At the Goldman Sachs Global Retailing Conference two weeks ago, the FGRT team heard from companies spanning the retail sector, including operators of specialty, department, home furnishings and off-price stores. Several retailers throughout the day noted that the home goods and beauty categories are outperforming apparel. While some apparel specialty retailers have been reporting comps in the low- to mid-single digits, many home and beauty brands and retailers have seen higher comps.
The interesting part of this is that the stores reporting home goods growth have continuously expanded their home offerings due to the success of the category. Meanwhile, in beauty, consumers’ search for, and discovery of, new beauty products is continuing to fuel growth. Ulta Beauty reported that when it analyzed sales data from its most loyal shoppers, it discovered that the majority of its sales, both online and in-store, came from new items—not replenishment items—highlighting the true enthusiasm of today’s beauty shoppers, as well as the retail opportunity.
The Home Category Gets Stronger as Retailers Offer More
Michael O’Sullivan, President and COO of Ross Stores, reported that the company’s home business is an area of strength, accounting for nearly a quarter of Ross Stores’ sales. He said that home has been good business for Ross Dress for Less, which launched its home category with “soft home” items including sheets and towels in the 1990s. The company has expanded its home offerings into decorative and functional items and kitchen gadgets and, over the past few years, it has pushed into nontraditional home items such as pet products and garden lights. O’Sullivan said that he expects the home category to continue to grow and that 25% is not a ceiling in terms of home goods’ share of total company sales. He added that the company’s research and core strategy ensure that its future home offerings will surely be a bargain and of value to customers. The apparel category is growing much more slowly than the home category, O’Sullivan said, as apparel is larger and more fragmented.
Scott Goldenberg, Senior EVP and CFO of The TJX Companies, also reported that the home category is thriving. Goldenberg said that more than 30% of the company’s business is in home and that the category resonates with millennial consumers, who are at the life stage where they are starting to buy their own homes. As reported in Millennials Are Finally Forming Households: What It Means For Retailers, millennials are the largest group of homebuyers in the US, now accounting for 34% of home purchases.
Goldenberg said that TJX Companies’ customers come back to its stores frequently because they like its product differentiation and fear that they will miss something. He said that the best customers know the truck schedules and that they are excited and entertained by the idea that there may be only one of a particular item available. He added that the company has thousands of buyers who source all over the world, looking for unique, differentiated products and that return rates are lower for the home category, at approximately 16–17%. John Ricciuti, President of HomeGoods (which is owned by TJX Companies), said that HomeGoods plans to open 100 stores this year and that TJX Companies also launched Homesense, HomeGoods’ sister store, in Framingham, Massachusetts, in August. The company plans to open three more Homesense locations in 2017.
Urban Outfitters CFO Frank Conforti reported that, across the company’s apparel brands (Urban Outfitters, Anthropologie and Free People), women’s apparel and accessories were “off the mark” at Urban Outfitters and Anthropologie, but that beauty, intimates and home categories were showing strong performance across all three brands. “We just hadn’t gotten the women’s apparel, fashion apparel, offering right. And other categories…like Anthropologie home…intimates across all three brands…[and] beauty have continued to perform really well across all three brands. And the customer growth has continued to be positive in all three channels,” he said.
Beauty Continues to Grow as Retailers Offer New Opportunities for Product Discovery
While growth in the beauty category is not new, consumers’ enthusiasm for new products and the category’s further growth potential are worth noting. According to Euromonitor International, there are five trends shaping the future beauty market: health-based industry cross-pollination; green, clean and sustainable consumption; personalized product experiences; digital engagement; and alternative distribution models.
Ulta Beauty reported comparable sales growth of 11.7% for the quarter ended July 29, and e-commerce represents 7.5% of the company’s business. CEO Mary Dillon noted that the company “loves the omnichannel customer” because she spends 2.5 times more than a customer who shops only in-store. Ulta Beauty’s loyalty program, called Ultamate Rewards, had 24.5 million members in the last quarter, up 23% from the previous year.
The company has learned that the vast majority of its customers tend to purchase items that they have never purchased from the company before when shopping at Ulta Beauty, whether online or in-store. Dillon referred to this kind of shopping as “trial and discovery,” and it is characteristic of how true beauty enthusiasts shop. According to CFO Scott Settersten, the company currently has about 1,010 stores and “is comfortable with” opening 100 stores a year, with a long-term goal of 1,400–1,700 stores in the US.
Lastly, Target announced in September that it is enhancing its beauty department offerings with an exclusive brand called Glow Studio, which aims to simplify the typical 10-step Korean beauty process into a more user-friendly experience. The company is partnering with e-commerce site Glow Recipe, which offers curated Korean beauty items and expertise. When asked what inspired the collection for Target, Glow Recipe Cofounder Sarah Lee said that Glow Studio’s mission is to bring high-quality, natural K-beauty products to consumers through a fun, accessible and offline experience. The collection will introduce Whamisa by Glow Recipe, a Target-exclusive line of green and chai tea recipe skincare products, and include products from Make P:rem and LJH.
