Over the last two years, COVID-19 has dominated the consumer mindset and transformed the beauty industry. While demand for categories like makeup, bath & body, and fragrance have fluctuated, the beauty industry’s sales have rebounded. Despite feelings of optimism, the idea that the pandemic created a perfect storm for inflation, has proven true.
According to the U.S. Labor Department, the consumer-price index, a widely watched inflation gauge, rose 7.9% between February 2021 and 2022, the fastest annual inflation in 40 years. The bump is a result of several factors tied to the ongoing supply chain crisis, which has impacted the cost of ingredients, as well as the price of freight and transportation. In the United States, gasoline prices have soared past highs last seen in 2008, an increase that will eat into consumers' ability to spend on other goods. Adding onto this, the national labor shortage is at a record high, up nearly 30% since pre-pandemic.
In this report, we analyze the categories most impacted by inflation and its impact on discount penetration, and how brands are communicating these unexpected price increases to consumers.
Inflation By Category
Since pre-pandemic, fragrances (+12%), skincare (+11%), shaving (+8%), and makeup (+6%), are affected by price increases. Bath & body exhibited no change in the overall original price.
Inflation By Category and Its Impact On Discounting
While discounts remain much less prevalent in beauty compared to apparel, there is still some modest impact of inflation in terms of discount penetration. The categories that are most affected are bath & body (+1% point), fragrances (+1% point), and makeup (+1% point). Shaving exhibited no change in the percent of products discounted and haircare decreased discount penetration.
The Three Most Impacted Categories
The average price for fragrances rose by 12% in 2022 compared to 2020, however, inflation is not fully to blame. Fragrance sales rebounded last year after taking a major hit during the initial phase of the pandemic. Brands are capitalizing on consumers' willingness to pay more for prestige fragrances. According to NPD, around 12 million buyers came into the category, with spend per buyer rising 26%. Additionally, 80% of surveyed fragrance consumers are willing to pay more for a scent they really like.
The pandemic encouraged people to refocus their beauty routine, opting for skincare over makeup. Searches for skincare reached a 15 year high in May 2020, as concerns like "maskne" and skin stress topped the consumer lexicon. Despite this, the category saw the second-largest price increase when comparing 2022 to 2020, due to the rising cost of goods.
The shaving category, specifically razors, has suffered from the rising cost of goods, resulting in a +8% increase in average price. In March 2020, prior to the pandemic, steel prices traded between $500 and $800. The price of steel as of July 2021 is up over 200%, trading at $1,800, as an important input in the price of razors, this explains one component of rising costs in the shaving category.
How Brands Are Responding
In 2021, Procter & Gamble and Unilever announced plans to hike prices on many common categories, including grooming, skincare, and feminine care. Speaking to investors, P&G Chief Financial Officer Andrew Schulten said the company will "undoubtedly experience more volatility" and is prepared to navigate "cost pressures and continued effects of the global pandemic."
Most recently, in March 2022, E.L.F., a brand known for affordable makeup, announced on its Instagram page that it would be increasing prices. "As we face a world of rising costs, prices on many of our products will increase. Most products impacted will increase in price by $1, while prices on some of your favorites will remain the same. We remain committed to transparency and making the best of beauty accessible at mic drop prices. Always clean, vegan, and cruelty-free," reads the post.
Brands should strive to understand how shopping patterns have shifted in times of inflation and how these shifts affect consumers across demographics. Transparent communication around rising prices will go far, especially when coupled with value-driven offerings such as free shipping, no-risk returns, and other discounts or deals. Flexible buy now, pay later options can help consumers better manage their finances and justify spending during this volatile time.
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