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Can beauty retailers remain resilient through the winter?

While many retailers have recently reported profit losses, a string of beauty businesses have come out on top with resilient trading over recent quarters, but can they remain resilient over a difficult festive period?

With endless economic and political uncertainty permeating the industry, it’s been hard to predict which category of retailers will fare better than others, but one thing is certain: the health and beauty industry has weathered the storm better than others.

Most recently, THG reported “stable and consistent” consumer trading during the third quarter, reflecting what the group called the “resilience” of beauty, health and wellness categories. THG Beauty, alongside THG Nutrition’s core territories, delivered revenue growth of 10.2% for the period ended 30 September 2022 (Q3), ahead of the group’s overall growth rate of 2.1%.

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Overall, the beauty department delivered 4.9% growth year-on-year to £259.7m, up a formidable 64.9% on a two year basis, while THG Beauty’s year-to-date growth jumped 14.7% to £812.4m, with two year growth 79.3%.

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Consequently, Matthew Moulding, CEO of THG, said that as cost of living pressures rise, customers are continuing to prioritise beauty, health and wellness categories, and the group is retaining interest by reducing pricing to consumers.

Similarly, Boots revealed its fourth quarter sales surpassed pre-Covid levels in the three months to 31 August 2022 (Q4), driven by continued “good performances” in beauty, health and personal care, and new online healthcare services.

Ultimately, this has contributed to a 65% hike in full year adjusted operating income for Walgreens Boots Alliance (WBA) International. Beauty, in particular, is dominating on boots.com, surging by 125% and accounting for around 50% of total online sales.

However, footfall dropped last week as cost of living squeezes household incomes in midst of political uncertainty. Footfall across UK retail destinations declined by -2.3% week-on-week, with drops in all three key destination types: -3.3% in high streets, -1.5% in retail parks and -0.7% in shopping centres, according to the latest data from Springboard.

Moreover, all retailers need to remain wary as profit warnings issued by UK-listed companies in Q3 surged 69% year-on-year, according to EY-Parthenon’s latest Profit Warnings report, marking the highest Q3 total for profit warnings since 2008.

The rise in warnings has been driven by a significant increase in the number of warnings from consumer-facing companies as demand and confidence continue to fall. Over 40% of FTSE Retailers and over 60% of the FTSE Personal Care, Drug and Grocery Stores sector issued a profit warning in the last 12 months.

Over 70% of retailers issuing a warning in Q3 cited weakening consumer confidence, while inventory challenges have also intensified as falling demand creates surplus stock issues.

As the UK economy expects to be in recession until the middle of next year, EY warns that it’s critical that retailers use the breathing space provided by the energy price cap to safeguard their long-term survival.

This means reviewing pricing strategies and considering how and where to pass price rises on, developing “robust” cash management plans and inventory visibility to avoid costly write-offs.

Additionally, focusing on core products, and understanding what will drive growth will be “key” to thriving in the current economy, as the market is polarised between cash strapped consumers and those willing and able to spend if retailers entice them.

However, not all hope is lost. Superdrug, for example, has already seen Christmas sales surge 219%, following a rise in customers purchasing Christmas gifts.

So while the retail sector is facing a challenging winter, it remains to be seen whether this is a temporary trend or if this renowned interest in health and beauty is here to stay for the long run.

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