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American consumers are going back to basics when it comes to their personal care, planning to spend more on shampoo, toothpaste, deodorant and shaving cream, while cutting back on items like perfume, makeup and lipstick.
That’s according to a survey gauging 2011 demand for personal care products, undertaken by AlixPartners LLP, the global business-advisory firm. “Given the stagnant demand, personal care products companies are facing pressure from customers to drive prices lower. This environment is likely to continue well into 2011,” said David Garfield, AlixPartners managing director and head of the firm’s Consumer Products Practice. “In response, companies have adjusted their cost structures and cut prices in many categories, but this will become increasingly difficult in the coming quarters.”
Though the bulk of the 1,000 consumers surveyed say they plan on spending roughly the same on personal care in 2011 as they did this year, nearly one in five plan to spend less on fragrances, half of whom expect to cut such spending by more than 25 percent. While 15 percent say they will cut back on cosmetics, nearly half of these consumers anticipate cutting spending by 25 percent or more. Demand for oral, skin and hair care products is expected to increase in 2011, though not markedly.
According to the survey, there is a glimmer of hope for makers of cosmetics and fragrances, and oral, hair and skin care products. When factoring in demographics, most 18- to 34-year-olds plan to ratchet up spending across all five categories in 2011.
“Incremental demand for personal care products likely will be dictated by 18- to 34-year-olds over the next 12 months,” said Rich Vitaro, a director in the Consumer Products Practice at AlixPartners. “Though somewhat promising, the industry dynamic is a double-edged sword. This group is ultra price-sensitive and expects to pay less per unit through aggressive promotions and everyday low prices. They’re also a group that is more apt than older consumers to switch brands to get the best value. That’s why marketing and trade promotion effectiveness will be the key levers in generating growth.”
The vast majority of consumers in the survey said they are looking for more items on sale, meaning that value appears to be dominant theme driving buying behavior, regardless of age. Approximately 40 percent of customers expressed a potential interest in switching brands to capture meaningful savings.
The findings also identify how consumers behave when an item is out of stock – a critically important issue in personal care, especially near the holidays. The survey found that when consumers’ desired product is out of stock, 15 to 25 percent of the time, depending on product category, they purchase another brand.
“This finding is significant,” said Jon Hanover, a director in AlixPartners’ Consumer Goods Practice. “It highlights the importance of supply chain efficiency for replenishment and the potential lost sales and costs associated with out-of-stocks at both the time of sale and potentially in the future.”
Concluded Garfield: “This survey, along with additional AlixPartners research done for the study, suggest that many retailers and consumer products companies in the personal care market are going to be under increasing pressure in the year ahead, particularly makers of fragrances and cosmetics. As consumers continue to demand value, companies will need to focus on cost structures.”
The study was conducted among 1,000 U.S. adults in September. It measured planned spending in 2011 among five categories: hair care (e.g., shampoo, conditioners), skin care (e.g., body wash, shaving cream, deodorant), oral care (e.g., toothpaste), cosmetics (e.g., makeup, lipstick, creams and nail polish) and fragrances (e.g., perfume). The survey also measured: shopping behavior; decision criteria for consumer preference of private-label products; and decision criteria for consumer action if a desired product is out of stock.
AlixPartners is a global business-advisory firm offering comprehensive services in four major areas: enterprise improvement, turnaround and restructuring, financial-advisory services and information-management services.