There have been dire predictions, with Kline revealing that US beauty and personal care sales are on track for their sharpest decline in more than 60 years. Its worst-case scenario is an 8.1 percent drop in 2020; the likely scenario would be a more modest fall of 2.5 percent while the best-case scenario is a 1.5 percent climb versus the 3.8 percent CAGR forecast through 2023, pre-COVID-19.
Considering at the close of last year, global beauty growth was centred around the travel retail channel, China and luxury cosmetics, these predictions look entirely plausible, if not generous; the onset of sweeping travel restrictions and store closures that effectively wiped out the perfumery channel, not to mention strict quarantine measures that struck exactly at one of China’s peak shopping seasons have left many cosmetics manufacturers reeling.
“Given the unprecedented situation that is unfolding globally as both a health crisis as well as a financial one, it is not surprising that the beauty market should experience its worst performance now,” says Carrie Mellage, Vice President of Kline’s Consumer Products Practice. “Even our worst-case scenario of ‑8% probably does not feel steep enough given the dark days we are all living, but there are enough essential categories in the mix to keep the market stable.”
Indeed, even a perfunctory look at the first results to emerge in this COVID-19 world show that luxury has fallen off a cliff, while the mass market has enjoyed gains not seen for years. At LVMH, for example, sales were down 15 percent overall but the drop widened to 19 percent for its Perfume and Cosmetics division and positively gaped at -26 percent for Selective Retail, which includes both Sephora and DFS. Coty, meanwhile, is predicting a 20 percent sales fall for Q3 2020.
At Procter & Gamble, however, it was a very different story. The US FMCG manufacturer saw its best US sales growth in decades, with sales climbing 5 percent overall and net earnings up 8 percent. And while most of this gain can be attributed to P&G’s Fabric & Home Care unit, Beauty still managed to eke out a 1 percent rise. At PZ Cussons, sales weren’t quite as buoyant and beauty was said to be ‘severely impacted’, although the company did report that its revenue dropped ‘at a reduced rate compared to the first half of the financial year’. Kao has also stated that healthy hand soap sales are helping to offset losses experienced in other categories.
L’Oréal’s results bore the theory out, with its Professional and Luxe divisions bearing the brunt of the crisis while Consumer Products saw a more modest decline and Active Cosmetics continued to post growth. Will Lauder’s results, due May 1, mirror LVMH and Coty’s experience? A leaked internal memo suggests so, with the US prestige beauty firm describing the crisis as ‘unlike anything we have faced before in terms of scope and impact’.
Meanwhile, on the supplier side, if Givaudan’s results have been anything to go by, there’s been ‘minimal disruption’.
Of course, these results refer to a period of lockdown. Much of Europe, and some US states have made tentative steps to exit from quarantine and, in the absence of a vaccine, the world will have to come up with a better solution than repeated lockdowns (I’m sure Sweden could give a few pointers). The next quarter will be telling. Is this a temporary blip or the widely predicted ‘U-shaped’ recession? Certainly, both L’Oréal’s Agon and LVMH’s Arnault noted that sales had picked up in China since early April.
“The cosmetics market will undoubtedly suffer in 2020 and in the years to come, but we expect it to recover within three to five years as it has in all past recessions,” says Mellage. “Compared to other industries, the beauty market is fairly recession-proof, and its products will continue to be desired by consumers—both for meeting basic needs as well as an indulgence.” Historically, the ‘lipstick theory’ has proven true, with lipsticks (during the four recessions from 1973 through 2001) and eye makeup (in the most recent 2008-2009 recession) performing exceptionally well during recessionary times. “Perhaps we’ll have another winner in the mix this time too,” adds Mellage.