cosmetics data

7/29/2019 Cosmetics data

1/17

11.26.2012NAICS CODES: 446120

SIC CODES: 5999

INDUSTRY PROFILE

Cosmetics, Beauty Supply &Perfume Stores

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About First Research


2/17

Product Segmentation by Revenue - Census Bureau

Companies in this industry primarily sell cosmetics, beauty supplies and toiletries, and perfume. Major UScompanies include Sally Beauty Supply, Ulta, Sephora, and divisions of Limited Brands (Bath & Body Works) andLOreal (The Body Shop International).

The cosmetic, beauty supply, and perfume store (beauty store) industry includes about 13,000 stores with combinedannual revenue of about $11 billion and is expected to grow at a moderate rate in the next two years. Growth driversinclude consumer spending and a strong economy.

Companies specializing in professional beauty products may restrict sales to salons and salon professionals, dueto manufacturer policies. Salons may resell products to the public or use products for customer treatments.

Demographics , consumer spending, and fashion trends drive demand. The profitability of individual storesdepends on the ability to generate store traffic and effective merchandising. Large companies can offer a wideselection of products, and have advantages in purchasing, distribution, and marketing. Small companies cancompete effectively by selling specialty products, providing superior customer service, or serving a local market. Theindustry is concentrated: the top 50 companies have about 75 percent of industry revenue.

Major competitors include department stores, mass merchandisers, drug stores, TV shopping networks, Internet

retailers, distributors, supermarkets, manufacturers, and salons. In addition, some beauty stores compete withdermatologists and plastic surgeons in the high-end market for cosmetics and skin care.

Cosmetics, face cream, and perfume make up about 75 percent of industry sales, while 20 percent come fromhygienic products such as deodorant, hair, and shaving products. About 4 percent of industry sales are from smallelectric and personal care appliances. The hair care category includes shampoo, conditioner, and co lor. Makeupcategories include eyes, lips, and face (foundations and concealers). Facial care includes moisturizers, cleansers,and exfoliators. Some beauty stores sell personal care appliances, such as hair dryers and curling irons.Companies may provide salon services, including hair styling, manicures, pedicures, or facials.

While open-line stores sell to both traditional retail customers and salon professionals, professional customerstypically receive a special discount. Full-service stores sell only to salons and salon professionals, and carryprofessional use only products for resale and use in salons. Beauty retailers offering services may rent booth

Industry Overview

Competitive Landscape

Products, Operations & Technology


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space to salon professionals.

Beauty stores include national and regional chains, franchises, and independent retailers. Many independentretailers have a single location ranging between 1,000 and 2,500 square feet, according to Beauty Store Business.Beautysuperstores can range between 5,000 and 10,000 square feet. Typical locations include strip malls, indoorshopping malls, and floor space within larger retailers. Companies consider demographics, neighboring tenants,store visibility, and traffic accessibility when selecting locations. A retailer such as Ulta, which offers both beautyproducts and salon services, generates about $400 per square foot.

Most companies arrange store layouts by product category. Strategic product placement encourages cross-selling.New products and promotional items at the front of the store, and testers for sampling, promote impulse buying.Some companies, particularly those with strong ethnic customer bases, use localized merchandising strategies to

match market demographics.

Major inventory categories include hair care, skin care, cosmetics (makeup), and fragrance. Inventory mix variesdepending on a companys target market. Prestige brands, such as Este Lauder, Lancme, and Clinique, arepremium-priced products traditionally found in department stores. Mass market brands, such as L Oreal, Revlon,and Clairol, tend to be lower priced, and found in mass merchandisers and drugstores. Beauty stores may carryprivate-label products or controlled label products (products for which a company has exclusive distribution rights).Professional or salon-only brands include Matrix, Redken, and Paul Mitchell.

