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Sitting pretty – the rise of beauty retailing in the UK

17 October 2018 by Lizzie Bollada

With the rise of social media and an increasing focus on one’s health and wellbeing, the beauty industry in the UK has recently taken centre stage in consumers’ minds. The beauty industry in the UK is currently worth £2.8 billion (Source: The Guardian) and is predicted to rise steeply to £27 billion by 2020 (Source: The Times). We wanted to understand what this lucrative market looks like today in order to identify the opportunities which will facilitate the increased value of this market.

The rise of beauty services

Although units which are classified as hairdressers have been on the decline over the past few years, beauty salons, nail salons and hair & beauty salons have enjoyed significant growth over the past few years, as can be seen in figure 1 below.

Fig1-1

Figure 1: Net change in number of stores by category within Hairdressing and Health & Beauty categories, September 2015 to September 2018 vs September 2017 to September 2018 (Source: LDC)

Figure 1 also shows a marked difference between salons offering hairdressing services only and those that offer beauty treatments alongside, with the latter seeing growth over the past three years and the former seeing a decline. However this decline in hairdressers has steepened over the past 12 months as the effects of a saturated market coupled with plenty of additional headwinds including rising operational costs and business rates has hit these retailers.

Product-led beauty retailers 

Figure 1 refers to the service-led beauty retailers, however many traditional retailers have also been able to benefit from the increased interest in health and beauty. Combining these product-led retailers such as Boots, Superdrug and others with those discussed above, the top 10 largest brands in regards to size of portfolio are shown in figure 2 below.

Fig2

Figure 2: Top 10 companies by portfolio size within the following categories, as of September 2018: Beauty salons, Nail salons, Hair & Beauty Salons, Hairdressers, Department stores, Beauty products, Health & beauty shops and Chemists/Toiletries (excluding pharmacies) (Source: LDC)

Boots The Chemist has a considerably larger portfolio than all other brands within this industry, with just over 3x the number of stores than the next largest competitor, Superdrug (2,368 compared to 771). What is key to note is that the service-led beauty retailers overwhelmingly are made up of independent retailers, whereas the traditional product-led (or as LDC would classify as comparison goods retail) stores are predominantly multiples (companies with five or more stores across GB) which may have an impact on the future longevity of these units.

Fig3-1

Figure 3: Independent vs Multiple mix across the beauty industry categories as of July 2018 (Source: GB)

Supermarkets getting in on the act

The size of the beauty industry and its expected future growth may well have led to the announcement made by Sainsbury’s at the beginning of October 2018 that they were going to invest further in the beauty market.

The three key features of this announcement were:

  1. They will double the size of their current beauty product offering to around 3,000 products and introducing many new large brands, such as Revlon, Essie and Tweezerman.
  2. They will be introducing branded areas and specialist assistants to imitate models seen within stores such as Boots or Debenhams.
  3. They plan to launch an affordable own-brand vegan beauty range called Boutique, with all products under £6. This new range will be sold across 300 Sainsbury’s stores and online, and the larger beauty set-up will be trialled across 11 stores initially.

Fig4

Figure 4: Number of Sainsbury’s stores compared to the top ten largest in the beauty industry as of October 2018 (Source: LDC)

Figure 4 highlights where Sainsbury’s would sit in terms of coverage of stores if they eventually roll out this enhanced beauty offering to the majority of their 595 stores.

Excess floorspace in large supermarkets started to become a concern around 2014/2015, stimulating a change in strategy to incorporate an increasing number of non-food products to compete more closely with discounters. This has led to a number of partnerships with other retailers to include new ranges such as fashion, electrical and now beauty. The longer shelf life of beauty products compared to food will help supermarkets reduce waste and the costs associated with it. This, combined with a larger beauty aisle utilising excess space within supermarkets has driven this new venture. If beauty ends up being half as successful as fashion in supermarkets, this could be the headstart Sainsbury’s needs to compete with the rest of the Big Four.

Another way that Sainsbury's will benefit from the launch of their all-vegan range, Boutique, is to attract a new demographic of customers into Sainsbury’s stores. Veganism and vegan beauty products are becoming increasingly popular, particularly for the younger demographic. Vegan products are often trickier to get hold of, especially at an affordable price point. The availability of such products in Sainsbury’s could open up a new, younger demographic for the supermarket who may visit stores to shop the vegan range and make additional purchases at the same time.

Who else competes for this spend?

Recently, there has been a rise of beauty brands opening standalone stores rather than relying on concessions such as MAC Cosmetics (30 stores), Kiko (46 stores), L’Occitane (75 stores) and most recently Elemis (7 stores). There has also been an increase in discounters, department stores and clothing specialists stocking branded, as well as own-brand beauty products as everyone makes a move to take a slice of the beauty pie. Primark has successfully been selling a vast range of value beauty products for quite some time and B&M bargains also have a successful value beauty range. The competition is fierce, and is growing exponentially as retailers make their move on this lucrative market. 

The beauty industry is predicted to see significant growth, expanding not only in size and worth but also variety, as the options and locations for purchase are becoming increasingly diverse. Sainsbury’s plans for branded beauty areas combined with specialist assistants emulate an American model currently seen in US retail giants such as Target. It will be interesting to see whether the expansion of the beauty offering within Sainsbury’s will compliment the other ventures and collaborations they have undertaken with brands such as Argos, Habitat and Crussh to name a few. UK supermarkets are gradually becoming one-stop shopping destinations for a variety of different products, similar to French retailer Carrefour and offering beauty items within stores appears to be the latest tactic supermarkets are using to give their offer a make-over. Over the next few years, we predict that the size and complexity of the beauty market will increase dramatically, with retailers (as ever) needing to remain ahead of the market through product differentiation, experiential retail and tapping into new markets before the competition.   

N.B. - For this blog, we focus on products such as makeup, skincare and perfume, and not products such as deodorants, body or hair products that typically fall under the health and beauty categories within the LDC database.

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