The 21st-Century Drugstore - Home - Coresight Research€¦ · · 2017-08-02This report is the...

August2,2017

Thisisthefirstreportinour21st-CenturyDrugstoreseries.Here,weexaminetheopportunitiesforUSdrugstorestofightforshareinthebeautyandpersonalcaremarket.

1) Americanswillspend$89billiononbeautyandpersonalcareproductsthisyear,some$3.9billionmorethantheydidlastyear.

2) Weestimate$13.2billionoftheabovetotalwillflowthroughdrugstores,makingthesectorthesecond-biggestchannelforbeautyandpersonalcareproducts.

3) Drugstoresaccountforalmost15%ofUScategorysales,behindgroceryretailers’22%share.

4) Inthecolorcosmeticssubcategory,drugstoresenjoyashareof18%.Inthemen’sgroomingcategory,drugstorescapture16%ofsales.

The 21st-Century Drugstore:

US Drugstores Fighting for Share

in a Shifting Beauty Market

Deborah Weinswig

Managing Director,

deborahweinswig@fung1937.com

US: 917.655.6790

HK: 852.6119.1779

CN: 86.186.1420.3016

August2,2017

Drugstores:FightingForShareInAShiftingBeautyMarketBeautyandpersonalcareisonecategorythatisseeingbuoyantperformancewhilemostotherretailcategoriesaregoingthroughadifficulttime.Inthisreport,weexaminehowdrugstoresarepositionedtobealeadingchannelinbeautyandpersonalcaresales.

Thisreportisthefirstinour21st-CenturyDrugstoreseries.Furtherreportswillcovertopicssuchascateringforseniorshoppersandhowpharmacyretailerscanserveconsumerdemandforwellnessproductsandservices.

Americanswillspend$89billiononbeautyandpersonalcareproductsthisyear,some$3.9billion(or4.6%)morethantheydidlastyear,accordingtoEuromonitorInternationaldata.And$13.2billionofthattotalwillflowthroughdrugstores,weestimate,makingthesectorthesecond-biggestchannelforbeautyandpersonalcareproductsaftergrocerystores.Wethinkthereareopportunitiesfordrugstorestobolstertheirshareinthecategory,despitealreadyenjoyinganimpressivesliceofsales.

Whilesalesofsomediscretionarycategories,suchasapparel,havefaltered,beautyandpersonalcarehasgonefromstrengthtostrength.Aswechartbelow,growthincategorysaleshavetendedtooutpacetotalretailsalesinrecentyears—andcertainbeautysubcategories,suchascolorcosmeticsandmalegroomingproducts,haveperformedmuchmorestrongly.

Figure1.US:BeautyandPersonalCareSalesvs.TotalRetailSales:YoY%Change

Source:EuromonitorInternational

2015 2016 2017E

AllRetailing AllBeautyandPersonalCare

ColorCosmeacs Men’sGrooming

Americanswillspend$87billiononbeautyandpersonalcareproductsthisyear.

August2,2017

DrugstoresCapturing15%ofSalesDrugstoresarealreadythesecond-most-popularchannelforbeautyandpersonalcarepurchasing,accountingforroughly15%ofcategorysales,behindgroceryretailers’22%.Inthefast-growingcolorcosmeticssubcategory,drugstoresenjoyanevenhighershare,of18%.Anddrugstorescapture16%ofsalesinthehigh-growthmen’sgroomingcategory.

Figure2.US:BeautyandPersonalCare—DistributionofSalesbyChannel,2016(%)

*AllonlinesalesareincludedunderInternetretailing;dataforotherchannelsareforofflinesalesonly.Source:EuromonitorInternational

Giventheseexistingstrengths,wherearetheopportunitiesfordrugstorestomaintainorgrowtheirshare?

CapitalizeonDepartmentStoreDifficultiesAslewofdisappointingtradingupdatesbearwitnesstothestrugglesthatdepartmentstoresareexperiencinginthefaceofheightenedcompetition.Thesector’sdifficultieshavebeenreflectedinnegativeunderlyinggrowthatahostofdepartmentstorenamesandhavespurredMacy’s,SearsandJCPenneytoimplementstoreclosureprograms—andclosureprogramswillonlydentthesector’sshareinbeauty.

Excitingshopperswithnewbrands,asWalgreensandotherdrugstorechainshavedone,isonewaycompetingretailerscanmuscleinonthegiftingandtreatingoccasionsonwhichdepartmentstoresthrive.