The majority of beauty stores buy directly from manufacturers or manufacturer representatives, although somecompanies use distributors. To meet manufacturer requirements to sell salon-only products, a retailer may install asingle stylist chair anywhere in the store. Agreements with suppliers may have minimum purchase requirements,particularly for relationships involving exclusive distribution rights. Some manufacturers accept product returnsaccording to strict guidelines. Beauty supply buyers typically attend trade shows to identify the latest trends andselect merchandise.

Computer systems and scanners track point of sale (POS) data and inventory movement, and may replenishmerchandise automatically. Analysis of store sales data helps buyers make purchasing decisions. Somecompanies use radio frequency technology for security. In addition, computer systems can track and analyzeinformation from customer databases to help companies develop targeted marketing programs.

Typical customers include women age 25 to 55, salon professionals, and salons. Many stores are targetingGeneration Y, born between 1977 and 1994, as a growing demographic that is expected to have more to spend as itenters the workforce. Younger shoppers are more comfortable with the specialty beauty format, as well. For example,55 percent of women 18 to 24 shop at specialty beauty stores, compared to 40 percent for all women aged 18 to 40.Ethnic products aimed at Hispanic and African-American women are gaining ground.

Marketing and promotional vehicles include instore flyers and displays; newspaper, print, and TV advertising; anddirect mail. Manufacturer-provided samples, testers, and gifts with purchase promotions are especially helpful withmore expensive goods. A distinctive store environment and instore demonstrations help companies createunique shopping experiences. Word-of-mouth is important to develop a customer base. Some beauty stores haveloyalty programs encouraging volume purchases.

Customer service can be particularly important for stores specializing in high-end beauty products. Experiencedsales associates typically recommend products to match a customers physical characteristics, such as hair color orskin type. For beauty retailers with instore salons, a popular hair stylist or aesthetician can help create a loyalcustomer following.

Companies may have Internet sites listing store information and offering products for retail sale. Store websitesmay offer special discounts for online or instore purchases. Websites may also allow customers to participate inloyalty programs and redeem rewards.

Beauty stores may provide special discounts for salon professionals. The average customer sale ranges between$30 and $75 for stores and online sales averages, for companies with a strong Internet presence, may be evenhigher.

Sales may be seasonal, depending on merchandise and customer mix. Revenue for companies specializing infragrances peaks during the winter holidays, Mother's Day, and Valentine's Day because perfume is a popular giftitem. Stores with a strong makeup business may experience third quarter peaks, driven by new fall fashions. Highin-stock positions are important, and inventory can be up to 90 days sales. Receivables are generally low, but canbe slightly higher for stores with a strong salon business. Gross margins range between 30 and 40 percent. Private-label beauty products generally have higher gross margins than branded versions.

Sales & Marketing

Finance & Regulation


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Change in Dollar Value of US Trade - US International Trade Commission

The industry is labor-intensive: average annual revenue per worker is about $104,000.

Lease payments may include insurance, utilities, taxes, repair, and maintenance. Some leases have earlytermination options and may include terms for remodeling and buildouts. Franchise agreements may include aninitial franchise fee, royalty payments, and contributions toward advertising/marketing expenses.

Government agencies, including the FDA and the Consumer Products Safety Commission, regulate thecomposition, packaging, labeling, and safety of beauty supplies. Some beauty products, such as anti-dandruffshampoos and moisturizers with sunscreen, can be classified as both a cosmetic and a drug and must comply withregulations for both categories. Regulatory scrutiny over beauty products is increasing as manufacturers introducemore products claiming anti-aging benefits. Most salon professionals require a state-issued license to performservices.

Most imported beauty products come from France and Canada. US imports of beauty products grew during the lastdecade, with the exception of a dip in 2009 during the recession.

Imports of perfume, makeup, and other toiletries to the US come primarily from France,

Canada, China, Italy, and Mexico. Major export markets for US perfume, makeup, and othertoiletries include Canada, Australia, Mexico, and Japan.

NAIC 32562 PERFUMES, MAKEUPS AND OT HER TOILETRIES

The states with the highest beauty store sales are also the most populous: California, Texas, New York, and Florida.These also have the highest number of beauty stores.

