As mass personal-care titans Procter & Gamble Co., L'Oréal and Unilever all reported flat or sluggish sales in the U.S. last quarter, surprising strength came from higher-end players such as Bare Escentuals, Estée Lauder and, even within the mass market, from Alberto-Culver Co.'s Nexxus.
Bare Escentuals -- a relatively pricey brand sold largely through boutiques, Sephora and department stores and written off by many a year ago -- posted 12% sales growth last quarter, based on Datamonitor numbers.
Prestige beauty also turned in a strong June quarter, with sales up 4.1% in the U.S., according to NPD Group data reported by Morgan Stanley. Estée Lauder shares rose more than 10% after it reported positive results in Europe and better-than-expected U.S. growth of 4%.
Sweet smell of success
Even P&G, though mainly a mass player, saw its prestige-fragrance business soar 20% last quarter, according to the NPD data, well ahead of its 4% global beauty business growth or U.S. mass-beauty sales, which analysts believe were close to flat.
But while bigger mass players struggled, Alberto-Culver Co. was buoyed by its priciest hair-care brand, Nexxus, whose sales grew 13.6% last quarter.
A Deutsche Bank analysis of second-quarter Information Resources Inc. data showed Nexxus' growth rate topped all major brands in shampoo, conditioner and styling aids. That came in stark contrast to P&G's category leader Pantene, down 16.7%, and value brands, including Alberto-Culver's own VO5 (down 5.7%) and Unilever's Suave (down 2%).
One caveat: The IRI data doesn't include Wal-Mart Stores, club or dollar stores. And migration of customers to those more value-oriented outlets could have hurt lower-tier brands more than higher-end brands like Nexxus in the IRI data.
All the Alberto-Culver brands are doing well, said David Kroll, VP-U.S. marketing, but he said the company is still seeing women willing to pay a premium for "noticeable technology and performance."
Reactions vary among segments
Analysts believe that in a highly segmented beauty market, the upper echelons of consumers still aren't hurting enough to trade down.
"Some of the people who buy prestige products are still less affected by some of the gas-price increases or macroeconomic difficulty, and they probably believe in the products' efficacy or they already would have traded down," said Sanford C. Bernstein analyst Ali Dibadj.
The segment effect even appears within the sales figures of individual brands, such as Bare Escentuals, where sales through QVC and its own branded boutiques grew 48% and 41%, respectively, even as sales from infomercials, which generally reach a more moderate-income audience, fell 22%.
Last quarter's high-end-beauty strength stemmed in part from a trend that began late last year. "Across all categories of beauty, we saw double-digit growth in products that were often double the average price of typical beauty products," said Karen Grant, senior beauty-industry analyst with NPD.
In a sense, higher prices of other things may even help, at least for better-off consumers who still can afford pricey products. "When it can cost you $70 to $100 a week to fill up your gas tank," Ms. Grant said, "sometimes that premium beauty product doesn't look that expensive anymore."
Can good times continue?
But it's not certain the high-end strength can last. A relatively strong second quarter followed a 1.2% decline in March, according the NPD data, and sales growth slowed to 1.5% in July. In a report, Morgan Stanley analyst Bill Pecoriello noted prestige sales have kept slowing since a highly promotional April.
In mass, meanwhile, promotion has become so widespread that it has depressed sales. Hair and skin care accounted for 20% of household and personal-care promotional deals tracked by Deutsche Bank in June and July, up from 14% in April and May. That could reverse come September, when price increases on many products take effect.