Dwindling department store numbers across the UK could have been a death knell to the beauty sector’s fortunes, but new entrants and changing consumer habits have driven the sector’s performance

  • Beauty is set to be one of the strongest sectors in 2022
  • The wellness trend will support the beauty sector for many years to come
  • Luxury beauty brands are better positioned to weather a recession

The demise of notable beauty halls such as Debenhams, combined with a major cut-back on non-essential spending as the cost-of-living crisis worsens, has done little to dampen health and beauty sales. 

Independent economics consultancy firm Retail Economics says beauty is set to be one of the strongest-performing retail sectors in 2022, boosted by the post-pandemic rebound in socialising and the ongoing return to workplaces. 

Beauty sales are on track to record a healthy 7.6% annual growth in 2022, with overall revenues set to reach £22.7bn, surpassing 2019’s pre-pandemic levels. Underlying sales during this year’s golden quarter are also predicted to rise by 4.2% – making health and beauty the only sector set to report both sales and volume growth during the crucial festive season.

Our obsession with self-care is clearly more than skin deep and retailers have responded: both high-street stalwarts and online-only players are expanding their beauty empires. 

But how people shop for beauty has changed dramatically, which presents challenges and opportunities for the retail sector. 

Retail Economics senior consultant Josh Holmes explains: “The concept of the traditional beauty hall is dead. There was a huge shift online during the pandemic and even though we are now seeing a big flip the other way towards physical retail, digital needs to play a part.”

He cites recent initiatives by Next and Boots as examples of retailers that are reinventing beauty hall concepts, expanding brand partnerships and investing in elevating their store propositions to create destinations of discovery, combining the best of physical and digital retail.

“The concept of the traditional beauty hall is dead”

Josh Holmes, Retail Economics 

Boots beauty director Paul Niezawitowski says the retailer’s recent expansion of its next-day click-and-collect service to 1,600 Boots stores – as well as the partnership with Deliveroo to 125 locations – are examples of how it is offering a more digitally focused experience.

He says that these initiatives, alongside strong and growing momentum in store visits over the last 18 months, mean the retailer’s “market share in skin, makeup and premium beauty is growing and is at over 40%”.

Boots’ online beauty sales are up 125% in the past two years and now account for half of total sales across the retailer’s ecommerce division. The retailer is seeking to further drive this demand by launching a new online marketplace for third-party brands next spring.

More in store after Covid-19

In conjunction with this digital push, the retailer is improving the in-store beauty experience as footfall returns after the pandemic. 

“We’ve redesigned over 125 premium beauty halls in stores across the UK, with more to follow, and we now have over 1,000 beauty specialists in our stores, offering tailored, brand-neutral beauty advice,” says Niezawitowski.

Next and Harrods are also rolling out dedicated beauty halls, signalling there is life yet in the concept. But beyond the beauty hall, brands and retailers are monopolising on a boom in demand across the sector via pop-up shops and own-brand store networks.

Aesop Regent Street (1)

Luxury cosmetics retailer Aesop recently opened a flagship store on Regent Street

Aesop recently opened a flagship store on Regent Street, and disruptive skincare and beauty subscription service Beauty Pie opened its ‘Warehouse of Dreams’ pop-up for 11 days this summer in London’s Covent Garden. Ethical beauty retailer Lush has announced a £7.6m retail expansion plan across the UK and Europe. 

Department stores are clearly the losers in the race for health and beauty market share. More than half of all department stores across England have closed during the past seven years, according to The Twentieth Century Society.

Consultancy firm Accenture estimates that UK beauty sales via department stores will be half of what they are today by 2025 ($1bn (£882m) in 2021 to $500m (£440m) by 2025). Meanwhile, ecommerce and direct-to-consumer sales in the UK are estimated to be nearly double the market share of $1.5bn (£1.3bn) last year to $3bn (£2.6bn) by 2025.

Lush Oxford St

Lush has announced a £7.6m retail expansion plan across the UK and Europe

British Beauty Council chief executive Millie Kendall says consumers are increasingly shopping across different beauty brands. Ecommerce platforms allow for this type of shopping, but people still want to be able to “touch it, feel it, smell it”. 

She says department stores, therefore, need to invest in an experiential environment in order to stay relevant long term. Adding spa services such as facials and manicures in store is one way in which department stores such as Harrods are drawing in shoppers, adds Kendall, and she sees this as a growing trend. 

“Department stores have been the monsters of the beauty industry for decades. They had a lot of pulling power but ended up suppressing new and exciting upstart brands because it was simply too expensive to have a presence there. Department stores were calling the shots without reinvigorating the environment,” she explains. 

Michelle Feeney, chief executive and founder of British fragrance brand Floral Street, echoes this view.

“I’d like to see more joint business planning with department stores. We’re currently in Mecca in Australia and every year we sit down and figure out how we’re going to grow together. We both win because it’s a true partnership. My experience has not been the same with UK department stores,” she says.

