The health and beauty sector will see its highest growth rate in a decade in 2008, fuelled by a greater number of male shoppers, price inflation and women's search for eternally youthful looks, says Verdict Research in its latest report - UK Health & Beauty Retailers 2008.
In 2007, consumer expenditure on health & beauty products rose by 4.7% to £15.6bn, outperforming total UK retail again - as it has done in every year since 2003. Now 2008 looks set to be even stronger with health & beauty taking the crown as the UK's fastest growing retail sector.
In 2008 retail growth will slow as consumers' disposable income is squeezed by higher mortgage costs, utility prices and transport costs.
Combined with a slowdown in the housing market and lower consumer confidence, people are deferring expenditure on big ticket items and home improvement projects, which Verdict forecasts will leave total retail growth at just 2.8% for the year.
Nevertheless, Verdict forecasts health & beauty market growth to increase, aided by people trading up to more expensive products in categories such as skincare. Indeed, with many consumers holding back from big-ticket expenditures, there is room in the consumer purse for a greater proportion of smaller luxury purchases.
As many premium beauty products claim improved benefits, yet are still relatively low cost, they are easier purchases for consumers to justify and are well placed to grow in 2008 and beyond.
"In uncertain times people are still willing to spend money on making themselves look good and feel good," says Carol Ratcliffe, Retail Analyst at Verdict Research and author of the report.
"If you're holding back from buying expensive items, there is more scope for smaller indulgences. Health and beauty products are ideal for this: it doesn't cost much to treat yourself and even premium brands are relatively accessible."
Men are also investing more in their appearance, creating another driver of market growth. Total sales of men's toiletries are forecast to grow by 7.7% in 2008 as wider availability and a better selection of brands and products encourage more men to try out new products.
Price inflation is another important factor following a year of rising raw material, manufacturing and transportation costs. Verdict expects these higher costs to be partly passed on to consumers in the majority of beauty categories, with inflation peaking in 2008 across the market as a whole.
"Higher prices won't put people off buying health & beauty items," adds Ratcliffe. "Most of these products are seen as essential so the majority of people will be spending more this year on health and beauty - even if they aren't interested in more advanced products."
A set of smaller, yet authoritative retailers with clear niche focus has developed and they threaten to steal share from larger players
Product innovation and consumers' willingness to trade up to more expensive products with more advanced benefits have fuelled the boom in premium-focused niche operators.
True, grocers and larger specialists have increased their exposure to the market, but in most cases they lack the store environments, branding and service to offer true authority and to build loyalty. This has left a gap in the market for smaller players.
Having successfully built a clear proposition, exploiting opportunities through product innovation and premium positioning, the likes of Space NK and Molton Brown have been expanding their presence - building sizeable operations.
Others such as Lush and Neal's Yard have been enjoying the boom in demand for natural and organic products and have raised awareness of their ethical stance.
Meanwhile, Passion for Perfume and The Fragrance Shop are exploiting growth in the branded fragrance market, attracting customers through a price-focused proposition.
The Big Four (Tesco, Asda, Sainsbury, Morrison) have continued to make gains, particularly Tesco.
Of all the major health and beauty retailers, Tesco saw the biggest market share gain in 2007, increasing its share by 0.3 percentage points to 18.3%. Between them, the Big Four alone had health & beauty sales of £6.3 billion (or 40.6% of the market) in 2007.
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