US Beauty Industry Thrived During Pandemic Boom, Now Hit Hard by Consumer Slowdown

Consumer goods companies such as beauty and apparel, which enjoyed a boom during the COVID-19 pandemic, are recently facing a slowdown in consumer spending, the Wall Street Journal (WSJ) reported on the 3rd (local time). On the same day, shares of related companies also showed a downward trend amid expectations of contraction in the beauty industry.

According to the report, the beauty sector has been hit hard by the consumption slowdown. David Kimbel, CEO of Ulta Beauty, a retailer of beauty products, stated at an investor conference that "the entire beauty category is experiencing a consumption slowdown regardless of price range and product type," adding, "due to changes in current customer consumption patterns, growth has slowed faster than we had anticipated."

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Ulta Beauty, often called the American version of Olive Young, recorded double-digit sales growth over the past three years, fueled by strong demand for cosmetics, perfumes, and skincare products. However, in its earnings announcement last month, it projected that net sales for fiscal year 2024 would grow by about 4% year-over-year to $11.7 billion. This marks a continued slowdown compared to the 5.7% growth rate in fiscal year 2023 and 15.6% in fiscal year 2022.

Following CEO Kimbel's remarks, Ulta Beauty's stock price plunged 15% compared to the previous session. It has fallen about 10% so far this year. On the same day, shares of competing beauty companies Est?e Lauder, Coty, and e.l.f. Beauty also closed down by 4%, 6%, and 12%, respectively. CEO Kimbel pointed to rising debt, geopolitical conflicts, and the upcoming U.S. presidential election as additional negative factors for stock prices.

The WSJ also noted that, along with these macroeconomic changes, the competitive landscape in the beauty industry is shifting. Recently, Sephora, a beauty company owned by the world's largest luxury group LVMH, has aggressively expanded its offline stores, prompting Ulta Beauty to counter by launching new product lines featuring sports stars as models. With overall industry sales growth expected to slow, such increased investments are likely to burden companies with deteriorating profitability.

Jessica Ramirez, senior research analyst at Jane Harley & Associates, analyzed, "The beauty category is expected to undergo a correction this year," but added, "products across skincare and wellness are still anticipated to be favored by consumers."

The National Retail Federation (NRF) forecasted U.S. retail sales growth this year to be between 2.5% and 3.5%, slightly below the pre-COVID 10-year average of 3.6%. Jack Kleinhenz, NRF’s chief economist, evaluated, "The economic foundation is relatively solid," and said, "barring unexpected shocks, the economy will continue gradual growth this year even if job and wage growth slow."

Meanwhile, apparel companies also appear to be preparing for an economic slowdown. PVH, owner of the Calvin Klein and Tommy Hilfiger brands, stated that due to the slowdown in consumer spending in January and February this year, it is taking a cautious approach to its 2024 plans. It also forecasted that total sales this year would decline by about 7% compared to last year.