“Department stores were calling the shots without reinvigorating the environment”

Millie Kendall, British Beauty Council

Floral Street has a flagship store in Covent Garden and is stocked in John Lewis, Anthropologie and Space NK stores in the UK, plus Harrods and Selfridges online. Its overseas business is via Mecca in Australia and Sephora in the US. 

Floral Street

Current trading at Floral Street is “phenomenal”, according to chief executive Michelle Feeney

Feeney acknowledges the economic headwinds will be difficult to navigate but says current trading at Floral Street is “phenomenal”. The business, which is privately owned, has just become profitable and is seeing like-for-like sales growth of 30% in the UK and 60% overseas. 

She believes there are plenty of opportunities for health and beauty retailers to create immersive experiences for shoppers. “With beauty, the experience factor cannot be replicated virtually. During lockdown, 70% of our sales were coming from online. It’s now 70% in store and 30% online, so the demand is clearly there. I think it will balance out and people will want both things, with people browsing in store and shopping at home online.”

Is the beauty industry sitting pretty?

But with the energy crisis deepening and a recession on the horizon, how resilient will the health and beauty sector be? Spending on non-essential items is set to plummet by £12bn in the UK this year as consumers tighten their purse strings, according to findings from a report by Retail Economics and digital wallet HyperJar.  

In the short term, the recent momentum in the sector is driven by the global pandemic and subsequent easing of restrictions. The industry is benefiting from strong pent-up demand for ‘out-of-home’ beauty categories such as makeup and holiday skincare as consumers make the most of social occasions. The return to the workplace has also been a boost.  

However, Retail Economics’ Holmes says the long-term wellness trend, combined with an emerging generation of health-conscious youngsters, will support the beauty sector for many years to come, making it a lucrative space in which to operate. Retail Economics forecasts health and beauty sales to grow by a five-year compound annual growth rate (CAGR) of 3.7% through to 2026, reaching annual sales of £25.3bn by the end of this period.

Beauty

Beauty is known for being a resilient sector in times of economic hardship

He explains: “Consumers have become increasingly health-conscious over the past decade, emphasising their physical and emotional wellbeing. The pandemic, as a global health crisis, has only reinforced this trend. The emergence of the TikTok generation also represents a significant long-term growth opportunity for beauty brands and retailers, as live streaming events, social media influencers and popular selfie culture continue to drive makeup trends and purchases.”

What is more, beauty is renowned for being a resilient sector in times of economic difficulty. Perfumes and cosmetics represent small, feel-good purchases that can be a morale booster for consumers when times are tough. 

“The emergence of the TikTok generation also represents a significant long-term growth opportunity for beauty brands and retailers”

Josh Holmes, Retail Economics

This, alongside growing demand in newer categories such as men’s cosmetics and skincare, is another factor likely to underpin the sector going forward, according to Accenture global beauty lead Audrey Depraeter-Montacel. 

“The beauty industry is very agile by nature. Perhaps because of its background in science and research, it has always been good at launching new concepts, new categories, new start-ups. It’s a very dynamic industry. It has the capacity to move very fast and this will be a major strength as the economy worsens,” she says. 

Floral Street’s Feeney concurs: “Newness is really important for British consumers and beauty is good at delivering that. It’s an affordable dream and it’s become much more accessible. Prescriptive beauty is another area that’s growing. People love to have personalised products.”  

However, she also makes the point that it’s not going to be easy: “Everybody’s plan right now is to hunker down and stay alive for the next couple of years. Because of what’s going on in the world, there is money there, but it’s not being freed up as easily as it was in the beauty arena.”

Charlotte Tilbury

Spanish fashion and fragrances business Puig snapped up the Charlotte Tilbury beauty empire in 2020

“There was a time when nobody saw beauty as investable and now everybody is jumping in thinking it’s a way to make tonnes of money fast. 

“But when they look at the costs of playing in that arena – yes, the margins are high, but the cost of playing is slightly higher than you think. It’s not a slam dunk. I think the market is pretty saturated, but there are a lot of British brands doing well. Many brands have sold out to great investors – like Charlotte Tilbury.” 

There will, as ever, be winners and losers. Holmes says that as household budgets become squeezed, supermarkets and discount specialists are likely to benefit from consumers trading down and focusing on beauty staples. Luxury beauty brands are also better positioned to weather a recession, due to their strong pricing power and more affluent customer base.

Mid-tier beauty brands and retailers that fail to offer the best deals nor convey a high-quality image will likely face the greatest challenges as consumers cut back.

It’s a sector that will face its share of challenges, but the lipstick effect does look set to buoy beauty’s fortunes once more – although which brands shoppers go to for that pick-me-up, and via which channel, has shifted substantially since before the pandemic.

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