Channel Checks: UK Apparel Stores Boost Beauty Offerings Deborah Weinswig Managing Director Fung Global Retail & Technology deborahweinswig@fung1937.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Our Channel Checks reports feature observations from our recent store tours. In this report, we look at the beauty ranges offered by UK retailers that primarily sell apparel. 1) Since 2015, the UK apparel market has seen a major slowdown. However, demand for beauty products is strong, offering fashion specialists an opportunity to boost sales by expanding into beauty categories. 2) The new H&M Covent Garden flagship store has a separate beauty store with a wide range of cosmetics, skincare, haircare and beauty accessories. 3) Topshop spearheaded the move among fashion retailers to offer own-brand beauty lines, and the chain now sells the most expensive range among the three retailers we visited, although the products are still much more affordable than those of established beauty brands. 4) Primark launched an athleisure makeup collection in 2017, taking advantage of the popularity of both the well-being and beauty trends. The company relaunched its beauty department in its Oxford Street store in late 2016. 1
Introduction The apparel market in the UK has seen muted growth since 2015. In contrast, the beauty category is proving resilient, and demand for color cosmetics has been strong. The beauty category offers opportunities for fashion retailers to boost their sales growth. This Channel Checks report wraps up our store tours at three apparel retailers in London that have capitalized on this prospect and expanded into beauty. We begin by providing some context on the apparel and beauty markets in the UK. Since 2015, the UK apparel market has seen a major slowdown. Beauty Overtaking Apparel The UK apparel market has seen a major slowdown that began in later 2015, and 2016 proved to be an exceptionally weak year. Unseasonal weather and a consumer shift to spending on experiences rather than on goods conspired to hit the clothing and footwear categories particularly hard. Data from the Office for National Statistics showed a modest, 2% rise in UK spending on clothing and footwear in 2016, a rate of growth that was lower than in previous years and that was supported by an end-of-year surge. In fact, ongoing sales growth for apparel and footwear in 2016 was largely driven by the thriving athleisure trend. We believe that the softness in the UK apparel market will continue through 2017 and that sales will grow at a muted pace. See our report Deep Dive: The UK Apparel Handbook 2017 Outlook for more on this topic. Meanwhile, total UK beauty and personal care sales grew by 3.5% in 2016, to 12.4 billion, according to Euromonitor International figures. The color cosmetics category is proving particularly buoyant; category sales were up 9% in 2016, according to Euromonitor. Makeup has seen particularly high growth thanks to its popularity among Gen Zers and millennials, which has been driven by an increase in online makeup tutorials and informational content and by the demand to look good in photos posted to social media such as Instagram. Companies such as L Oréal have noted strong growth due to the selfie effect. See our report Deep Dive: Gen Z and Beauty the Social Media Symbiosis for more on this topic. Beauty categories therefore offer fashion specialists an opportunity to boost growth. According to Retail Week, beauty is one of the bestperforming categories and a significant footfall driver at major department stores such as John Lewis. Reflecting the opportunities in beauty, online fashion retailer Boohoo.com announced in its recently published annual report that it would work on developing beauty ranges. 2
Store Tours The Fung Global Retail & Technology team visited three apparel retailers in London that have strong beauty offerings: H&M, Topshop and Primark. The price points at these stores were noticeably lower than those of established beauty brand stores. The Topshop and Primark stores we visited are located on Oxford Street, whereas the H&M location we visited is in the less-crowded Covent Garden area. We visited each of these stores on a weekday, when footfall may have been lower than it normally is on weekends. The H&M store in Covent Garden is the only fashion store in London with a separate entrance for its beauty department. H&M Beauty, Covent Garden H&M opened its flagship store in Covent Garden in December 2016. The four-floor store offers womenswear, menswear, a teenage range called Divided, sportswear and accessories, but it is the only fashion store in London to have a separate entrance for its beauty section, according to the Retail Gazette. H&M Beauty, Covent Garden The beauty section of the store has a bright, open layout with modern décor, and the entire beauty product line is available there. The department felt fashionable and chic, in keeping with the rest of the H&M Covent Garden store. H&M s beauty offering includes makeup, hair products, skincare and accessories ranging from 6.99 for a lipstick to 9.99 for an eye palette to 12.99 for foundation. H&M offers the largest range of personal 3
