While many consumer goods categories are seeing pullback, demand for beauty products continues to be eye-catching.
That was evident on Wednesday, as Coty said it saw high-single-digit growth in the prestige fragrance market as a whole, and mid-single-digit growth in the mass beauty market as a whole over the holiday quarter.
“Demand for beauty products remains as strong as ever, fueled by consumers' desire for self expression, confidence building, and well-being,” Coty CEO Sue Nabi told analysts as the CoverGirl and fragrance maker reported quarterly results. “We are as confident as ever in our view that beauty remains a structurally attractive category, that will continue to outperform global economic growth.”
Beauty bounced back as people returned to in-person experiences. Now, demand is remaining high amid an economic slowdown. Nabi gave several primary reasons why the category is remaining resilient:
Fragrance index. Former Estee Lauder Chairman Leonard Lauder coined the “lipstick index” to describe how beauty sales rise during economic downturns. Coty sees the fragrance index taking shape during this period. “Consumers turn to fragrances as mood-boosting and affordable luxuries in an uncertain environment,” Nabi said. Fragrance shopping is heavily linked to brand names. People associate certain labels with certain scents. “This, in a way, makes the fragrance category probably the most immune when it comes to any kind of trade down or dupe phenomenon,” Nabi said. It comes after NPD reported fragrance sales spiked over the holidays.
Growth opportunities. Coty is in a reinvention cycle. By Nabi's reading, it just finished Stage 1, which is "fixing the surface." It has just reached Stage 2, which brings deeper innovation. “We are not yet in the mature phase of our growth evolution, with significant white space opportunities ahead, including skincare, China, Travel Retail, and prestige makeup," Nabi said.
Prestige. The company’s higher-end beauty products remain “affordable luxury” items, which are less expensive than other luxury goods. That will help to protect the category, and also bring less trading down to cheaper options.
Consumer beauty. This division of the company’s business “continues to perform from a position of strength, consistently offering consumers value through high-quality and desirable beauty products at an affordable price,” Nabi said.
Healthification. Today, beauty is not only about how products lead the outside world to perceive consumers, but also how they make them feel inside. “This industry is about things that make people look better or feel better, and this becomes something that's a non-negotiable for consumers. There, the limit is only us in terms of ability to innovate, to tell new stories, to bring new brands and new technologies to continue to make the consumer interested in our category, because this is a need to meet and not something that is nice to have.”
To be sure, companies must still navigate turbulence. Coty reported a revenue decline of 3% year-over-year for the quarter that ended on Dec. 31, 2022. This was driven by supply shortages of glass components needed for fragrance that led to product sell-outs when the sought-after products were bought up.
It shows that supply and demand are still moving back into balance.
But things are looking up to begin 2023. Nabi said the supply situation is already improving in the first weeks of this quarter, as demand remains robust. As a result, the company saw sequential sales growth for January.
The continuing demand and improving supply conditions led Coty to boost its outlook for the rest of the year. Coty is now expecting adjusted earnings per share growth of 20% to $0.35-0.36, an increase from previous guidance of $0.32-0.33.
Coty’s analysis comes a week after cosmetics brand e.l.f. Beauty posted 49% year-over-year sales growth for the holiday quarter, indicating that the high demand is helping success spread across brands and product subcategories.
