An analysis of the UK prestige market

The impact of the Brexit boom in beauty and what’s next for the market

The impact of the Brexit boom on beauty and what’s next for the market  

The UK’s decision to leave the EU has led to a boom in prestige beauty sales as foreign shoppers have flooded in to take advantage of weak sterling. But while surging demand in prestige beauty following the June 2016 Brexit referendum (when the UK voted to leave the European Union) has been good news for the UK’s fragrance and cosmetics industry, the Brexit effect is expected to be short-lived.

Data from market-research company The NPD Group show that sales of prestige beauty products jumped +6% in the three months from July to September 2016 following the UK referendum, twice as fast as the +3% rise seen in the prior period from January to June 2016.

The best growth post-Brexit was seen in the sales of niche fragrances (products retailing at £125 ($161) or more) and super premium skincare (products retailing at £200 ($257) or more). NPD puts the surge in niche at +59.5% versus the same period in 2015, while super premium skincare rose +32%. Overall in 2016, prestige beauty sales rose 4.9% to £2.64bn ($3.42bn).

Teresa Fisher, senior account manager, NPD UK Beauty, says: “The sale of prestige beauty products has seen unprecedented growth in the three-month period following Brexit. There was much uncertainty post-Brexit, but these figures show that demand for luxury and prestige beauty products has been boosted.”

UK becomes a go-to market
It is no secret why the UK has seen an uptick in sales. Shopping in the UK has become a much cheaper option for overseas visitors, who have been arriving in record numbers: 37.3 million in 2016. Tourism bodies such as VisitBritain are doing their best to boost business, particularly from high-spending markets such as China and the US.

However, NPD’s Fisher warns that the highest growth has been in London and online (see box on next page), which means a skewed regional and channel benefit.

London has a weighty 30.1% share (by value) of the total prestige beauty market in the UK, and from July to September 2016 sales in the capital increased by +7.3%. Outside London, the Midlands and the East, plus Yorkshire and the North East had the strongest growth.

London luxury department stores such as Harrods and Selfridges were reluctant to comment on the prestige beauty boom. However, at national chain Debenhams, which has 176 UK and Irish stores, Steve McDowall, director of beauty merchandising, says: “We have seen some impact from foreign shoppers, but as we have a large store estate across the country this will have been less than other store groups with a heavier London weighting might have seen.”

Department-store group John Lewis had a strong year in beauty. Its 48 UK shops (34 department stores, 12 John Lewis at home and stores at St Pancras International rail station and Heathrow Airport Terminal 2) saw beauty sales increase by +6.7% in the 12 months ending January 2017. This was better than the chain’s +4% overall growth in gross sales to £4.74bn ($6.12bn).

Paula Nickolds, managing director of John Lewis says: “We were the first retailer to launch Marc Jacobs Beauty as part of our £9m ($11.6m) refurbishment of our beauty categories and that is a really important footfall driver into our shops.”

What next?
On the brand side, a spokesperson for Estée Lauder Companies says the company had “strong double-digit operating results in the UK” in its thirdquarter (ending March 2017), while L’Oréal’s Luxe division notes that “Western Europe had a very good quarter, driven by the UK and Spain”.

Prestige beauty powered on into the first quarter of 2017 for retailers too, and Debenhams’ McDowall believes the growth will continue throughout the year. Director of NPD UK Beauty June Jensen is more cautious, saying: “We have seen the segment continue to perform well in the first quarter, but at this stage it is difficult to predict the full year, with uncertainty over the long-term tourism trends and doubts over the local economy.” It is thought that the recent terrorist attacks could also put a brake on traveling and spending.

Another issue is that make-up continues to be the growth driver (prestige sales rose 11.1% in 2016), while fragrance (excluding the niche segment) is sluggish. “The growth in make-up is a long-term trend for prestige,” admits Jensen, while fragrance suffers from a long-standing discounting trend in the UK and an over-reliance on Christmas sales.

Indeed, discounting continues to be a challenge for the industry in fragrance. Imogen Matthews, founder of beauty consultancy Imogen Matthews Associates, comments: “Does discounting work? Value sales growth for the total fragrance market has averaged just +1.5% annually over the past three years. Discounting is not the answer.”

Maintaining prestige beauty’s strong momentum is widely considered to be in the hands of politicians right now, given that Brexit negotiations with the EU are likely to steer the country’s economic course, and with it, UK consumer habits. And this is not to mention travel trends to the UK and their impact on shopping.

Fisher warns: “Based on trended insight we do not believe (the post-Brexit growth) can be sustained. Some manufacturers have increased their pricing so it will be an opportunity to look ahead with regards to consumers’ ongoing purchasing habits.” While the short-term outlook may be positive, what the road further ahead will bring is less certain.

 

SNAPSHOT: Online grows its share
Online sales still only have a 9.2% of the total UK prestige beauty market, but for the three months post-Brexit they increased by +34.3% compared to the period from July to September 2015. That growth rate has widened online’s slice of the prestige beauty segment which is expected to rise into double digits rapidly. At department-store chain Debenhams, Steve McDowall, director of beauty merchandising, says: “Most of the growth [in prestige beauty] was driven by online and we would expect this to continue to grow for the foreseeable future.” Department-store group John Lewis integrated its online platforms so that mobile, desktop and apps now offer a seamless shopping experience. This helped to lift total online sales +16.2% in the 12 months ending January 2017. The group allows customers to combine online shopping with shop visits and to pick up online orders in store. Meanwhile Selfridges, with four stores in three UK cities, has also upgraded its online sales platform, now a key strategic channel for the retailer. The chain ships to 130 countries, but the UK accounts for 70% of revenues. Selfridges claims its online growth year-on-year is more than +35%. This may come at the expense of store sales however, if retailers fail to get the balance right. Beauty consultancy Imogen Matthews Associates’ founder Imogen Matthews comments: “Retail sales [in fragrance] declined -0.2% in 2016, while online grew by 18%. The internet only accounts for one in 10 fragrance purchases, but if this trend continues, consumers may prefer to buy fragrance online rather than face shopping in perfumery halls.”

UK prestige beauty sales 2016

CategorySales £m% change 2016/2017 (value)
% change 2016/2017 (units)
Make-up 787.95+11.1+9.7
Skincare 563.73+3.1+2.0
Fragrance 1,289+2.1-0.7
Total2,640+4.9+3.8
8cef533b60ee96623698f839dd4234f5bbbbbbbbbbbbbbbbbbbbbb