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August2,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Thisisthefirstreportinour21st-CenturyDrugstoreseries.Here,weexaminetheopportunitiesforUSdrugstorestofightforshareinthebeautyandpersonalcaremarket.
1) Americanswillspend$89billiononbeautyandpersonalcareproductsthisyear,some$3.9billionmorethantheydidlastyear.
2) Weestimate$13.2billionoftheabovetotalwillflowthroughdrugstores,makingthesectorthesecond-biggestchannelforbeautyandpersonalcareproducts.
3) Drugstoresaccountforalmost15%ofUScategorysales,behindgroceryretailers’22%share.
4) Inthecolorcosmeticssubcategory,drugstoresenjoyashareof18%.Inthemen’sgroomingcategory,drugstorescapture16%ofsales.
The 21st-Century Drugstore:
US Drugstores Fighting for Share
in a Shifting Beauty Market
Deborah Weinswig
Managing Director,
FGRT
US: 917.655.6790
HK: 852.6119.1779
CN: 86.186.1420.3016
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August2,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Drugstores:FightingForShareInAShiftingBeautyMarketBeautyandpersonalcareisonecategorythatisseeingbuoyantperformancewhilemostotherretailcategoriesaregoingthroughadifficulttime.Inthisreport,weexaminehowdrugstoresarepositionedtobealeadingchannelinbeautyandpersonalcaresales.
Thisreportisthefirstinour21st-CenturyDrugstoreseries.Furtherreportswillcovertopicssuchascateringforseniorshoppersandhowpharmacyretailerscanserveconsumerdemandforwellnessproductsandservices.
Americanswillspend$89billiononbeautyandpersonalcareproductsthisyear,some$3.9billion(or4.6%)morethantheydidlastyear,accordingtoEuromonitorInternationaldata.And$13.2billionofthattotalwillflowthroughdrugstores,weestimate,makingthesectorthesecond-biggestchannelforbeautyandpersonalcareproductsaftergrocerystores.Wethinkthereareopportunitiesfordrugstorestobolstertheirshareinthecategory,despitealreadyenjoyinganimpressivesliceofsales.
Whilesalesofsomediscretionarycategories,suchasapparel,havefaltered,beautyandpersonalcarehasgonefromstrengthtostrength.Aswechartbelow,growthincategorysaleshavetendedtooutpacetotalretailsalesinrecentyears—andcertainbeautysubcategories,suchascolorcosmeticsandmalegroomingproducts,haveperformedmuchmorestrongly.
Figure1.US:BeautyandPersonalCareSalesvs.TotalRetailSales:YoY%Change
Source:EuromonitorInternational
3.9
4.6
6.5
5.3
2
3
4
5
6
7
8
2015 2016 2017E
AllRetailing AllBeautyandPersonalCare
ColorCosmeacs Men’sGrooming
Americanswillspend$87billiononbeautyandpersonalcareproductsthisyear.
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August2,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
DrugstoresCapturing15%ofSalesDrugstoresarealreadythesecond-most-popularchannelforbeautyandpersonalcarepurchasing,accountingforroughly15%ofcategorysales,behindgroceryretailers’22%.Inthefast-growingcolorcosmeticssubcategory,drugstoresenjoyanevenhighershare,of18%.Anddrugstorescapture16%ofsalesinthehigh-growthmen’sgroomingcategory.
Figure2.US:BeautyandPersonalCare—DistributionofSalesbyChannel,2016(%)
*AllonlinesalesareincludedunderInternetretailing;dataforotherchannelsareforofflinesalesonly.Source:EuromonitorInternational
Giventheseexistingstrengths,wherearetheopportunitiesfordrugstorestomaintainorgrowtheirshare?
CapitalizeonDepartmentStoreDifficultiesAslewofdisappointingtradingupdatesbearwitnesstothestrugglesthatdepartmentstoresareexperiencinginthefaceofheightenedcompetition.Thesector’sdifficultieshavebeenreflectedinnegativeunderlyinggrowthatahostofdepartmentstorenamesandhavespurredMacy’s,SearsandJCPenneytoimplementstoreclosureprograms—andclosureprogramswillonlydentthesector’sshareinbeauty.
Excitingshopperswithnewbrands,asWalgreensandotherdrugstorechainshavedone,isonewaycompetingretailerscanmuscleinonthegiftingandtreatingoccasionsonwhichdepartmentstoresthrive.