care products outside of cosmetics and makeup of the stores we visited. This range included a variety of hair products, body and hand creams, bath and shower products, and a perfume collection. Footfall in the store was generally very low during our visit, but that was to be expected given the area and timing. H&M Beauty, Covent Garden Topshop spearheaded the move among fashion retailers to offer their own-brand beauty ranges. Topshop, Oxford Street Topshop was one of the first apparel retailers to launch its own cosmetics range, which it did in 2010. Now the British retailer offers a wide range of its own-brand makeup as well as skincare, haircare and accessories from partners in order to provide customers with a more comprehensive range that complements, rather than competes against, its own cosmetics lines. The flagship store on Oxford Street is Topshop s largest store in London, with four floors offering womenswear, menswear and accessories, as well as a café, juice bar, salon and tattoo parlor. The beauty section of the store is located on the ground floor and offers the Topshop beauty range as well as other brands. Topshop, Oxford Street 4
Topshop s beauty offering is slightly narrower than H&M s, as Topshop does not offer skincare and makeup palettes. However, the products have higher price points: nail polishes start at 5 and lipsticks at 8. Unlike the other retailers we visited, Topshop offers third-party brands in various categories. These include Kocostar eye masks, Elegant Touch acrylic nails and Eyelure false eyelashes, and these brands tend to be in line with the young-fashion brand image of Topshop. The beauty section of the Oxford Street store had high footfall during our visit and it has its own checkout counter staffed by three store assistants. Product at Topshop, Oxford Street 5
Primark launched an athleisure makeup collection in 2017. Primark, Oxford Street In 2014, Primark launched its PS beauty range of cosmetics, skincare and accessories. The range has since been rolled out in stores across the UK and internationally. This March, the retailer launched an athleisure makeup collection an attempt to blend the beauty and athleisure trends that are highly popular among millennials and Gen Zers. We visited Primark s flagship store on Oxford Street, where the beauty department was relaunched and repositioned on the ground floor in late 2016. Primark, Oxford Street The beauty offering at Primark includes a range of cosmetics, with lipsticks and nail polishes starting from 0.80, eye palettes priced at 2.50 and foundation at 4 per bottle. The store also has a line of skincare, cosmetics accessories and perfumes, the latter of which range from 2.00 to 3.50. The low prices and broad range came with a compromise in the form of an unorganized and untidy display that was tucked underneath the escalator. Despite this, there seemed to be reasonable footfall in the beauty section, although the womenswear and menswear sections of the store looked to be busier during our visit. 6
Primark, Oxford Street In Summary H&M Beauty Topshop Primark Widest range of beauty products among the stores we visited; mid-price range; low footfall in store (although that could be due to location). Most expensive range of products among the stores we visited; offering focuses on cosmetics over skincare; only retailer we visited that offers third-party brands; relatively busy beauty section. Lowest price points of the stores we visited; unorganized selection, but wide range of products; reasonable footfall. 7
Deborah Weinswig, CPA Managing Director Fung Global Retail & Technology New York: 917.655.6790 Hong Kong: 852.6119.1779 China: 86.186.1420.3016 deborahweinswig@fung1937.com Katie Marshall Research & Marketing Assistant Hong Kong: 8th Floor, LiFung Tower 888 Cheung Sha Wan Road, Kowloon Hong Kong Tel: 852 2300 4406 London: 242-246 Marylebone Road London, NW1 6JQ United Kingdom Tel: 44 (0)20 7616 8988 New York: 1359 Broadway, 18th Floor New York, NY 10018 Tel: 646 839 7017 FungGlobalRetailTech.com 8