Throughout the next week, Glossy is running a series of stories on how the fashion and beauty industries are preparing for a potential recession. We’ll dig into how companies plan to manufacture, fundraise and run a retail fleet when the economy suffers.
Though the Federal Reserve increased interest rates in June and expects more hikes to come to combat inflation, beauty and wellness brands continue to raise product prices.
Last week, millennial darling Glossier announced that it will increase prices on some of its products in the U.S. by $1-$4 beginning July 6, due to “higher production costs.” In the U.K., those price increases are slightly higher, at approximately $1.23-$4.92, or £1-£4. Glossier declined to detail which products will be affected, but this is the first price increase for the brand since launching in 2014. Bala Bangles was another brand to email its consumers last week with price updates, stating, “The unfortunate reality is that the cost of doing business is historically high. From raw materials to inbound/outbound shipping, surging prices have forced our hand. To maintain a fair margin — to continue to offer beautiful, functional fitness equipment — we’ll be increasing prices on select items and decreasing prices where possible.” Signed by founders Natalie Holloway and Max Kislevitz, customers were informed that existing Bala Bangles prices would only hold until July 1.
“Most products will see an increase of about $5, while pricing on The Jump Rope will decrease $20 — we’ve uncovered a way to manufacture it more efficiently and are happy to pass along those savings to customers,” Kislevitz said to Glossy.
Glossier’s and Bala Bangles’ price increases follow a series of others’, from indies like RMS Beauty, Deciem and E.l.f. to majors like Procter & Gamble. Some like P&G increased prices in 2021: In October, CFO Andre Schulten said on an earnings call with reporters that the company would raise prices on certain products within beauty and grooming to deal with inflation. But price hikes throughout beauty and wellness appear ongoing and constant. It begs the question: How resilient is the customer?
According to Kislevitz, shoppers are willing to pay up. “The overwhelming majority of our customer base is understanding. In recent months, they’ve seen many of their favorite brands make similar adjustments,” he said.
Deciem chief brand officer Dionne Lois Cullen echoed similar responses from the brand’s shoppers. Deciem announced its own price increases across select products in January; those changes took effect on February 1. Citing the cost of raw ingredients, packaging and shipping, as well as fairly compensating its employees, Cullen said, “By being transparent with our customers about upcoming changes, and allowing them two weeks to purchase products at their current price, we managed to own a brand moment that reinforced our dedication to being open and honest with our community.”
Still, consumers may be wondering why price increases continue to barrage them since many retailers increased prices at the start of the coronavirus pandemic. Headlines may be screaming “inflation” now, but according to data from watchdog group Accountable.US, big retailers like Amazon, Target, CVS and Walmart hiked prices in 2020 because they could to boost gross margin. Now that raw costs are actually up like gas, due in part to Russia’s war in Ukraine, companies can’t exactly raise prices again.
“Normally, costs rise and companies respond by upping prices. However, everyone already raised prices two years ago. They raised prices because inventory scarcity meant they could, not because they had to. [Now] we’re seeing inflation happen in reverse. Instead of higher costs driving higher prices, higher prices preceded costs, leaving little room for additional raises now that costs caught up,” said Simeon Siegel, managing director of equity research at BMO Capital Markets.
This will make it harder for smaller brands since their customer is also likely to shop at Amazon, Target and Walmart, and their price increases follow bigger companies. Beauty brands, versus wellness companies, specifically, might be more insulated, though. Makeup sales tanked in 2020, since no one had a reason to go out and are now rebounding.
But beauty’s recession-proof M.O. might outweigh the ongoing price increases we are seeing. That underlines the thinking, for some.
“We have observed how beauty consumers are behaving, and the stats seem to imply that they are not slowing down spending for beauty, despite inflation rising and the CPI hitting a 40-year high in May. Unlike other discretionary consumer categories, beauty is more recession resilient and we believe consumers will continue to purchase the same, if not more, on beauty this year,” said Cristina Nunez, co-founder and general partner at True Beauty Ventures. True Beauty Ventures has investments in Crown Affair, K18, Dieux and Maude, among others. Nunez said many of its brands raised prices last year and used “email and social channels to share the news, in light of rising global supply chain costs.”
Nunez did say that distribution channels and the relationship between price and value matter. “While mass brands are benefitting from consumers looking for promotions and lower price point options this year, many consumers are also continuing to trade up to prestige and are less sensitive to price increases when looking for new beauty trends, innovation and efficacy.”
Still, beauty and wellness are just a few of the high-frequency categories that are being hit by inflation. The four largest and arguably most important categories — food, fuel, rent and utilities — have also all gone up. “When you think about the average household, the more expensive [those four categories] get without wage inflation, there is less purchasing power for discretionary purchases. Beauty companies are trying to price up to their cost of goods inflation, and so far, the consumer is navigating it. But retail sales have started to weaken on a core basis,” said Stephanie Wisskink, managing director at Jefferies, noting that customers are starting to trade down based on news that retailer basket size based on units is down.
Beauty shoppers may be wanting more, more, more now and are willing to spend because they haven’t been engaging in this category as much in the last two years. But as inflation rises and retail sales slow down, companies need to be wary of a potential fall and winter slowdown. Pretty soon, shoppers may be saying, “I love this moisturizer, but I don’t love it at this price.” With reporting from Liz Flora
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