Taking the biggest cut, the hair-care segment continues to keep ahead of the United Kingdom’s professional beauty market with a 65% total market share, generating £370 million (USD 560 million) in sales at the retail level in 2012. However, consumer visits to hair salons continue to decrease, particularly in the lower-end segment.

A particularly strong boom in the number of nail salons is being seen, with many introducing skin care services. The number of popular high street in-store beauty institutes is also progressively increasing. Nail care, although claiming the smallest share of the British professional beauty market, has seen a meteoritic 30% increase in sales through 2012. More readily lending itself to constant innovation and novelty, the professional nail care market has successfully tapped into these advantages and continues to invite faithful consumer spending.

Skin care is another area experiencing growth and, with the second largest professional skin care market in Europe after France, accounts for over 16% of European sales in 2012, the United Kingdom is showing up some particular market tendencies.

What especially differentiates the 2012 British professional skin care market from the Continent is the predominance of the medical care providers channel, which continues to be the best performing channel in the United Kingdom, with sales soaring at nearly 13% – far ahead of the retail stores channel. By contrast, both the beauty institutes and salons and spas channels are seeing slight sales declines.

With approximately 25% of all dispensing physicians in Europe, the United Kingdom has the greatest number of physicians dispensing professional skin care products to consumers. This combined with an increase in the number of medical care providers, particularly with dermatologists and plastic surgeons typically dispensing skin care products within their private consultancies, and with the market enjoying more relaxed oversight compared to Continental Europe, have all contributed to the United Kingdom continuing to be one of the fastest growing markets in the European region.

Reflecting high cultural diversity, as well as a burgeoning minority market, whitening/hyperpigmentation is claiming 11% of take-home face care sales, significantly higher than the European average of 7%. Sales size and growth are primarily driven by the medical care providers channel and an increase in demand from ethnic minorities, particularly from South Asia.

Further powering the British skin beauty is the market for at-home beauty devices. With strong marketing strategies, companies are building up consumer awareness of these products and generating keenness on integrating them into consumers’ at-home beauty regimes.

The U.K. market is currently fragmented, especially in the hair removal segment due to the entrance of the new products filling the void left by the withdrawal of the Cyden brand. Cyden had held 45% of the market share in hair removal devices when it ceased manufacturing at the end of 2011. This has left room for established brands such as Tria and No!No! to set up subsidiaries in the United Kingdom to compete with the new market leader Philips’ Lumia.

These and other insights from the global professional beauty market can be found only with Kline’s in-depth analysis available for countries within the regions of Asia, the Americas, and Europe. Please click here for details.

Among the highlights of Monday’s activities included a panel discussion moderated by Cosmoprof’s Pat Neville. Panel participants included Reuben Carranza, CEO of Wella, The Salon Professional Division of P&G North America; Martin Flaherty, Senior VP of Business Development at Colomer Beauty Brands USA; and Kristin Firrell, VP of Product Development and Education at John Paul Mitchell Systems.

Here are some of the highlights from the panel discussion:

On the next big trend:

Reuben:  Products for thinning hair.

Martin: Styling products that act as a perm.

On product sales via the internet:

Martin: The industry has had its head in the sand.

On YouTube:

Kristin: Have you seen the “Girl Who Burned Her Hair” video?

Reuben: Some of what is out there is really inspiring and some is scary as hell.

On building service revenue:

Kristin: Having little menu items makes the difference.

On differentiating salon products from others:

Reuben: The basis of differentiation is the service experience in the salon or spa.

Martin: We distinguish ourselves by respecting the craft.

The Bed Bath & Beyond chain of home goods stores isn’t the first place one might think of as a key retail channel for beauty and grooming products, but that may be changing in the future. Since the company purchased the Harmon health and beauty care chain in 2002, it has been putting Harmon departments in its other stores. The company is becoming more aggressive with acquiring new companies, as well as opening new locations, and is further focusing on a cross-pollination strategy, bringing themes from one type of store into another.

