Cosmetics, Beauty Supply, and Perfume Stores
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Industry Overview
The cosmetic, beauty supply, and perfume store (beauty store) industry includes about 10,000 stores with combined annual revenue of almost $7 billion. Major companies include Sally Beauty Supply, Ulta, Sephora, and divisions of Limited Brands (Bath & Body Works) and L’Oreal (The Body Shop International). The industry is concentrated: the top 50 companies have almost 75 percent of industry revenue.
Companies specializing in professional beauty products may restrict sales to salons and salon professionals, due to manufacturer policies. Salons may resell products to the public or use products for customer treatments.
Competitive Landscape
Demographics, consumer spending, and fashion trends drive demand. The profitability of individual stores depends on the ability to generate store traffic and effective merchandising. Large companies can offer a wide selection of products, and have advantages in purchasing, distribution, and marketing. Small companies can compete effectively by selling specialty products, providing superior customer service, or serving a local market. The industry is labor-intensive: average annual revenue per worker is about $85,000.
Major competitors include department stores, mass merchandisers, drug stores, TV shopping networks, Internet retailers, distributors, supermarkets, manufacturers, and salons. In addition, some beauty stores compete with dermatologists and plastic surgeons in the high-end market for cosmetics and skin care.
Products, Operations & Technology
Major products sold in beauty stores include hair and shaving, deodorant, hand, oral, and baby hygiene products (65 percent of sales), and makeup, facial care, and fragrance products (30 percent). The hair care category includes shampoo, conditioner, and color. Makeup categories include eyes, lips, and face (foundations and concealers). Facial care includes moisturizers, cleansers, and exfoliators. Some beauty stores sell personal care appliances, such as hair dryers and curling irons. Companies may provide salon services, including hair styling, manicures, pedicures, or facials.
While open-line stores sell to both traditional retail customers and salon professionals, professional customers typically receive a special discount. Full-service stores sell only to salons and salon professionals, and carry professional use only products for resale and use in salons. Beauty retailers offering services may rent booth space to salon professionals.
Beauty stores include national and regional chains, franchises, and independent retailers. Many independent retailers have a single location ranging between 1,000 and 2,500 square feet, according to Beauty Store Business. Beauty superstores can range between 5,000 and 10,000 square feet. Typical locations include strip malls, indoor shopping malls, and floor space within larger retailers. Companies consider demographics, neighboring tenants, store visibility, and traffic accessibility when selecting locations.
Retailers offering both beauty products and salon services can generate more than $400,000 annually and between $100 and $500 per square foot, according to Beauty Store Business. Stores selling only beauty products average less than $300,000 annually and less than $250 per square foot. Stores specializing in high-end beauty products can generate over $1,000 per square foot.
Most companies arrange store layouts by product category. Strategic product placement encourages cross-selling. New products and promotional items at the front of the store, and testers for sampling, promote impulse buying. Some companies, particularly those with strong ethnic customer bases, use localized merchandising strategies to match market demographics.
Major inventory categories include hair care, skin care, cosmetics (makeup), and fragrance. Inventory mix varies depending on a company’s target market. Prestige brands, such as Estée Lauder, Lancôme, and Clinique, are premium-priced products traditionally found in department stores. Mass market brands, such as L’Oreal, Revlon, and Clairol, tend to be lower priced, and found in mass merchandisers and drugstores. Beauty stores may carry private-label products or controlled label products (products for which a company has exclusive distribution rights). Professional or salon-only brands include Matrix, Redken, and Paul Mitchell.
The majority of beauty stores buy directly from manufacturers or manufacturer representatives, although some companies use distributors. To meet manufacturer requirements to sell salon-only products, a retailer may install a single stylist chair anywhere in the store. Agreements with suppliers may have minimum purchase requirements, particularly for relationships involving exclusive distribution rights. Some manufacturers accept product returns according to strict guidelines. Beauty supply buyers typically attend trade shows to identify the latest trends and select merchandise.
Computer systems and scanners track point of sale (POS) data and inventory movement, and may replenish merchandise automatically. Analysis of store sales data helps buyers make purchasing decisions. Some companies use radio frequency technology for security. In addition, computer systems can track and analyze information from customer databases to help companies develop targeted marketing programs.
