Prestige, Luxury Products Thrive as Mass Market Sputters

P&G Ramps Up Efforts for Pricey SK-II, Art of Shaving, Zihr Reverse

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BATAVIA, Ohio ( -- The rich are different from other people: They're spending a lot more on beauty products.

Estee Lauder saw an eye-popping 14% jump in organic sales.
Estee Lauder saw an eye-popping 14% jump in organic sales.
It's not the only difference F. Scott Fitzgerald would observe, but in a household and personal-care industry that broadly posted lackluster results last quarter, prestige and ultra-prestige beauty products were surprisingly strong.

Estee Lauder led the way with an eye-popping 14% jump in organic sales, which exclude the impact of currency, acquisitions and divestitures. Strong prestige and luxury results also helped L'Oreal to a robust 6% organic sales growth, ahead of more mass-market players such as Procter & Gamble Co. and Unilever, which each came in around 4%.

Sanford C. Bernstein analyst Ali Dibadj saw in the third quarter a "decoupling" of the luxury and prestige markets, also including LVMH and Elizabeth Arden, from the mass marketers. And the results extended beyond beauty, as Macy's and Nordstrom showed increases in customer traffic year over year last quarter even as the U.S. Walmart division last week reported continued year-over-year declines in traffic for the quarter ended Oct. 31, albeit improvements from the prior quarter.

"The luxury consumer is shopping again, and we are seeing our strategy contribute to ... prestige beauty growing faster than mass in many parts of world," said Estee Lauder CEO Fabrizio Freda on a conference call with analysts last month. He pointed to U.S. beauty sales in department stores and Sephora growing 4% last quarter, according to NPD Group, while sales in mass channels grew only 1%.

P&G, which sells mostly mass-market products, is also seeing the effect. Shipments for its ultra-prestige SK-II skin-care business rose 20% last quarter. While P&G has in the past year reduced price gaps with competition in many categories and focused more on value products, its efforts to reach more consumers also mean ramping up marketing for the well off, particularly this quarter.

P&G's prestige fragrance business tapped DLB Group, a global agency with offices in Latin America, Spain and Miami, for a retail display campaign breaking this month in every international airport in the U.S. and Canada. The campaign for Dolce & Gabbana, Hugo Boss and Gucci fragrances aims to tap impulse purchases in a channel that accounts for more than half of travel retail and was particularly lucrative last quarter for Estee Lauder.

P&G is also putting more muscle behind its upscale men's grooming brands, including a new campaign that broke in October for pricey shave products from the Art of Shaving and another for Zirh Reverse, a new line of wrinkle-fighting anti-aging serums that launched earlier this month, both from Omnicom's BBDO Worldwide, New York.

If anything, the well-off probably have fewer reasons to get worry lines now: Forty-one of Americans with household incomes of $100,000 or more felt more optimistic as a result of the Republicans' midterm election gains, according to the Ipsos Mendelsohn Affluent Barometer tracking survey.

The same survey shows optimism among such households rising steadily since bottoming in August, with 47% in November saying they feel optimistic about the U.S. economy, up 10 points from August. That compares to a three-point decline to 50.2 in the Conference Board's Consumer Confidence Index covering all consumers between August and October.

The wealthy can take heart in a rebound in equity markets since August and a new Congress that has considerably improved the odds that tax cuts for households with incomes over $250,000 will be extended beyond Dec. 31. The rest of the market, which suffers the brunt of an unemployment rate of 9.6% (the rate for college graduates is around 5%), faces an increased likelihood that long-term unemployment benefits won't be extended again when they expire Nov. 30.

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