Things of beauty may not be joys forever

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In a world less beautiful than a month ago, beauty care may be fading.

Even before the Sept. 11 terrorist attacks, one industry watcher brought down growth estimates in beauty care and some personal-care categories to the lowest levels in a decade because of the economic downturn. Since then, Estee Lauder has warned sales and earnings will be below previous projections for the year, in part because of the impact of the tragedy. And Unilever has indicated to analysts that it expects to see lower sales of such prestige fragrance brands as Calvin Klein, although the company didn't offer specific figures.

Mass-market beauty and personal-care products, which would seem more likely immune from an economic downturn than designer brands or even potential beneficiaries of consumers trading down, also saw sales declines in the week following Sept. 11, according to Information Resources Inc.

Three of the five categories with the steepest sales volume declines that week compared with a year ago were in beauty care, including eye and lip cosmetics, with volume down 10%; nail polish, down 6.2%, and skin-care products, down 5.6%. Generally, non-food product volumes fell 4.5% that week, compared to food products, down only 1%, as consumers stocked up on such staples as canned soup and rice.


But IRI and analysts cautioned against reading too much into one week of data. Consumers in IRI's panel have indicated they plan to return to normal shopping and spending patterns going forward, said Ed Kuehnle, group president, North America of IRI.

"We can't draw long-term conclusions yet," he said. "We did this basically as a service to our clients who don't get weekly data so they could see what [effect] that week did have on them. ... Minimally, people probably should be monitoring things in the short term to see if they need to spend their advertising or promotion money differently or work with retailers on a different mix of products for promotion."

Likewise, Jim Gingrich, analyst with Alliance Capital Corp.'s Sanford C. Bernstein unit, said it's hard to draw conclusions about the impact yet on beauty care. Clearly, department-store sales and traffic are down, he said, adding that Estee Lauder was also hurt because it does substantial business in Duty Free Shops in airports. But other beauty care marketers have indicated they don't expect a long-term impact from Sept. 11.

"The question is whether this is really a reflection of consumer usage or of shopping behavior following a crisis like this," Mr. Gingrich said.

But even a week before Sept. 11, Kline & Co., a consulting firm that tracks U.S. cosmetics and toiletries broadly, forecast that sales growth in the industry would come in below the 4% growth rate in 2000, which was itself the lowest since 1995. Kline pointed to declining sales at Intimate Brands' Bath & Body Works, adding that overall new-product introductions in the industry were down 15% in the first half. A spokeswoman said it's too soon to tell how much impact the terrorist attacks may have.

Estee Lauder is preparing for the worst. In a post-Sept. 11 conference call to analysts, the company reduced projected sales growth for fiscal 2002, ended June 30, to 5%-6% from 7%-9%. The company also reduced earnings expectations to between $1.45 and $1.50 per share,from the previous consensus estimate of $1.53.

Newspaper coupon distributor Valassis, meanwhile, last week issued an earnings warning for the second half, citing a slow-down in package-goods product introductions. Allen Schultz, president-CEO, said cancellations were so heavy that Valassis is holding open November inserts that would have normally closed last month.

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