Bed Bath & Beyond acquires Cost Plus World Market, as well as Linen Holdings, in 2012. In the past year, the company opens a total of 41 new stores while continuing to add Harmon departments. Even Cost Plus World Market, which has traditionally focused on edible goods and eclectic décor, now has cosmetics and toiletries in some locations. Kline expects that the company will continue to integrate additional departments within its stores with merchandise obtained via relationships with vendors from sister concepts. Therefore, it is likely that more Harmon departments will open in most or all of the retailer’s stores.

This strategic move could prove a game changer for the cosmetics and toiletries industry if Bed Bath & Beyond continues adding such departments in all of its locations, which now include 1,004 Bed Bath & Beyond stores, 74 Christmas Tree Shops stores, 82 buybuy BABY stores, and 264 Cost Plus World Market stores (acquired in 2012). Of the 1,471 total stores the company currently operates (which include 47 Harmon stores), 1,437 are located in the United States, plus the District of Columbia and Puerto Rico, while 34 stores are located in Canada.

In 2010, Bed Bath & Beyond opened up the first ever L’Oréal boutique within a store, at its East 61^st St. and 1^st Avenue location on the upper east side of Manhattan. It has beauty advisors trained by L’Oréal. This experiment has been successful and the boutique is flourishing today. With cosmetic and toiletry departments rolling out within Bed Bath & Beyond’s other stores make a very real possibility of the company owning over 1,400 cosmetics and toiletries retail locations within the United States.

These insights, with much greater detail and analysis can be found in Kline’s soon-to-be-released Beauty Retailing USA: Channel Analysis and Opportunities report. The study gives sales figures of every cosmetic and toiletry category across all sales channels and sub-channels, such as direct sales broken out by Internet, infomercials, person-to-person, etc. It also contains detailed channel profiles and profiles an array of retailers including Amazon.com, Ricky’s, and Bed Bath & Beyond.

However, with the Chinese economic growth tapering from a GDP of 9.2% in 2011 to 7.8% in 2012, consumers have become more price-sensitive and have reduced their salon and spa visits. That said, Chinese consumers determined to tackle their beauty concerns and desires are still willing to spend. Offering worthy challenges, despite lessened traffic, the professional market in China is seeing a steady increase.

Posting a solid 5% growth, the professional skin care market is seeing foreign brands experiencing faster growth than local ones with the exception of local Chlitina, which posts above-average market growth due to its mature sales network, strong brand reputation, and strong senior management.

In general, the Chinese are inclined to perceive foreign products as more desirable, associating them with higher quality and the cachet of a premium purchase. Foreign products are particularly popular within the younger, trend-setting, demographic and foreign brands are expected to continue to outpace domestic brands through 2017 according to Kline’s recent Professional Skin Care: Global Series report.

The top skin care concerns in China include dehydration, skin whitening, and anti-aging. Anti-dehydration products are popular typically during the fall and winter, and the demand is larger in the northern China region, where the climate is more arid than the southern area.

Seeking lighter colored skin remains an ongoing trend persisting across most demographics, but youth in particular. Lighter colored skin is traditionally perceived as a sign of an elevated social status and appears firmly established within the Chinese market’s concept of beauty, this being borne out by a CNY 940.9 million (USD 149.6 million) spend on skin whitening products in 2012 alone.

With a CAGR exceeding 6% between 2007 and 2012, the salon hair care market is largely being driven by increasing salon doors and rising incomes. Hair coloring is the most dynamic category, thanks to educative marketing, celebrity-driven fashion trends, and consumers being more image conscious, reveals Kline’s latest Salon Hair Care report. Increasing consumer concerns with hair and scalp health, including issues such as hair loss, are boosting the growth of shampoos and conditioners. Of particular note is that consumer written salon reviews are growing in importance as savvy consumers are increasingly using review sites, such as Dazhong Dianping (similar to Yelp), to read about and comment upon salons.

