As global cosmetics giant Estée Lauder Companies reported a fall in sales marked by a slowdown in prestige beauty sales, Retail Week explores if this should be a cause of concern for beauty retailers in the UK
One of the biggest beauty conglomerates in the world, Estée Lauder Companies, flagged a global slowdown in prestige beauty sales as it reported a fall in its full-year revenue.
The company, which owns brands like The Ordinary, Jo Malone London and Deciem, reported a 36% fall in total operating income to $0.97bn (£0.75bn) in the 12 months to June 30, 2024.
Net sales fell 2% to $15.61bn (£12.02bn) in the same period, which the brand blamed on softness in the overall prestige beauty market, particularly in mainland China, and a decline in Asian travel retail.
Such news may be a surprise for beauty retailers in the UK, which have enjoyed a boost in sales despite high inflation and the cost-of-living crisis.
But do Estée Lauder’s recent results give a warning for what the future might hold and should beauty retailers in the UK like Boots, Space NK and Sephora be worried? Retail Week finds out.
Luxury vs mass market
Estée Lauder’s financial performance compared to its competitor L’Oréal is a very different story.
While Estée Lauder’s portfolio consists mainly of brands that are considered premium, including Tom Ford Beauty, Jo Malone London and Clinique, L’Oréal has a much greater hold on mass-market beauty.
In the first six months of 2024, L’Oréal reported a 7.3% increase in like-for-like sales to €22.12bn (£18.86bn), which it said was “driven by a combination of value and volume”.
So, is the beauty sector also following in the footsteps of the fashion industry where growth is skewed between luxury players and fast-fashion brands?
Nicholas Found, senior consultant at Retail Economics, says the answer may not be a simple yes or no.
He says: “We need to untangle uneven performances across markets. Recent results show there’s not so much a decline across the board but a polarisation in the performance across different markets that’s masked as a slowdown.
“Global beauty players, such as Estée Lauder, are vulnerable to a slowdown in China, where a key market is now becoming price sensitive as economic conditions cool. Geopolitical tensions, currency fluctuations and inflation have led to cautious spending among aspiring classes. This mirrors challenges across other luxury categories, including clothing, where international tourism and consumer sentiment play significant roles in driving demand.”
However, the beauty sector’s performance in the UK is the opposite of China. Retail Economics data shows the health and beauty category in the UK has consistently outperformed all other non-food categories since April 2023.
Beth Bloomfield, senior retail analyst at Lumina Intelligence, says: “The beauty market in the UK is in good shape and is still expected to grow over the next few years. Many retailers are now concentrating on their in-store experience to attract shoppers and encourage repeat purchases – just look at Sephora’s aggressive store rollout in the region or Space NK, which has focused on upsizing stores to add more products and services.”
Category disruption
Luxury beauty sales in the UK grew by nearly 11% to £1.53bn in the year to June 2024, according to figures from US market research firm Circana. This is higher than the French beauty market, which grew by 6% to £1.62bn in the same period.
Since 2019, the UK beauty industry has grown at more than twice the pace of France, which has long been considered the leader in luxury beauty in Europe. Circana predicts that if the pace continues, the UK market will outstrip the size of the French by the end of 2025. The UK beauty industry is already bigger than those in Germany, Italy and Spain.
As consumers remain hesitant to splurge on big-ticket items and continue to recover from the cost-of-living crisis, the lipstick effect is still alive and well in the UK. The sector is forecasted to grow in the next 12 months albeit at a slightly slower pace when compared to the last few years.
Found says: “Looking ahead, we expect slower sales growth across the beauty category next year – but growth nonetheless. Strong annual comparatives will present challenges in replicating the exceptional growth seen over the past year.
“But we are seeing pockets of strong growth in areas such as social commerce – a channel we forecast will more than double in size over the next four years in the UK. Seamless social integrations with ecommerce, influencer marketing and the rise of shoppable formats such as live shopping and interactive ads are key growth drivers.
“Beauty is among the most disrupted retail categories, with over one in three shoppers making purchases in these areas on social media. This provides a clear opportunity for beauty brands if they adapt to the evolving behaviours of their customers.”
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