DSN, HRG survey finds 3 indicators of future beauty category growth

In an effort to take the pulse of the beauty industry, Drug Store News and Hamacher Resource Group recently conducted a research project to assess the state of the category. Thanks to input from more than 2,500 retailers, manufacturers and service providers, the survey highlighted three critical elements that will have an impact on the future success of the category — category performance, merchandising execution and retail reinvention.

When it comes to category performance, close to a quarter of respondents who were asked how they viewed the cosmetics category said their sales performance was increasing, and roughly 60% of respondents — including more than half of both retailers and service providers — said their sales were holding steady. HRG said that it has seen increased competition for share of consumers’ wallets between online sales and direct-to-consumer brand, as well as traditional brick-and-mortar channels, increasing pressure on drug stores to maintain or grow sales.

When asked about the biggest challenges they face when growing the cosmetics category, 62.3% of retailers said keeping up with trends was their biggest challenge. More than half of retailers (56.2%) listed identifying customer needs as a big challenge. Other challenges included finding good product sources (23.8%), lack of information from brands (17.7%) and a need to improve the buying process (8.8%). The responses highlight a need for more collaboration and alignment between manufacturers and retailers, as well as retailers’ need for education on both trends and consumer needs — creating an opportunity both for manufacturers and service providers.

With regard to merchandising, manufacturers identified several barriers to growing sales. Principal among them was being too small to garner placement at retail, which 36.8% of manufacturers identified as their biggest barrier. Tying for the second-biggest barrier were retail execution of brands and out-of-stocks, as well as keeping up with display trends. HRG noted that it is possible that smaller brands might be able to overcome their size by addressing display issues alongside implementation tools and processes to speed up the process, as well as offering alternative distribution methods to improve product availability.

Indeed, 56% of retailers identified inventory as their biggest barrier to growth. Trailing that were two man-power-related issues — 47.5% identified keeping sections clean as a barrier and 32.1% said labor and the frequency of resets proved problematic. Locating the right fixture was an issue identified by close to a quarter of retailers, and 9% said fixture reorder proved a barrier. HRG also noted that labor challenges in brick-and-mortar could be contributing to these barriers, particularly as some retailers reduce operating expenses by cutting down on the number of in-store personnel.

Service providers noted retailer out of stocks and poor execution were as top barriers, as was information reaching retailers — which collectively made up more than half of service provider responses. This suggests an open gap for providers of technology that can help curtail out-of-stock issues.

When it comes to implementation, the survey found that roughly two-thirds of in-store fixtures are implemented by store personnel, with 23% of fixtures implemented by a store’s third-party and 11% implemented by a third party hired by a brand. Roughly 28% of manufacturers said they offer no reset support, and 26% said they offer support with a special request. For 15.79% of manufacturers, in-house staff and merchandising partners are used only for large accounts. Some 12.3% offer a merchandising partner for all accounts and 10.5% offer in-house staff for all accounts. Eight percent offer financial support for resets.

Feedback on reset support shines a light on an area where stakeholders can work together to offer tools that make the reset process faster, while improving accuracy to save labor costs. HRG noted that such efforts as installation videos or illustrated instruction guides can help ensure staff is comfortable, and accurate planograms and easily matched parts can help in time savings.

As for how companies are reinventing the retail beauty space, the survey asked retailers to characterize how they currently deploy resources and how they want to deploy them in the future. While more than half of retailers indicated that interactive displays and international beauty products are areas for future investment, they marked the areas where retailers are currently deploying resources the least. Taking the lion’s share of current investments were floor displays, counter displays, lighted displays and testers. Many retailers also are investing in beauty consultants and niche brands. HRG noted that these efforts are part of an uptick in strategies that food, mass and drug retailers are implementing to bring energy into their presentation for the beauty category.

The future of category, the survey results suggested, point to big potential in the beauty category for companies that focus on collaboration, sharing of information and innovation.