When the external economic situation appears bleak, consumers are eager to experience joy.Thank you for reading this post, don't forget to subscribe!
According to recent quarterly reports from Macy’s (M) and Target (TGT), beauty sales emerged as a highlight for the retail behemoths as consumers grapple with challenges such as elevated interest rates, overdue student loan payments, credit card debt, and diminishing savings.
Find out more: Strategies for Swiftly Repaying Student Loans
While Macy’s net sales dropped by 7.9% in the third quarter, with a corresponding 6.7% decrease in same-store sales, incoming CEO Tony Spring mentioned in an investor call that the overall results surpassed expectations, particularly citing the strength in beauty, especially fragrances and luxury cosmetics.
He expressed the company’s ambition to transform the 160-year-old retail titan into “an affordable luxury beauty hub.”
The company’s cosmetics business, Bluemercury, acquired around 2015, continues to deliver strong performance. In Q3, it recorded its 11th consecutive quarter of growth, with flat net sales but a 2.5% increase in same-store sales.
“Consumers have responded positively to skincare and color cosmetics, which are our predominant categories,” Spring stated.
Meanwhile, Target experienced a 4.9% year-over-year decline in same-store sales, despite an overall 2.7% jump in total sales.
“The decline in comparable sales in the third quarter reflects ongoing weakness in non-essential categories, partially offset by beauty growth,” remarked Christina Hennington, Target’s chief growth officer, during an investor call.
Target’s beauty segment witnessed high-single-digit sales growth, partly driven by its introduction of Ulta Beauty products in 2021.
Customers Embrace Affordable, Feel-Good Items
In times of financial constraint, why would consumers opt for new bronzing products, moisturizers, and lip glosses?
Beauty products are almost deemed a consumer necessity,” remarked Zachary Waring, an analyst at CFRA, in a telephone conversation with Yahoo Finance. “It’s an expenditure people won’t easily eschew; they incorporate these products into their daily routines.
Even in times of financial hardship and apparent gloominess, people still strive to look and feel good, as expressed by consumer psychologist Dr. Katherine Johnson-Boyd during an interview with Yahoo Finance.
They are gravitating towards retailers offering budget-friendly beauty brands rather than higher-priced items such as apparel, Johnson-Boyd observed.
She referred to this phenomenon as the “two for one” effect, a rationale consumers employ to justify their purchases, which includes the belief that the product will enhance their appearance, thereby boosting their mood, and that it’s a more economical alternative to purchasing larger items.
Sharing a similar account, Tamara Charm, a partner at McKinsey, mentioned, “Consumers are cherry-picking… they may decide they don’t really need that new sweater… but they’re still indulging in self-care. I’ll reach for that lipstick, I’ll grab that mascara – it makes me feel fantastic.”
According to Johnson-Boyd, retailers offering frequent markdowns like Macy’s or value-oriented products like Target benefit from this trend.
Consumers are highly susceptible to the influence of their surroundings. If those around them are delighting in small indulgences such as facial masks, they find it easy to justify spending on yet another fragrance.
This behavior also reflects the shifting societal landscape as people re-engage with in-person activities and work. Amid the initial surge during the pandemic, the cosmetics sector experienced a considerable uptick; Target’s beauty sales surged by 19% in 2020.
During the lockdown, many remote workers turned to beauty products for their virtual meetings, noted Charm.
Subsequently, the category has sustained robust growth. According to Charm, while the pace may have slackened for now, the trend will continue given the enduring strength of self-care and wellness trends.
Guests attend the Mac Nicopanda Macy’s Herald Square Launch Premiere at Macy’s Herald Square. (Astrid Stovierz/Getty Images for MAC Cosmetics) (Astrid Stovierz via Getty Images)
Increased purchases of beauty products often translate to higher sales of other products.
For instance, Kohl’s formed a partnership with Sephora in 2021 to entice new clientele.
During an investor call in August, CEO Tom Kingsbury reported that Sephora at Kohl’s is “exceeding expectations,” with a 90% surge in total beauty sales compared to the previous year, and is drawing in new customers who “Are shopping more frequently.”
Kingsbury added that Sephora customers tend to be younger and more diverse. The beauty retailer is slated to open outlets in 900 Kohl’s locations by the end of 2023. Kohl’s is scheduled to release its third-quarter earnings results on Tuesday, November 21.
Consumers Willing to Go to Great Lengths to Emulate Celebrities
Fenty Beauty, available at Ulta Beauty at Target, is rapidly becoming a top-selling brand. (Target)
Despite assertions by consumers that they are weary of celebrity endorsements and seek authenticity, they continue to be drawn to famous personalities.
Johnson-Boyd noted, “When we admire someone, we want to emulate them… we’ll go to great lengths to be like them.” “If Rihanna is promoting makeup…consumers may think, ‘Oh, I can be like her and that will elevate my mood.’”
During Target’s third quarter, Hennington stated that Rihanna’s Fenty Beauty quickly became one of Target’s best-selling beauty brands following its launch on October 1.
Spring mentioned during the call that Macy’s anticipates similar success with its new offerings, including a collaboration with JLo Beauty, Jennifer Lopez’s skincare line.
According to Johnson-Boyd, when it comes to celebrity products, consumers often exhibit repeat purchasing behavior.
She remarked, “You’ll never be Rihanna… there’s only one Rihanna… that’s often the driving force in the cosmetics industry… we keep making repeat purchases because we feel us unsatisfied by what we bought, being constantly compared to an unattainable ideal.”
Click here for comprehensive analysis, including the latest stock market updates and stock movement events
Read the latest financial and business news from Yahoo Finance