To polish things off, Kline’s Professional Nail Care report reveals that China is the second largest market for professional nail care products, accounting for over 20% share of the Asia-Pacific regional market according Kline’s Professional Nail Care report. Again, the price-conscious consumers hold away with low-cost brands widely available in salons, including premium nail salons, to successfully attract a greater clientele.

China’s changing skin, hair, nail care needs, and consumer behavior patterns are comprehensively assessed in Kline’s Professional Segment.

With its near quarter-of-a-billion-strong population, a median age of less than 28, and growing spending power and awareness, Indonesia has the means and energy to spend on looking attractive. This is widely promoted by the Korean pop phenomenon known as K-pop. In K-pop, the visuals and looks matter as much as the music does. The striking hair styling and makeup, encapsulated by K-pop idolatry, is storming the cosmetics and hair industry, resulting, among other trends, in a hair coloring boom among the country’s youth. Of particular note, the cultural acceptance of K-pop-inspired hair coloring and styling is one of several significant and telling changes in consumer behavior, and this also leads to an increasing demand for salon products and services.

Right after the strong demand for hair coloring products, straightening and perming products are the second largest category, with a sizeable market share. Traditionally, hair straightening products have performed very well in the Indonesian market, as Indonesian women tend to have a strong preference for straight hair.

Muhamad Chatib Basri, Chairman of the Investment Coordinating Board of the Republic of Indonesia, notes “Even though they [foreign investors] have to deal with the problems of bureaucracy and infrastructure, the returns are higher than if you invest in Europe and the U.S. now.”

Radiating consumer confidence and trusted by foreign investors, Indonesia offers a vast potential for the cosmetics and hair care industry. Get a heads-up on this market with this comprehensive report from Kline: Salon Hair Care Global Series: Market Analysis and Opportunities.

Regardless of these seemingly negative findings, twice as many shoppers are buying more organic/natural products, compared to those buying less one year ago. The research results confirm that buying natural/organic is a trend that is still growing, especially among younger shoppers and mid- to high-income shoppers. Organic and natural products have evolved from the hottest new trend to a staple in most stores, and reinforcing the values of choosing natural or organic products will only contribute to the segment’s growth.

The question of what actually is the definition of “natural” specifically in the personal care segment and how to communicate natural and organic to customers is one of the issues also tackled by Kline’s upcoming report – Natural Personal Care: Global Market Brief. Examination of the fastest growing segments, the current market leaders and, most importantly, where business opportunities reside are engaged in this report.

Natural and organic products are here to stay. Retailers and manufacturers should continue to offer them and expect further growth. It is never good for business when a majority of people say something is expensive, but few believe it is a premium worth paying. The generic messaging surrounding why consumers should buy natural or organic products has to carry more conviction and further communicate benefits. What does this mean?

Learn more with WSL/Strategic Retail’s The PULSE of Shopping Life: Natural & Organic report and Kline’s Natural Personal Care: Global Market Brief.

Contact us to find out more.

Procter & Gamble (P&G) maintains its lead in the U.S. personal care market; however, its market share across multiple categories is being challenged. With the exception of P&G, major companies – in particular, L’Oréal and Estée Lauder – are enjoying steady growth. Of particular note, smaller companies are making strong headway and highly viable impressions.

Within the presently fertile M&A climate, smaller companies are increasingly attractive acquisition prospects by larger, cashed-up, and savvy players. As a telling example, earlier this year, L’Oréal’s CEO Jean-Paul Agon announced that he was ready to make important acquisitions to maintain growth, and this has already been borne out by the recent acquisition of Interconsumer Products, one of Kenya’s largest manufacturers of personal care and beauty products.

Eric Vogelsberg, Senior Vice President at Kline’s M&A Advisory, remarks, “Clearly, companies continue to emphasize growth agendas and make significant funding available – both strategic and financial sponsors – to realize such aspirations. Such an improving environment is increasingly attractive for M&A and a growing number of smaller, often privately held, cosmetic and toiletry companies are contemplating, developing, and/or executing exits. As such, 2013 portends to offer even greater deal flow as many companies look to invest in new growth opportunities.”

