Ms. Clarke

Spas, Health & Fitness

Structural Shift in the Personal Care Industry - Spas and the Beauty Business in a Downturn

By Jacqueline Clarke, Research Director, Diagonal Reports

Many hotel spa operators are facing their first significant economic downturn. The first because many hotel spas are new, and hotel spas were among the pioneers of the new spa industry that has developed in the past decade around the world.

How is the spa industry faring? The newness of this industry means there is no directly comparable historical data. Further in a fragmented spa market data is scarce. This article looks at the performance of a mixed bag of broadly comparable businesses, that is beauty and personal care, to give a flavour of the disparate industry.

An often expressed view in the beauty industry in late 2008 to the first indications of a serious downturn was to roll out the “lipstick theory.” That is that any future downturn would see the core consumers of beauty, women, sustain the market by spending on minor indulgences, such as lipstick.

The lipstick theory derives its name from an explanation propounded by Estee Lauder to explain the rise in luxury lipstick sales during a downturn at turn of the century. Though luxury lipsticks might not be the product, the fundamentals of the theory are a guide to consumer behaviour. That is, that beauty is necessary treat for many consumers.

Some companies in very different markets from North America to Europe have bucked the trend and report no change in sales to date in 2009, compared to 2008. These companies attribute their performance to their offer of, what are, relatively inexpensive treats (what in the USA they call “little goodies,” and in France “petits bonheurs”.)

The USA company represents the, so-called, beauty kiosks. That is small unit offering various beauty and body care treatments that are located inside of high volume commercial centres across North America. The performance of the kiosk beauty formula, which was first rolled out in the USA in 2007, contrasts with the performance of the wider professional beauty market. According to one leading company ––L’Oreal–– US beauty salons, day spas, and medspas registered a reduction in footfall to date (first half) in 2009.

In France, a beauty formulas that have much in common with the US kiosk beauty were also (happily) surprised by their own performance. One company, Point Soleil (www.pointsoleil.com) which self identifies as having 25% of the more than €150 million national commercial tanning market, attributed its steady sales to date in 2009 to its offer of affordable beauty. Another 180-strong beauty franchise, Esthetic Center (www.estheticcenter.com), reports that the economic crisis has not impacted on overall company sales in 2009. However, it notes a dip in demand for its more expensive services.

What these better performing US and French companies have in common is that they had recruited a new consumer segment to beauty services, that is, younger and often budget conscious consumers. They did this by offering prices ranging from 50% to 75% less than for the same services in more conventional businesses, such as beauty salons, and hotel spas. As one example the Esthetic Centre offer of hair removal at €4 compares to competitors offer of €20.

The affordable beauty franchises have recruited a new consumer segment to professional hair removal and skin care, younger ––often budget conscious–– women. Their consumer age profile is very different from that of the wider market. As one example, the German salon/spa channel has estimated that one in three of its women consumers is over 59 years.

The current performance of the “affordable professional beauty” sector contrasts ––quite dramatically in some cases– with that of other more expensive commercial formulas. One contrast is that of the 14,000-strong beauty salon/spa market in France. The recent economic downturn may only aggravate the troubles of that industry. The traditional salon/spa sector has continued to be stagnant for the last few years, according to a major study of the French industry commissioned by the national association the CNEP.

Indeed research suggest that the situation is much the same, at least for some types of beauty services providers in the UK. A Consulting Room Study of medical beauty providers, covering the period 2004 to 2009, indicates extremely inconsistent performance of salons/med spas offering the more expensive medicalised cosmetic services. The study suggests that only the larger businesses were consistently profitable in that period, and many of the smaller ones were lucky to break even.

Indeed the future of the smaller units is uncertain given the evidence of some consumer migration to cut (reduced) price aesthetic medical treatments, as reported by the British Association of Cosmetic Doctors (BACD).

How are companies with a broad perspective of the beauty market faring? That is global leaders in the beauty products market, for example, Procter & Gamble (P&G), L’Oreal, Revlon and Regis (RGS). The last mentioned, Regis (www.regiscorp.com), self identifies as the largest hair salon company in the world with 12,800 units. These companies' latest sales data (as of Sept 2009) shows the following: Revlon saw sales decrease 12.2%, and Regis a sales decrease of 4% in 2009 compared to 2008. P&G reported the following data for the 2nd quarter of 2009: beauty sales decreased 9%, and grooming sales fell by 16% and in health care by 12%. L’Oreal reported for the first half of 2009 trends down 3.2%.

Some recent market data suggests there could be some hope for improvement in the approximately $60 billion a year US salon/spa industry. A report on the second quarter of 2009, by the Professional Beauty Association-PBA (www.probeauty.org) –– quarterly Salon/Spa Performance Index (SSPI) –– showed a 0.7% increase in the second quarter of 2009 from the first quarter level. The performance of the more affordable day salons/spas compares very favourably with that in the luxury hotel spa market. That market could have seen a decrease of 13% in June 2009 compared to same period in 2008 according data by Smith Travel’s latest Spa STAR report.

However, the future is still uncertain. One of the leading beauty retailers in France, the perfumery chain Beauty Success, despite growth of 4% in the first half of 2009–– when the French perfumery sector fell by 6%–– hopes for, at best, a stagnant performance, that is 0%, in 2009 compared to 2008.

The resilient, if not recession proof, nature of beauty spending will not surprise many long established market experts, among whom hair and skin service professionals. Experts interviewed by Diagonal Reports for a recent report on hair colouring (the “US Hair Coloring, Hair Design Market 2008”) insisted that the professional hair care market in the USA is a market of strong contrasts. In a slow to stagnant market, quality segments outperformed, many growing at five times the average national rate.

The quality segments attributes its success to the offer of Do It For Me (DIFM) services that consumers cannot replace with Do It Yourself (DIY) solutions. The quality niche salons/spas insisted that even if the economy softens, their clients would not stop spending on their hair, nor would large numbers migrate to the value for money, no frills budget services. Rather the clients would spend in quality salons whose skilled staff can customize haircuts and colors for individual clients.

Further, a weak economy can shape consumer behaviors that benefit salons/spas. That is, as people cut back on vacations, and travel less, some can regard a beauty visit as a mini-vacation. To quote one professional: “With a declining dollar and bad economy, people are taking fewer vacations. In this context beauty services become a ‘getaway’ even if it only just for an hour.”

Those who cater to quality conscious consumers in the USA, like their counterparts in other parts of the world, insist that the budget and the quality salons/spas do not compete with each other because there is no “one size fits all” in the beauty market.

Research director of Diagonal Reports, Jacqueline Clarke has designed and developed the company’s professional beauty market research programme. She directs the Global Salon Panel (GSP) series which analyses and synthesises intelligence on the beauty and well-being markets. Ms. Clarke knows the global market and identifies and tracks key sector trends globally. Ms. Clarke's global expertise covers the largest beautycare/wellness markets worldwide, including the US, Latin America, Europe and Asia. She has worked with some of the largest beauty companies in the US and Europe. Ms. Clarke can be contacted at +353-4695-49027 or dreditor@eircom.net Extended Bio...

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