Industry Talks: Circana Senior Vice President, Global Beauty Industry Advisor Larissa Jensen


Market-research company Circana Senior Vice President, Global Beauty Industry Advisor Larissa Jensen tells BW Confidential about the key drivers of the beauty market in the US, what the industry should focus on and her outlook for the category for the rest of the year and beyond

For how long do you see strong growth in the US beauty market continuing and how much of the current growth is from price inflation?

The first thing is that beauty is doing very well. Circana tracks multiple industries, such as apparel, toys and technology, and the mass and prestige beauty markets are two of the top-five fastest-growing industries in dollars. For the first half of the year, prestige is up about 15% in dollars and mass is up 9%. Mass is growing its average prices at a much faster pace than prestige, and because of this, the dollar growth of 9% is driven in large part by higher prices. When we look at units, mass is only up 1%.

This is a huge contrast to prestige, because units in prestige are up in double digits as well. In fact, when we look across all industries only prestige beauty grew in units in 2022, and so far this year, it is still the case. Why is this happening? A big piece of it is that our industry is resilient because it is so highly tied to emotion.

Although prices in prestige are also rising.

Yes, they are. But on the mass side, it is significantly higher. The average price for prestige is up around 2%, whereas in mass, average prices are up almost 8% in the first half versus the prior year. Mass beauty is very much in line with what we see happening in the CPG industry overall – we’re, all paying much more for our groceries than we were pre-pandemic.

Do you think price increases in mass will continue?

If you look at it versus the prior year, average price increases have accelerated. However, If you look at it weekly, it appears to be leveling out at these higher rates, so it is difficult to say. But even though prices are going up, it appears that consumers are nonetheless willing to indulge, as prestige is outpacing mass. And luxury, within prestige is growing faster in key categories, such as make-up and hair, so it is all about the treat mindset at work.

But we are starting to see subtle shifts taking place that could be indicative of a swing in terms of consumer behavior for the back half of the year. For example, in fragrance, we are beginning to see that luxury is slowing down somewhat after several years of being super strong. Key drivers in fragrance are pointing to the fact that consumers could be looking for value, and the other piece of that is that we’re seeing more mass categories growing in dollars than before. It is notable that when we look at the top-20 fastest-growing categories in beauty across mass and prestige combined, about half of them are mass. When we looked at that just last year, it was predominantly prestige. So we are seeing more growth in mass and although part of this is price, it is still notable that we are seeing this kind of shift.

How much growth is down to newness? Has the level of product innovation returned to pre-Covid levels?

When you look on a broad level across industries versus pre-pandemic, innovation has pretty much been cut in half. But when we look at beauty, it’s a different story, and it also differs by market. In the mass market, for example, innovation is much more important to sales – it’s about 10% of the volume in mass. And while we’ve seen that it has fluctuated a bit given the pandemic, it has been pretty consistent at around that 10%. In prestige, however, innovation is about half of mass – so it’s about 6% of sales – a small piece of the market. But much like what we were seeing in the mass side, the share of sales has remained pretty consistent in prestige at about 6%, with a little bit of fluctuation during the pandemic. So innovation brings consumers in, but existing products are really what keeps them coming back. And in prestige, existing products grew at a faster rate than new products, and for the most part, this was a global trend. But the success of both newness and existing products is what helped to propel the market overall. Innovation is an important part of the industry, but we can’t ignore the fact that the majority of sales and the focus should continue to be on nurturing your existing portfolio.

Are you seeing a lot of new brands continuing to enter the market?

It depends on the category. For example, skincare has significantly more brands coming into that space than we see in any other category. So yes, new brands are coming in that are not necessarily captured in the numbers I shared with you in terms of the 6% and the 10%, which is more about products.

There has been a certain amount of overstocking at US retailers, has this situation eased?

We don’t track inventory, but the US Census Bureau publishes a retail trade report that does, and if you look at those results at a macro level, you see that inventory levels are significantly higher over prior years, especially pre-pandemic, but that they are starting to plateau. It is not necessarily beauty specific, but if you look at inventory levels versus pre-pandemic, they are about 30% to 35% higher today. But if we look at the most recent data from them [from May], inventory is flat year-over-year and month-over-month.

Has there been an increase in promotions given high levels of inventory at retailers?

