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Business

The “Lipstick Index” is back – and retailers are scrambling to cash in




Target has added new brands to its beauty department. In a growing number of stores, it also has mini Ulta Beauty stores with prestige brands.

Melissa Repko | CNBC

As prices creep up, some people have decided not to get a new outfit, delayed big purchases like TVs or canceled Netflix accounts.

But for now, they still splurge on beauty.

For retailers, the beauty category has become a rare bright spot as people pull back on spending amid rising inflation. Often seen as an affordable luxury, it is the only discretionary retail category with unit sales growth in the first half, according to The NPD Group, which tracks categories including apparel, technology and toys, as well as specialty and department store beauty products.

“You might not be able to go out to eat as much, but you can buy a lipstick,”[ads1]; said Olivia Tong, an analyst for Raymond James.

This spring, Target highlighted the strength of its beauty sales, even as it twice cut its profit outlook for the year. Walmart is also investing in the category, rolling out new beauty displays to hundreds of stores, despite warnings that shoppers are skipping discretionary categories like apparel.

Other factors also work in the industry’s favour. Weddings and parties have picked up again. More people are heading back to the office, and can no longer hide behind the Zoom filters. And during the pandemic, some got into the habit of pampering themselves at home with face masks, hair treatments and other beauty products.

Larissa Jensen, beauty analyst for OD, called it the return oflipstick index” – a term popularized by Leonard Lauder, chairman of Estee Lauder, to explain the rising sales of cosmetics during the recession of the early 2000s.

As consumer sentiment has fallen, lipstick sales volume has increased, Jensen said. This increase has transferred to other beauty products. Makeup sales, including lipstick, are up 20%, skin care is up 12%, fragrance is up 15% and hair care is up 28% for the first half — and they’re all growing in units, as well as dollars, she said.

Much of the growth in the beauty category comes from households making over $100,000 a year, and Jensen said discounters may have a tougher time capitalizing on the trend. Still, beauty’s resilience could provide some cushion for big-box retailers in a downturn—if they can figure out how to turn a profit.

Beauty at $3, $5, $9

Walmart and Target both cut profit forecasts after having to cut prices on clothing, home goods and other products that are not selling. Still, both companies are refreshing their beauty divisions and adding new brands to attract customers.

A year ago, Target began opening hundreds of Ulta Beauty stores inside its stores with brands including MAC Cosmetics and Clinique. The company plans to add more than 250 this year and eventually have the stores in 800 locations, representing about 40% of its U.S. footprint.

And after seeing fragrance become the biggest sales driver in prestige beauty this past holiday season, it also added popular fragrance brands to Ulta stores, including Jimmy Choo Man, Juicy Couture and Kate Spade New York.

Since January, Target has introduced more than 40 brands to its stable of beauty products, including “clean” products that are free of certain ingredients and Black-owned and Black-founded brands.

On an earnings call in mid-May, CEO Brian Cornell said beauty saw double-digit comparable sales growth in its fiscal first quarter compared to the same period a year earlier. It broke from other categories, besides food and drink and necessities, which saw a noticeable decline.

Walmart has added about a dozen prestige beauty brands to select stores. It struck a deal with British beauty retailer Space NK to add to its range and develop its own brand.

Melissa Repko | CNBC

At Walmart, new beauty displays were set up this summer at 250 of the company’s locations, featuring Mario Badescu, Patchology and other brands typically found at specialty beauty stores or department store makeup counters.

A more affordable display called “Beauty Finds” also began rolling out to nearly 1,400 stores, offering shoppers lip glosses, lotions and more for $3, $5 or $9.

Walmart has also entered into exclusive deals with direct-to-consumer companies such as Bubble, a skincare brand with colorful packaging and a focus on Gen Z and young millennial customers. In recent quarters, it has seen double-digit growth in its cosmetics business, said Creighton Kiper, Walmart’s vice president of beauty merchandising.

“Beauty is this fascinating category where it’s not like food and it’s not like health and wellness, yet the customer interacts and engages with it every day,” he said in an interview earlier this summer. “You have this mental wellness component around confidence and feeling good about yourself.”

As budgets tighten, Kiper said customers can also fall back on skills they picked up during the pandemic — such as doing nails or hair color at home — and head to Walmart to shop for an at-home twist on the salon.

Ashley Marie Lemons, a stay-at-home mom in suburban Atlanta, said her family eats out less often because they spend more on groceries, diapers and other necessities. She said she makes more meatless meals and buys hot dogs instead of more expensive meats, such as ribs.

But she said she still allows herself to spend about $50 a month on beauty products like eyeshadow palettes and mascaras.

“It’s an outlet for me,” she said. “Some people like art. It’s a creative way for me to express myself.”



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