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Economy
08 February
Coty sees 'fragrance index,' healthification boosting beauty
CEO Sue Nabi outlined why beauty can outperform a wider economic downturn.

Photo by Amrut Roul on Unsplash
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.
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Brand News
17 March
New Honest CEO plans to apply Amazon experience to ecommerce
Carla Vernón is also bringing learnings from General Mills to the brand's category strategy.
Photo by Flickr user Abi Porter, used under a Creative Commons license.
The Honest Company’s new CEO is eyeing upgrades to the brand’s ecommerce strategy, and considering category expansion.
Carla Vernón joined Honest in December, bringing experience as VP of consumables categories at Amazon and leader of recognizable brands such as Cheerios, Annie’s and Nature Valley for General Mills.
Vernón will now marry the commerce acumen she built with those companies to a premium brand that is driven by purpose. Founded by Jessica Alba in 2012, the digitally-native Honest makes products in personal care, beauty, baby and household products. The company has taken off in the baby category, as 60% of revenue came from diapers and wipes in the fourth quarter.
“Honest is a brand built on a number of values... clean formulations, high-quality ingredients and input, products where you can believe the quality is worth the value that you are paying for them,” Vernón said on the company’s earnings call to recap the fourth quarter and full-year of 2022.
Vernón said the brand has “unique DNA,” in that it was built by “thoroughly modern” entrepreneurs that typically speak to a younger set, but cuts across demographic lines. That can set up expansion into new categories.
“Honest is a brand that needs to speak to all consumers, all demographics, all cultural groups, all life stages,” Vernón said. “I am extremely confident that the shoulders of Honest are broad, that the shoulders of Honest are strong to bear the weight of many categories and that there are categories waiting for Honest values to come in and energize the category and change what consumers think they can expect from the category.”
This will require a balance: Honest wants to be thoughtful about where the brand can “lead, innovate and win,” Vernón said.
“We exist to push our categories farther with our purpose-driven ethos,” Vernón said.
At the same time, it wants to find a fit with its margin strategy, and ensure it can maintain a premium positioning that has taken a hit as a result of price increases among brands across the landscape amid inflation. Honest may de-prioritize or exit some categories along the way.
In particular, Vernon believes investing in hero products can help propel the brand.
“That’s something I learned on brands like Nature Valley, a business that had many, many SKU offerings, but some of them are very core, driving the fundamental growth and business model of the brand and then new places to play where they will really fit our business model as we go forward,” Vernón said.
The company’s fourth quarter results underscore why there may be a need to explore expansion. Revenue increased 2% over the prior year, but consumption was up 15%. The company recorded a net loss of $12.6 million.
The results showed a disparity between channels: Digital revenue declined 14%, while retail revenue increased 18%. Revenue was 57% retail, 43% digital.
The company said online orders were lagging consumption. Honest saw 8% consumption growth on Amazon, but also saw the ecommerce giant take a more cautious approach to inventory. With the cost of digital advertising going up amid rising CACs and privacy-oriented changes, it also shifted marketing spend to realize key opportunities in retail.
Vernón said the brand is also aiming to overhaul its ecommerce experience. Vernón is set to draw on her work with Amazon overseeing many of the same categories where Honest has a presence. These include babycare, household products, food, beverages, health and wellness and beauty.
At Amazon, Vernón was credited with elevating the shopping experience for beauty. She introduced more emerging and prestige brands, launched virtual lipstick try-on and created the first-ever beauty-focused holiday shopping event, called Amazon’s Holiday Beauty Haul.
Now, Vernón plans to work closely with the honest.com team to make sure the brand is meeting the expectations of the digital shopper.
“That has everything to do with things from being efficient in the experience of the storefront, really making sure you maximize the storefront so that the consumer transactions are clear, efficient and fast and so that we can really customize what we show to customers on the storefront so that when they are shopping, it’s an experience that’s highly relevant for them,” Vernón said.
While retail has gained more focus as partnerships with Target and Walmart have driven not only growth but incremental customers, Honest Company's overall strategy remains grounded in both channels. That means it is taking care to provide a standout presence on the ecommerce channels of retailers, as well as its direct-to-consumer site.
“As we continue to grow with our retail partners, we want to make sure that Honest is effectively being brought to life in the digital mediums that they are continuing to grow and invest in,” Vernón said.
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