CaptureShareOnlineItisalmostsuperfluoustonotethate-commerceisthefastest-growingchannelinbeautysales.USconsumersspentsome$7.2billiononlineonbeautyandpersonalcareproductslastyear,accordingtoEuromonitor;thisequatedto8.5%oftotalcategoryspending.InthefaceofaggressivecompetitionfromInternet-onlyplayerssuchasAmazon,Birchbox,DollarShaveClubandIpsy,brick-and-mortarretailersdohaveonecompetitive
GroceryRetailers22.1
Drugstores14.8
BeautySpecialistRetailers14.5
MassMerchandisers
12.9
DepartmentStores9.9
InternetRetailing
8.5
AllOthers17.3
USconsumersspentsome$6.7billiononlineonbeautyandpersonalcareproductslastyear,thisequatedto8.1%oftotalcategoryspending.
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August2,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
advantage:theycanofferin-storepickup.Walgreenslaunchedapickupservicelatelastyear,whileCVSHealthrolledoutitsCVSExpresscollectionserviceacross2016.Moreover,thesemajordrugstoreplayersareleveragingmobileappstointegrateshopping,loyaltyprogramsandmobilepayments.
EncourageCross-CategoryPurchasingDrugstorescanalsoleveragetheshoppertraffictheyenjoyfromhealthcaretoboostbeautysales,andtheycanencouragecustomerslookingforeverydaytoiletriestoconsiderbuyingbeautyproductsfromthem,too.Loyaltyprogramshavearoletoplayhere.Inlate2016,WalgreenslaunchedanewBeautyEnthusiast“club”withinitsexistingBalanceRewardsloyaltyprogram.CVShasofferedabeautyloyaltyprogramsince2011.
Source:www.walgreens.com/balancerewards
UnderstandMillennialandGenZBeautyShoppersMillennials(thosebornbetween1980and2000)andGenZers(bornafter2000)willgrowinimportanceasbeautyconsumersinthecomingyears—andretailerswillneedtostayattunedtotheirdemands.FungGlobalRetail&Technologyhascoveredthesedemographicsindepth,includinginourreportsTheMillennialsSeries:MillennialsandBeautyandGenZandBeauty—theSocialMediaSymbiosis.Weidentifyanumberofcharacteristicsthattypifytheseshoppers,including:
• Millennialsarefrugal,inpartthroughnecessity.Perhapssurprisingly,thisagegroupspendslessonbeautyproductsthanolderagegroupsdo.Millennialsaremorelikelythanoldershopperstobothvisitdifferentstoresinordertogetthebestdealsandusecouponcodeswhenbuyingbeautyproducts.However,millennialsarenowaged17–37,whichmeanstheyareenteringtheirpeakearningyears–so,thisfrugalitymayeaseoff.Thisgenerationismorelikelythanoldergenerationstoresearchbeautyproductsonlineandtousesocialmediamoreactivelyaspartoftheshoppingexperience.Accordingly,brandsandretailersmustconsiderhowtheycanresonatewiththisdemographicthroughonlinechannelsandperhapsthroughinitiativessuchasonlinecouponing.
Inlate2016,WalgreenslaunchedanewBeautyEnthusiast“club”withinitsexistingBalanceRewardsloyaltyprogram.
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August2,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
• GenZconsumersaregrowingupalongsidethedevelopmentofsocialmedia.ThatmeansGenZersarethefirstgenerationtogrowupdocumentingtheirlivesonlineandseeingintothelivesofcelebritiesandself-madesocialmediastars.WethinkthismakesGenZthemostself-consciousgenerationever,andthepressuresregardingappearanceandbodyimagearepromptingkidsintheirteensandevenyoungertousecosmeticsandotherbeautyproducts.Thisgenerationisalsoleadingthechargetosocialmediaand,especially,onlinevideoforresearchonbeautyproducts.Brandsandretailerswillneedtoconsidertheironlineengagementstrategiesasthisgenerationmaturesintofullyfledgedadultconsumers.
Theoutlook:OpportunitiestoSeizeShareWithbeautyretailinastateofflux,therearepocketsofopportunityforthosedrugstoreretailersthatareabletoadapt.Retailerscancapitalizeondepartmentstores’woesandworktograbshareinthee-commercechannel.Atthesametime,drugstoresmustkeepaneyeonfuturecustomerdemandsinordertosustaingrowth:asmillennials’spendingpowergrowsandGenZersemergeasconsumers,retailersmustappreciatetheirdemandsinordertofullyservethemasbeautyshoppers.
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August2,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
DeborahWeinswig,CPAManagingDirectorFGRTNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comJohnMercerSeniorAnalyst
SwaroopraniMuralidharResearchAssistantHongKong:2ndFloor,HongKongSpinnersIndustrialBuildingPhase1&2800CheungShaWanRoad,KowloonHongKongTel:85223004406London:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NewYork:1359Broadway,18thFloorNewYork,NY10018Tel:6468397017