CaptureShareOnlineItisalmostsuperfluoustonotethate-commerceisthefastest-growingchannelinbeautysales.USconsumersspentsome$7.2billiononlineonbeautyandpersonalcareproductslastyear,accordingtoEuromonitor;thisequatedto8.5%oftotalcategoryspending.InthefaceofaggressivecompetitionfromInternet-onlyplayerssuchasAmazon,Birchbox,DollarShaveClubandIpsy,brick-and-mortarretailersdohaveonecompetitive

GroceryRetailers22.1

Drugstores14.8

BeautySpecialistRetailers14.5

MassMerchandisers

DepartmentStores9.9

InternetRetailing

AllOthers17.3

USconsumersspentsome$6.7billiononlineonbeautyandpersonalcareproductslastyear,thisequatedto8.1%oftotalcategoryspending.

August2,2017

advantage:theycanofferin-storepickup.Walgreenslaunchedapickupservicelatelastyear,whileCVSHealthrolledoutitsCVSExpresscollectionserviceacross2016.Moreover,thesemajordrugstoreplayersareleveragingmobileappstointegrateshopping,loyaltyprogramsandmobilepayments.

EncourageCross-CategoryPurchasingDrugstorescanalsoleveragetheshoppertraffictheyenjoyfromhealthcaretoboostbeautysales,andtheycanencouragecustomerslookingforeverydaytoiletriestoconsiderbuyingbeautyproductsfromthem,too.Loyaltyprogramshavearoletoplayhere.Inlate2016,WalgreenslaunchedanewBeautyEnthusiast“club”withinitsexistingBalanceRewardsloyaltyprogram.CVShasofferedabeautyloyaltyprogramsince2011.

Source:www.walgreens.com/balancerewards

UnderstandMillennialandGenZBeautyShoppersMillennials(thosebornbetween1980and2000)andGenZers(bornafter2000)willgrowinimportanceasbeautyconsumersinthecomingyears—andretailerswillneedtostayattunedtotheirdemands.FungGlobalRetail&Technologyhascoveredthesedemographicsindepth,includinginourreportsTheMillennialsSeries:MillennialsandBeautyandGenZandBeauty—theSocialMediaSymbiosis.Weidentifyanumberofcharacteristicsthattypifytheseshoppers,including:

• Millennialsarefrugal,inpartthroughnecessity.Perhapssurprisingly,thisagegroupspendslessonbeautyproductsthanolderagegroupsdo.Millennialsaremorelikelythanoldershopperstobothvisitdifferentstoresinordertogetthebestdealsandusecouponcodeswhenbuyingbeautyproducts.However,millennialsarenowaged17–37,whichmeanstheyareenteringtheirpeakearningyears–so,thisfrugalitymayeaseoff.Thisgenerationismorelikelythanoldergenerationstoresearchbeautyproductsonlineandtousesocialmediamoreactivelyaspartoftheshoppingexperience.Accordingly,brandsandretailersmustconsiderhowtheycanresonatewiththisdemographicthroughonlinechannelsandperhapsthroughinitiativessuchasonlinecouponing.

Inlate2016,WalgreenslaunchedanewBeautyEnthusiast“club”withinitsexistingBalanceRewardsloyaltyprogram.

August2,2017

• GenZconsumersaregrowingupalongsidethedevelopmentofsocialmedia.ThatmeansGenZersarethefirstgenerationtogrowupdocumentingtheirlivesonlineandseeingintothelivesofcelebritiesandself-madesocialmediastars.WethinkthismakesGenZthemostself-consciousgenerationever,andthepressuresregardingappearanceandbodyimagearepromptingkidsintheirteensandevenyoungertousecosmeticsandotherbeautyproducts.Thisgenerationisalsoleadingthechargetosocialmediaand,especially,onlinevideoforresearchonbeautyproducts.Brandsandretailerswillneedtoconsidertheironlineengagementstrategiesasthisgenerationmaturesintofullyfledgedadultconsumers.

Theoutlook:OpportunitiestoSeizeShareWithbeautyretailinastateofflux,therearepocketsofopportunityforthosedrugstoreretailersthatareabletoadapt.Retailerscancapitalizeondepartmentstores’woesandworktograbshareinthee-commercechannel.Atthesametime,drugstoresmustkeepaneyeonfuturecustomerdemandsinordertosustaingrowth:asmillennials’spendingpowergrowsandGenZersemergeasconsumers,retailersmustappreciatetheirdemandsinordertofullyservethemasbeautyshoppers.

August2,2017

DeborahWeinswig,CPAManagingDirectorFGRTNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comJohnMercerSeniorAnalyst

SwaroopraniMuralidharResearchAssistantHongKong:2ndFloor,HongKongSpinnersIndustrialBuildingPhase1&2800CheungShaWanRoad,KowloonHongKongTel:85223004406London:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NewYork:1359Broadway,18thFloorNewYork,NY10018Tel:6468397017

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