Nail products were the big hit of beauty in recent years, with stunning growth of more than 20% in both 2011 and 2012. But the surge has suddenly come to a halt, hurting results for the whole beauty business.
"The overall nail category can't sustain the accelerated growth it enjoyed in the recent past," said Coty CEO Michele Scannavini on an October earnings call. He cited a 4% decline in the category in the third quarter compared with a 21% increase in the same quarter last year.
Coty, the biggest nail-cosmetics player, wasn't alone. L'Oréal and Revlon got chipped in the crash, which appears to have intensified in October and November, when nail-polish sales fell 10% and 13% for the four weeks ended Oct. 26 and Nov. 23, respectively, according to Nielsen data from Deutsche Bank. Category sales were $814 million for the 52 weeks ended Nov. 23.
Consumer Edge Research analyst Javier Escalante offers a simple explanation. "It was a fad," he said. He noted that the biggest drop has been in "special effects" products such as crackle-top coats rather than basic nail polish.
Google Trends shows search volume worldwide and in the U.S. for "nail polish" peaked in July 2012. This year's July seasonal bump ran 16% below last year's levels in the U.S.
Last year's sales gains pushed nail polish past lip products for the first time in annual sales, according to IRI data. But that could be a short-lived victory if Google search results are any indicator. In November, searches on "lipstick" surpassed those for "nail polish" in the U.S. for the first time since May 2009.
Overall, Consumer Edge reports that the U.S. beauty market has slowed from 2% growth in the first quarter to 0.9% each of the past two quarters and down 0.5% in October. Nail products and beauty appliances, such as curling irons, are primarily responsible for the slowdown, Mr. Escalante said.
The question is: Why? Third-quarter U.S. gross domestic product and November unemployment data came in better than expected, as did comparable-store sales results from several leading retailers for October.
L'Oréal Chairman-CEO Jean-Paul Agon in reporting sales results last month blamed the U.S. beauty-sales slowdown on people shifting spending to cars. But Consumer Edge Research data show L'Oréal unduly hit by retailer inventory cuts in the wake of disappointing beauty results, as its shipments significantly lagged behind its U.S. mass retail sales the past two quarters.
Sephora and Ulta, the two hottest U.S. beauty retailers, are still scorching. Both reported strong double-digit U.S. growth on sales estimated at more than $2 billion each. Ulta, whose sales are harder to track by analysts, saw sales rise 22% to $618 million for the quarter ended in November. Industry executives say both retailers favor newer and niche brands, so their share gains may be weighing on established players.
Paying too much for sports rights has brought about a crisis in the TV business that's already damaged a major media empire, Kirch. Now it threatens the world's oldest soccer league, the English Football League, and the repercussions may be felt in sports around the globe.
As many as 30 soccer clubs, some more than 100 years old, may go bankrupt if Carlton and Granada Television, the major independent British commercial networks, make good on their threat to close down their jointly owned ITV Digital network. They placed ITV Digital in receivership last week. Two years ago, ITV Digital beat off fierce competition from Rupert Murdoch's BSkyB to win broadcast rights for what is now the Nationwide Football League (named after its financial-services-company sponsor). ITV Digital signed a four-year, $450 million deal, of which $260 million remains to be paid.
Like Germany's Kirch, ITV Digital has few subscribers (1.2 million) and scant prospect of a significant increase. Neither subscription nor ad revenue can sustain the investment. Recession means the existing analog TV service can no longer support the losses.
The heart of the matter is the relationship between league and broadcaster, and the regulatory framework within which they operate. There is enough money in English soccer to keep all 92 professional-league teams alive. The problem is the Nationwide has been a poor second in terms of quality and revenue generation since 1992, when 20 elite clubs, including Manchester United, broke away to form the wealthy Premier League (currently on a three-year, $1.5 billion Sky deal). The Nationwide's clubs no longer share a giant pot of TV money with the elite but must make do with a smaller pot of their own. Nevertheless, Nationwide clubs have built business plans dependent on that pot.
Sky has done a wonderful job of repackaging soccer in the U.K. but it is still normal to have a paltry 1 million viewers for any given Sky live TV game. Murdoch has a great interest in seeing ITV Digital fail (that is, merge with him) given his huge investment in Sky. That's why he has denied ITV Digital access to the Sky Digital platform. Never mind the poor viewer who has to subscribe to both. The two rivals do agree that the U.K. government's continued dithering about setting a launch date for the enforced transfer of the whole TV system to digital from analog gives consumers little incentive to adopt the new technology. That may be so, but the switchover date is a political hot potato. No politician wants to be crucified in the tabloids for depriving senior citizens of their TV. For now, digital TV remains a technology in search of an audience.
Fans, desperate to save clubs that are part of the lifeblood of British communities, have made the sensible proposal that Sky be forced to take ITV Digital for a fee. But the U.K. government and Murdoch (a major Tony Blair supporter) have so far shown no interest.
Whatever the outcome, lawsuits will fly and real soccer fans will pay lawyers' fees. However, those fans are tired of being abused and they are voting with their wallets. It's an unwelcome shock to a sport that has long taken them for granted.
The team talks the first installment of Peter Jackson’s The Hobbit, how it fits into the Lord of the Rings saga and how faithfully it represents the novel by JRR Tolkien.