Economic pressures shape holiday spending: What beauty brands need to know
Holiday sales growth for 2024 is expected to drop 1.7%, down from 4.7% last year, said Stern. Such declines are partly attributed to ongoing household spending pressures and "a shorter shopping season with fewer days between Thanksgiving and Christmas", she highlighted a resilient labor market and anticipated interest rate cuts that "support consumer confidence levels."
This slowdown has significant implications for the cosmetics and personal care industry, which depends on holiday spending to drive sales. Stern shared her insights with CosmeticsDesign into how beauty manufacturers, suppliers, and brands can navigate shifting consumer behaviors and align strategies with value-driven trends to remain competitive during the 2024 holiday season.
Value perception takes centerstage
Economic pressures are compelling consumers to prioritize value overindulgence. "This season shows an incremental slowdown in holiday spending trends as consumers increasingly focus on value amid easing yet persistent inflationary pressures," Stern said.
She further explained that "value perception will separate retailers" this year, with thriving businesses leveraging "smart pricing and advertising strategies" to appeal to cautious shoppers. Big-box and off-price retailers are expected to benefit from this trend, capturing the attention of consumers looking to stretch their dollars.
Cosmetics and personal care brands may need to collaborate with such retailers or emphasize their affordability in their product lines and marketing.
Higher-income consumers, however, present a nuanced opportunity. "Despite economic concerns, higher-income consumers are likely to spend but with a more selective approach," Stern observed. She emphasized that this group will remain attentive to promotions, creating openings for brands to highlight quality and value.
Promotional activity shapes the season
Promotional activity is a central theme this holiday season, as retailers aim to incentivize purchases despite tightened consumer budgets. "Retailers are treading a fine line, balancing the need for promotions with margin maintenance," Stern explained. Many have prepared by adopting "cost-savings initiatives and conservative inventory practices throughout the year," she added.
Categories like apparel, electronics, and home furnishings are set to see the heaviest discounts, but Stern also noted that "retailers in these segments are expected to leverage promotions to boost demand." For beauty brands, bundling popular products or introducing limited-edition sets could be a way to capture consumer interest without eroding margins too heavily.
Inventory management is also playing a critical role this season. "Retailers are leaning toward leaner inventory levels to avoid excess stock and reduce the need for clearance activities," Stern shared. This shift requires manufacturers and suppliers to adopt flexible and precise production strategies to meet evolving demand.
Inflation's lingering effects on spending
The impact of inflation remains a key factor for discretionary sectors, which are facing heightened risks compared to nondiscretionary industries. "Discretionary retailers face greater downgrade risks due to reduced demand for non-essential items," Stern pointed out. Further, she added, "Fixed cost structures make it harder for these retailers to absorb revenue declines without hitting credit metrics."
In contrast, value-oriented sectors like discount and big-box retailers are "well-positioned to meet demand from budget-conscious shoppers." Cosmetics and personal care brands can align with these value-driven sectors to ensure their products remain competitive in a challenging sales environment.
Opportunities for beauty brands
To succeed in this environment, cosmetics and personal care brands must adapt to shifting market dynamics. For example, Stern advised, "Successful players will double down on targeted discounts and clearer value communication through advertising efforts." Therefore, she suggested that collaborating with value-focused retailers or offering tiered product lines could help brands capture diverse consumer segments.
Additionally, with fewer shopping days between Thanksgiving and Christmas, Stern noted that "retailers need big results from Black Friday and Cyber Monday even more than usual." Beauty brands can capitalize on this urgency with early promotional campaigns and time-sensitive offers.
She added that higher-income consumers still show resilience, presenting an opportunity for luxury and premium products, and clarified that this demographic is "more selective" but willing to spend on quality items when paired with compelling promotions.
Finally, Stern highlighted similar trends in Canada, where consumers face "similar economic pressures, with a heightened focus on value and a cautious spending outlook." This alignment suggests cross-border opportunities for brands to implement consistent strategies in both markets.
The anticipated slowdown in holiday sales growth highlights the need for cosmetics and personal care brands to respond to value-driven consumer behaviors and carefully calibrated retail strategies. "The combination of cautious consumer spending and elevated promotional activity will define this holiday season, making value perception a critical factor for success," she concluded.
