- L'Oréal reported an exquisite Q4 2022 and its outlook for 2023 implies ongoing outsized growth for the beauty category and its retail partners. Beauty, especially prestige beauty, is one of the most durable growth categories of consumer spending. Shown in the figure below is the category’s global growth over the past 24 years.
- L'Oréal has consistently outperformed the category in both the mass and prestige segments. Last year, its organic growth of +10.2% far exceeded the market, as did its +10.4% growth in the U.S. This past year, we have described fragrance as one of the pandemic’s durable winners; L'Oréal’s fragrance business at $4.7B is 60% larger than it was pre-pandemic.
Source: L'Oreal 2023 Outlook
- In our review of Holiday 2022, we called out Sephora as the gold medal winner of the winning category (beauty) for the holidays. As the traffic chart below shows, that momentum has carried over into 2023.
- Part of the strength shown in 2023 is base-period effects; however, even compared to 2019, the gains are impressive. The figure below contrasts Sephora’s Marina Del Rey location pre-pandemic to post-pandemic where it has posted gains in both visits and visitors. The gains are far more dynamic in December and January. Moreover, the gains shown at Marina Del Rey are similar to the gains shown for most of its other top non-indoor locations. Other consumer panel data also show robust gains for the category. What’s driving the strength?
- Our hypothesis is that the category, especially skincare, is largely routine-based and the routines are increasing as we move beyond the pandemic. “Health” and skincare were pandemic winners, as well as fragrance, and those routines continue; added to these are the rebounding uses such as foundation and face for going back to events, back to the office, and out on the town. L'Oréal’s makeup business just broke even with 201919. And 2023 is going to be a dynamic year for the makeup category given the “going back to…” dynamics, the ongoing recovery in tourism, and the celebration of life via TikTok.
- On fragrance and strong gains this year, NPD wrote, “In 2022, prestige fragrance sales in the two weeks leading up to Valentine’s Day reached nearly $270 million, growing by 29% versus 2021. The market continued this trajectory for the remainder of 2022…and the category is already boasting double-digit growth during the opening weeks of 2023. These results are a positive indicator that sales will be sweet for Valentine’s Day 2023...Physical retail gives shoppers the opportunity to experience a scent before they buy it, plus it offers the opportunity to get input from sales associates. Last year, brick-and-mortar stores accounted for 80% of fragrance sales revenue for Valentine’s Day, so we can say with confidence that this channel will continue to be most important in the weeks ahead. Department stores account for the largest share of sales, but consumers have been increasingly opting to purchase fragrances at beauty specialty retailers.”
- Perfumania is a small-box (2K square feet) fragrance specialist with a focus on branded product at a discount; locations are in discount and outlet centers. Perfumania has about 100 locations in the U.S. and despite their small size, the locations produce a high level of sales ($1.3M) and good economics ($650 in sales per-sq-ft and 50%+ gross margins). They also attract a compelling consumer ($91K in average income and style/appearance focused). Above we show traffic to Perfumania for December and January.
- Perfumania is owned by Obsession Holding, along with Fragrance Outlet, which also has 100 locations. Below are two slides from Obsession Holding that were shared at the 2023 ICR Conference. The company does about $300M in sales and $40M in EBITDA and its long-term plan is to add 300-350 locations.
Source: Obsession Holdings/Fragrance Outlet ICR Presentation, Jan. 11, 2023
Source: Obsession Holdings/Fragrance Outlet ICR Presentation, Jan. 11, 2023