The percentage of units sold on promotion has remained relatively consistent over the past several years. In fact, if anything, it’s been softening. And what that means is not necessarily that there are fewer promotions, but that consumers are not buying as many units on promotion. That could mean several things – for example that they may see the value of buying a product at full price (sometimes prices in prestige depending on the category or brand could be $15, which could be less than what you would buy in mass). And then also, we are seeing pockets of growth in luxury in different categories and so consumers are willing to indulge in those even if they’re not promoted.

How do you explain the strong growth in fragrance and to what extent will this continue?

Treat mindset – during the pandemic, when we started to see this surge in sales of fragrance, it was about treating yourself with a luxury fragrance. Fragrance is the most expensive beauty category. The average price of fragrance is more than double any of the other categories, but this hasn’t stopped consumers from indulging.

Fragrance was the fastest-growing category in 2021, it was one of the fastest-growing in 2022 and today, fragrance is growing double digits in dollars in both prestige and in mass, so it is a very healthy category. But fragrance is still very much a prestige industry, and specifically in the last several years it has been all about buying higher-priced items – artisanal fragrances and luxury lines. However, we’re starting to see a shift in how consumers are approaching this category and it appears that they’re starting to look for value. What is doing well right now is gift sets. Gift sets for a while have been flat within prestige fragrance, but they’re starting to see a resurgence, and potentially it could be because it is a value proposition – for example you get the juice for $150, but for $175, you can get the juice with a mini and a body wash. We’re also seeing minis start to take off in a bigger way. And minis could be about value in that you’re getting a luxury fragrance or a fragrance that has a much higher price point for $30. Stronger concentrations were a driver pre-pandemic, through the pandemic and still today, so I think stronger concentrations are here to stay, because now we’re looking at a four-year trend. Stronger concentrations last longer, so in many ways that can be about value as well, because it is a fragrance that you don’t have to apply as much, it lasts longer and you don’t have to replenish as often.

But the most interesting trend for me is that we have started to see a sharp rise in body mists. If you think about fragrance and how consumers have turned to fragrance as a form of self-care, they’re looking for fragrances that have wellness benefits and wearing fragrances for themselves, not for others. But if you think about body mists, they could give you much of those same types of benefits, but at a significantly lower price point. On average, body mists are about $20-$25, a significantly lower price than some of these other fragrances. Typically, you don’t think of body mist as prestige fragrance category, it feels much more mass, but it’s a way that consumers are still treating themselves through the experience of shopping in prestige, but then potentially getting the value of a body mist.


We’re starting to see a shift in how consumers are approaching the [fragrance] category and it appears that they’re starting to look for value

Circana Senior Vice President, Global Beauty Industry Advisor Larissa Jensen

How do you see fragrance usage among consumers?

There are different ways to look at usage. It could be looking at new users or it could be looking at heavy users, medium users and light users. What we have seen in our data is that it is the heavy users that are using fragrance more frequently. It is also how consumers are using fragrance, meaning that the wardrobe has become a bigger piece of the fragrance experience – it’s not about a signature scent anymore, especially among younger consumers. They are looking for a wardrobe because they are looking for a fragrance to wear based on their mood. If you think about the growth rate of fragrances, it’s not about how many new people are buying fragrances, but more about those that are very entrenched in the category and wanting to continue to build and grow. So at what point do they reach the situation where they have a very full tray of fragrances.

In fragrance, could you quantify the share gains of niche or artisanal fragrances and how big do you see this segment of the market becoming?

Artisanal fragrances are about 12% of fragrance sales, and this is looking at prestige only. While that’s a small segment of the market, it is the second-largest brand type after designer brands, which make up almost three quarters of total sales. What’s interesting is that both designer brands and artisanal brands have captured share so far this year, and it’s mostly been at the expense of cosmetics brands [brands that have larger cosmetics and skincare business than fragrance]. Artisanal brands are never going to become bigger than designer fragrances, but they are here to stay and I can see their share growing.

Make-up has begun to recover, what do you see as the key drivers for the category in terms of product type and price point?

Make-up is firing on all cylinders across both prestige and mass. It’s growing in dollars in both markets and lip products are the clear winner in terms of the categories; that’s the lipstick index at work. What’s driving this is clearly a return to the pre-pandemic lifestyle – traveling, the return to work, social gatherings – make-up has really benefited from that in a big way.

