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UK Premium Beauty: Why Discounting is both a Blessing and a Curse

We’ve been researching trends and data for this year’s Premium Market Report 2015* and, not unsurprisingly, discounting is once again a major focus.

Here we reveal some of the insights we’ve discovered.

Throughout the long period of the recession, stretching back to 2008, premium beauty has proved to be remarkably resilient, posting growth every year without fail.

The question as always is, will it continue to do so?

Early indications are good. Consumer confidence bounced back onto the high street pre-Christmas, which was excellent news for premium beauty.

The latest sales data from NPD Group show premium beauty achieving £2.3bn, a year-on-year increase of 5.1%. A fantastic performance by premium make-up boosted sales.

However, there were dark clouds on the horizon stirred up by on-going discounting, which has put pressure on retailer margins. Pre-Christmas discounting has been a regular feature for most major retailers, but in 2014 Black Friday became a reality for the first time.

Speaking to Bryan Roberts, director of retail insights, Kantar Worldpanel, he told me that many retailers clambered on the Black Friday bandwagon with existing stock, which had a dire impact on margins.

“It created buzz among shoppers but a number of retailers were poorly organised in terms of exploiting that interest,” he says.

He adds: “Most retailers have hinted that value-conscious shoppers used it as an opportunity to bring forward Christmas spending.”

The Fragrance Shop took advantage by introducing Happy Hour flash sales and an extra 15% off all coffrets over the Black Friday period (which of course isn’t just one day, but several days after the event).

The strategy worked with sales soaring during the promotion.

Apart from Black Friday, retailers ran the usual pre-Christmas discounting events, which have become a feature of UK retailing for the past two decades. Up and down the high street, retailers vied with one another to offer the most enticing discounts.

It’s always proved an effective way of hitting year-end targets, but at what cost?

Richard Hyman, leading retail analyst at richardtalksretail.co.uk, told me that the addition of Black Friday to the discounting calendar is “a disaster”.

He maintains: “Spending is finite and the idea that you bring those finite full price Christmas sales forward to Black Friday at discounted prices is one of the craziest things I have seen in retail.”

So will the retailers take heed? Probably not. The lure of an easy sale is too much to ignore, even though many will rue their decision to discount after the event. Richard Hyman believes that most retailers got it wrong.

He warns: “If you operate a discount model, cutting prices is fine. If not, it can be life threatening.”

*The Premium Market Report 2015 will be published in April. Keep reading the blogs for further details.

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