Inc. shared that comparable sales rose 4.3% over 2023, so we may be seeing an increase in basket size despite flat traffic. Macy’s highlighted that Bluemercury, along with Bloomingdale’s, have been steady drivers of growth for the company, partly due to their higher end nature.
Bluemercury’s household income is significantly higher than any other beauty chain, and with further consolidation a possibility in the luxury sector, it may have a longer runway of opportunity. Luxury beauty brands continue to open direct to consumer channels for shoppers, and for brands like Chanel, who has been bullish on its Beauty & Fragrance boutiques, our data shows that locations have proven successful in attracting visitors. Bluemercury is well positioned to avoid some of the obstacles other beauty chains face, but increased brand presence could also create more indirect competitors for share of visits and wallet.
Finally, in the case of Bath & Body Works, trends we’ve seen in the home furnishings space may apply here as well as the general cooling off of consumer discretionary spend. The retailer truly stands out as a destination for its visitors according to Placer’s visitor journey; approximately 23% of visitors come directly to the retailer from home and the same percentage go home immediately after visiting. Visitors to Bath & Body Works also have a median household income on the lower end of other beauty retailers. As consumers weigh the value of needs vs. wants, bath, fragrance and home items, they may choose to simply not visit to avoid temptation. Using Placer’s Frequent Co-Tenants report, the retailer is often located with other specialty retailers in apparel, accessories and electronics, many of which have also softened in the post-pandemic period as consumers become more discerning with their retail habits.
Overall, beauty still has some bright spots, including large national retailers that are bolstering the industry in 2024. But, with the variety of performances, the beauty category appears to be bracing for slightly choppy waters ahead. Each speciality retail category has gone through a transformation following an extended period of growth and beauty currently sits slightly below its peak. Keeping pace with consumer trends, innovating and providing uniqueness and value by chain will be even more important as those waves of change occur over the next year.