Interestingly, the treat mindset is big in make-up. You could look at this from two angles, from the perspective of the mass market, and prestige market, where prestige is growing at twice the rate of mass, so that is the treat mindset. But if you look at luxury in prestige, specifically designer brands in prestige command about a 70% higher price point than the rest of the market, and they are outpacing the rest of make-up. So to me, that says there’s a big treat mindset within the make-up category. A big piece of that is being driven by the designer brands with these higher price points, so there is a lot of indulgence. Also, units are growing at a faster rate for the higher price points, even though the higher price points are a smaller piece of the pie.

Facial skincare is still lagging. What do you see as the main reasons for this and what is your outlook for this category?

Skincare is still very strong and is showing double-digit growth in prestige and is the strongest performer in the mass market. That said, it is growing slower than make-up, which is why there may be the illusion that it is lagging. Skincare on the prestige side has been experiencing a democratization for years – even pre-pandemic. Consumers have learned that they don’t need to spend a lot to get results. Social media was a big player in that, with TikTok and TikTok doc, whereby doctors took to the platform to say that you don’t need spend a ton of money on skincare. On the mass side, we’ve seen more derm brands take center stage.

Luxury is flat to declining in skincare, but that doesn’t mean that all luxury is doing poorly in the category. There is still opportunity there. Many consumers have been turning to make-up for more general skincare needs, so for example for a tinted moisturizer with an SPF protection. We would suggest that brands focus on treatment categories more, like serums, ampoules, brightening – things that are very specific to skincare and that can’t necessarily be folded into a make-up product per se. Also, our outlook for skincare is very positive and we are forecasting continued growth. But I would highlight the proliferation of brands that we see entering the category, which outnumbers any other category. So at what point do we reach this over-saturation of brands and experience a consumer pullback?

One of the biggest things that I’m watching right now in the US specifically is the impact of the student loan repayments that are resuming for many consumers in the fourth quarter of this year

Circana Senior Vice President, Global Beauty Industry Advisor Larissa Jensen

Brick-and-mortar stores have seen a return of traffic. How do you see the split between physical retail and online post-Covid?

Current levels of sales in e-commerce are more elevated than they were pre-pandemic – that is clear. During the pandemic, a few beauty categories reached the 50% share mark for e-commerce, but then it dropped again. So it has dropped from 2020, but it’s still elevated versus 2019. Beauty share of online sales is actually the same, whether we look at the mass market or the prestige market, so stores represent about 70% of sales for both mass and prestige beauty, and e-commerce has about 30% of sales. Across both markets, prestige and mass stores are gaining share.

E-commerce regardless of the category has leveled out, and this could be indicative of a maturation point, which is not to say that growth opportunities are not there. But what’s really important for the industry to remember is that you need to ensure that your investments are reflective of consumer engagement and their levels of demand. Brick-and-mortar is the bigger channel; it has always been a bigger channel and will likely remain the dominant channel and that’s a global trend. So you have to ensure that you’re investing where consumers are purchasing. Globally, brands and retailers should continue to focus on bringing engagement and excitement to physical stores because it is the largest channel across every country. There is so much focus on e-commerce right now, but we can’t forget the store.

What do you see as the main challenges ahead for beauty brands and retailers and what is your outlook for Christmas and for 2023 as a whole?

One of the biggest things that I’m watching right now in the US specifically is the impact of the student loan repayments that are resuming for many consumers in the fourth quarter of this year. According to US government information, about 45 million Americans are going to be impacted with an average monthly loan amount of about $500. And the largest demographic groups holding this debt are millennials and Gen X, followed by Gen Z. So combined, these are the largest demographic groups for beauty.

We did a study and 70% of consumers reported that the return to student loan payments will impact their spending and those results skewed female. All of this is important in what it could mean for beauty. We don’t anticipate a major pullback, but we do anticipate some pullback, and it will be different by category. We expect that fragrances could potentially be hit the hardest. And for once, beauty might follow the lines of every other industry and also be impacted by this.

In terms of outlook, I want to first comment on the holiday period, because we believe Christmas will see a softer performance than last year. And part of this is because of the new cadence of the holiday season – it’s become more spread out and some retailers are displaying holiday merchandise before Halloween. Just as a caveat to that, it is important to say that the holiday season is much more important for the prestige side of the beauty business, and prestige beauty has seen very strong holiday results over the past several years. In mass, typically we see results are softer during holidays. But again, we do expect growth, but a more tempered increase, especially in light of the potential impact of student loans.

Overall, the outlook is positive for 2023 and beyond, and we’re forecasting growth through 2025 for prestige specifically. For prestige, I believe we’re going to end 2023 with double-digit growth and for mass single-digit growth.