Health & beauty growing strongly even in difficult times
The Health and beauty retail industry has grown healthily for years. The segment seems to defy the gloom that has plagued most of the other non-food retail sectors over the last few years.
There is even a term for the strong performance of Health and beauty products, “lipstick index” coined by Leonard Lauder of Estee Lauder company. He went on to state that lipstick sales are conversely correlated to inflation. The point is that women tend to substitute more expensive purchases for smaller items, such as lipstick.
This effect can be seen in the growth of the Health and beauty segment in many markets and the performance of the big companies in the sector, such as Sephora and Ulta Beauty.
A thriving sector
The Health and beauty sector has grown throughout the last few years in the United States. Only one quarter during the early pandemic (Q2/2020) saw revenues decline. Before and especially after that, the sector has grown rapidly.
In Sweden, there were more quarters where revenues declined. Finland saw only two quarters (Q2/2020 & Q1/2021) when Health and beauty revenues declined. After the peak pandemic, the sector has thrived. There have been multiple double-digit growth quarters in Sweden, whereas in the US and Finland, the growth has been more muted but still strong.
Part of the explanation for the robust growth can be that Health and beauty products are sold so widely throughout the retail sector.
The big generalist sellers from Walmart to ICA and Kesko sell Health and beauty products in big volumes. The big grocery retailers in every country have not suffered as significantly from the external economic turmoil.
Great specialists are growing strongly
Besides the strong growth in overall markets, the sector is driven by several big specialist retailers. Sephora (part of the LVMH Group) and the American Ulta Beauty are the most notable. Both saw revenues decline significantly during the early pandemic as the stores were closed down. Since early 2021, both companies have grown rapidly beyond the pre-pandemic levels.
Sephora revenues are 16% of the pre-pandemic levels, whereas Ulta has grown 47% above 2019 revenues.
In the case of Ulta, this astonishing growth has grown with a robust 13+% EBIT margin. LVMH is also really profitable, but they do not report the profits of the Selective Retailing segment (Sephora).
Strong challengers in the Nordics
If the international giants are growing strongly, many small specialists have flourished in the wake of the Health and beauty sector growth. In the Nordics, Lyko and Normal are the penultimate examples. Lyko has grown to double-digits throughout the pandemic and inflationary periods. The growth has slightly slowed down from the 20+% levels.
Normal has been one of Europe's biggest growth phenomena in the last years. The company has grown between 20% and 50% annually from 2019 to 2023 (the fiscal year ends in 07/2023).
Since 2019, Lyko has grown by 145%, whereas Normal has grown by an astounding 257%. Despite growing from a small base, with these kinds of growth levels, both companies can expect a very bright future.