Kline’s Minor Companies chapter from the Cosmetics & Toiletries USA report, consisting of almost 150 profiles of smaller and especially dynamic cosmetic and toiletry companies, reveals particularly promising companies that have been identified as positive net-value prospects and are also presently competing in segments that are expected to post higher-than-industry-average growth.

Among the profiles are companies such as New York City-based Anthony Brands with the high potential for acquisition based on a solid presence in the male grooming market and a high level of innovative product launches. Similarly promising is Vogue International, a distributor of hair care and other personal care products in nearly 42 countries worldwide with a potential based on prolific R&D, mass brands with broad appeal and a recognized name. See more examples in Kline’s recently published blog post: Ripe for Acquisitions – Smaller Players in Personal Care Companies Post Above-average Growth.

In terms of the overall cosmetics and toiletries market performance, the nail polishes category claims the most success, shining with 17.4% growth, fueled by continual innovation and high consumer demand. Additionally, skin care products for men show a strong performance in 2012, gaining formidable traction with innovative brands such as Lab Series Skincare for Men by Estée Lauder and Anthony Logistics For Men by Anthony Brands, performing exceptionally well and posting double-digit growth.

An industry staple, the forthcoming Cosmetics & Toiletries USA is an authoritative source on the personal care products industry, encompassing market size and share data, retail sales, channel breakdowns, trends, and forecasts for 26 major product categories and detailed profiles of about 30 leading marketers, and an analysis of media spending. Additionally, Kline’s Male Grooming Products: Global Market Brief offers robust analyses of the burgeoning global male grooming market focusing on key trends, developments, and business opportunities. Kline also offers a highly esteemed mergers and acquisitions advisory service able to deliver effective, objective, and executable strategies built on deep industry expertise, analytical and management consulting capabilities, and a collaborative approach.

Will this be a killer for some beauty categories?

Amazon is many things to different beauty marketers and retailers. To some it is a retailer, to others it is a service provider facilitating e-commerce operations through Amazon Web Services. However, to nearly all beauty marketers and retailers, Amazon is a competitive threat.

Is Amazon’s success guaranteed?

Amazon has transformed the shopping environment in almost every category it has approached, successfully chipping away from big-box retailers in everything from books to consumer electronics. Whether it can succeed now that it is  targeting the beauty business is a different story.

As a pure online retailer, Amazon provides the convenience of at-home shopping, along with often lower prices; additionally, it is not required to collect sales tax in many states, except those where it has a physical presence. However, several states have recently considered or passed legislation that requires out-of-state retailers to collect sales taxes on their behalf, which could eliminate one of Amazon’s advantages.

Amazon is a rather complex organization drawing on three main revenue streams:

Direct Retail, which is composed of merchandise that Amazon owns and fulfills either via Amazon.com or one of its subsidiaries, such as zappos.com, soap.com, or beautybar.com. Kline estimates that beauty accounts for less than 1% of Amazon’s U.S. Direct Retail sales in all categories in 2012.

Third-party Marketplace is a platform where marketers and retailers can set up a shop to sell their products, which can be fulfilled by Amazon or by the third party independently. For this service, Amazon takes a commission equal to approximately 15-20% of the total sale, depending upon the category. For example, Sephora.com has a storefront at www.amazon.com/beauty, as does approximately 50 other retails, some pure play online and some with physical locations.

Amazon Web Services, also known as AWS, provides other marketers and retailers cloud-based online services with technology that keeps the Amazon.com operation working.

The big dilemma for beauty marketers is that for products sold directly through Amazon, the retailer controls the price and typically discounts by a substantial amount, which could be a major barrier for an established beauty marketer to cross. Selling directly on Amazon could hurt brands’ relationships with existing retail partners. However, even if a brand doesn’t sell directly to Amazon, the brand might still be sold on Amazon without its owner’s consent due to diversion and at a sizeable discount off the manufacturers’ suggested price.

