Beauty care's growth and margins have attracted the attention of big marketers, particularly Procter & Gamble Co., which has spent, or soon will, a combined $12 billion to buy Clairol and Wella hair and beauty products in the past two years.
But P&G's two key beauty competitors, Unilever and L'Oreal, have both recently announced quarterly sales disappointments. Unilever last month blamed a weak top line on retailer inventory de-stocking and sluggish growth in North American home and personal care. L'Oreal followed this month with its own rare top-line disappointment for the second quarter.
For its part, P&G last month affirmed it would meet second-quarter earnings targets, with sales up 6% to 7%, though it said baby care, health care and developing markets would lead growth. That leaves out U.S. beauty care, where retail data indicate sales growth has slowed to a crawl or even reversed course in many categories.
With Wal-Mart Stores withholding data the past two years from Information Resources Inc. and VNU's ACNielsen Corp., it's been natural to ascribe weak sales to Wal-Mart stealing share from tracked channels. But when analysts began getting consumer-panel-based Wal-Mart data this spring, it became clear beauty and personal-care growth was weakening even with Wal-Mart sales included. "The big question is why, and nobody seems to know," said Deutsche Bank Securities analyst Andrew Shore.
Some of the declines are startling. Shaving cream and hand and body lotion sales each fell 7% in 12 week period ended June 14, according to ACNielsen figures including the Wal-Mart panel, as reported by Banc of America Securities. Women's fragrance sales fell 17.3%, and mouthwash sales dropped 12%.
The numbers suggest consumers aren't as fragrant as they might be, but some analysts think it's the panel data that doesn't smell right. Nevertheless, marketers with access to Wal-Mart's own data said the panels aren't far off.
Declining new-product activity may explain some of the decline. New-product tracker Marketing Intelligence has seen new cosmetics launches fall 24.5% in the first half compared to year ago. But despite a 45.3% increase in hair product rollouts, sales are up only low single digits.
"The recession may finally be catching up with beauty care," said Tom Vierhile, general manager of the firm.
Consumers have, however, shown they're still willing to pay for real innovation, said Banc of America analyst Bill Steele, citing an 89.3% increase in tooth whitening products and 5.4% increase in skin care sales in the past year. "I would still contend that beauty products are growing faster than diapers and detergents," he said.
Bad spring weather may hurt some products, but "Wal-Martification of the business" better accounts for the sales slump, said one package-goods executive. Competitors have cut prices to compete with Wal-Mart, sometimes squeezing suppliers in turn. He cited L'Oreal's Couleur Experte hair color. Suggested retail price was $22.50, but Target and drug chains quickly slashed prices when Wal-Mart sold it at $18.50.
Prices have fallen the past 52 weeks in 16 of 30 health and beauty categories tracked by Banc of America with Wal-Mart panel data included. That's less severe than declines in 19 of 24 household product categories. Wal-Mart had a big impact, as prices declined in four fewer health and beauty categories and eight fewer household categories with its data excluded.