In the United States, beauty e-commerce generated nearly $1.5 billion at the manufacturers’ level in 2012, accounting for 3.6% of total beauty sales, according to Kline’s Beauty Retailing Report USA. However, e-commerce is growing rapidly at an average of nearly 26% annually since 2007.

Just how large is the Amazon beauty business? The retailer enjoyed U.S. general merchandize sales totalling $ 23.4 billion in 2012. Figuring beauty sales at a mere 1.0% that would still amount to an impressive $ 234 million gross in beauty sales. What is more astonishing is that sales grow 34% during 2012. Indeed, sales grow dramatically every year.

So…

Could Amazon one day overtake Walmart to be one of the leading beauty retailers in the United States, or could it already be there?

If U.S. states without a physical Amazon presence mandate that Amazon collect sales tax on their behalf on purchases, will this significantly negate some of Amazon’s advantage?

What are the key indicators of whether Amazon.com will succeed in its plans on a quest to conquer the beauty market?

Kline’s Beauty Retailing USA report – currently in progress – provides a comprehensive analysis of the changing and increasingly complex beauty retail environment. Complementing a review of each major retail channel, this report profoundly assays several beauty retailers including Amazon, Sephora, Ulta, Walgreens, and more.

Written by Donna Barson, Kline’s Senior Associate, Consumer Product Practice

Clearly, companies continue to emphasize growth agendas and make significant funding available to realize such aspirations. Such an improving environment is increasingly attractive for M&A and a growing number of smaller cosmetic and toiletry companies are contemplating, developing, and/or executing exits. As such, 2013 portends to offer even greater deal flow as many companies look to invest in new growth opportunities.

Kline’s Minor Companies chapter from the Cosmetics & Toiletries USA report, consisting of a collection of almost 150 profiles of smaller, often privately held cosmetic and toiletry companies, reveals that some particularly interesting companies we have identified are positive net value prospects, as well as presently competing in segments that are estimated to post higher than industry-average growth.

Some examples are:

•  The New York City-based Anthony Brands specifically targeting the needs of men and, more recently, women. High potential based on: solid presence in male grooming market, and high level of innovative product launches.
• Dermalogica has approximately 120 skin care products for take-home and professional use. High potential based on: domestic position in spas and hair salons with aesthetic services, as well as global reach.
• Vogue International distributes hair care and other personal care products in nearly 42 countries worldwide. High potential based on: prolific R&D, mass brands with broad appeal; recognized name. It was rumored in January 2013 that Vogue had its Organix brand up for sale.
• Yes To Inc, manufacturer and distributer of natural face, body, and hair care products was founded in 2006. The company’s headquarters and production facilities were moved to San Francisco, CA, from Israel in 2010. High potential based on: rapid growth in recent years; truly natural products; clear, unique positioning; multi-category placement; accessible price points.
• Headquartered in Port Washington, NY, Kiss Products is a private manufacturer and distributor. Fashion nails and “decorated wear” nails are the company’s key area. High potential based on: company’s impressive growth; solid foothold in the fast-growing nail care segment.

There are three main reasons for this: polish touch-ups at home save time and money, the customers often like their color better than what the salon carries, and some women have hygiene concerns about the same brush and product being used on other women’s nails.

Some other trends spotted include UV lights at every manicure station, special smaller chairs for the increasing amount of mother/daughter nail salon outings, and sparkly effects on nails. All of these trends point to opportunities for nail polish marketers.

When asking the nail salon owners about clients, it emerged that there is a clear difference between demographic groups as to colors preferred, nail art used (in terms of percent of women using nail art, as well as the number of fingers to be painted), and brands of choice.

In addition, nail salon owners rarely order supplies online for the first purchase, but often do use the Internet for follow-up purchases. They rarely see sales reps in salons and prefer to go to the distributors to see the products (especially colors) in person before purchasing for the first time.

Kline’s new Nail Technician Insights study will interview 400 nail salon technicians and owners across the United States to get a solid analysis of regional differences in trends, tools used, service offerings, types of clientele, brand recognition, and much more. The findings will be of interest not only to professional nail product companies, but also retail brand owners.