Beauty retailers, especially high-end stores selling expensive skin care or makeup systems, may employ sales staffwith cosmetology backgrounds. Stores with salons require licensed professionals for various services, includinghaircuts, nail care, or facials. Some companies use commissions as incentives for sales associates to promotehigh margin products. Other companies avoid commissions to differentiate themselves from department store salesforces. Industry wages are moderately below the US average.

A beauty store may have two or three full-time employees, including a salon manager and general manager, and adozen or more part-time employees, including sales associates and salon professionals. Companies may addpart-time workers during peak periods, such as the winter holidays. The industry injury rate is significantly below

International Insights

Regional Highlights

Human Resources


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the national average.

Industry Employment GrowthBureau of Labor Statistics

Demand: Tied to consumer income, demographics, and fashionNeed store traffic and good merchandisingRisk: Consumers buy cheaper products when economy downturns

Industry Growth Rating

Trend: Men, Boomers Contribute to Moderate Growth Forecast - Sales in the US cosmetic, beauty supply, andperfume retailer industry could grow by 5 percent in 2013 compared to 2012, according to the latest industry forecastfor First Research from INFORUM. The growth rate is expected to be moderate as consumers gain confidence inspending as the economy recovers. The cosmetics industry expects growth to come in part from more men'sproducts, anti-aging products, customized products, and a more targeted approach to selling more products toHispanic and other ethnic groups that are growing in the US.

Industry Impact - More consumers making discretionary purchases should help drive sales of cosmetics, beautysupplies, and perfume in the coming year as the economy continues to improve.

Quarterly Industry Update

11.26.2012

US consumer spending on nondurable goods, an indicator of cosmetic, beauty supply, and perfume sales, rose 2.8percent in October 2012 compared to the same month in 2011.

US personal income, which drives how much consumers might spend on cosmetics, beauty supplies, and perfume,rose 3.1 percent in October 2012 compared to the same month in 2011.

US retail sales for health and personal care stores, a potential measure of cosmetics, beauty supply, and perfumedemand, increased 1.2 percent in the firs t eleven months of 2012 compared to the same period in 2011.

Industry Indicators


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US personal consumption expenditures at health and personal care stores, including cosmetics, beauty, andperfume store sales, are forecast to grow at an annual compounded rate of 3 percent between 2012 and 2016. DataPublished: September 2012

Consumer Spending Growth on Beauty and Health Volatile

First Research forecasts are based on INFORUM forecasts that are licensed from the Interindustry EconomicResearch Fund, Inc. (IERF) in College Park, MD. INFORUM's "interindustry-macro" approach to modeling theeconomy captures the links between industries and the aggregate economy.Forecast FAQs

Industry Forecast

Changes in the economic environment that may positively or negatively affect industry growth.

Data provided by First Research analysts and reviewed annually

Consumer Spending Change in overall level of consumer spending on goods and services

Industry Drivers

Competition from Alternative Retailers - Beauty stores face a wide range of competitors across all price segments,including department stores, drugstores, mass merchandisers, TV shopping networks, and Internet retailers.Department stores are the top channel for beauty products, driven by dominance in the prestige market. By stockinga wide range of products, mass merchandisers benefi t from heavy customer traffic. Both TV shopping networks andInternet retailers have had strong growth in beauty products sales.

Dependence on Consumer Spending - Sales of beauty products, particularly high-end, are susceptible to decreasedconsumer spending. Consumers consider many beauty products luxuries, and segments of the industry arevulnerable to economic downturns. Consumers may reduce discretionary purchases and may switch to lessexpensive beauty products during tough economic times.

Critical Issues


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Supplier Concentration - Large multinational companies dominate the beauty products manufacturing industry andtypically favor big retailers. Major manufacturers, such as LOreal, Este Lauder, and Procter & Gamble, control awide array of brands across multiple market segments, and continue to grow by acquiring smaller brands anddistributors. Large retailers often receive favorable treatment through volume discounts and priority access to newproducts. Continued consolidation at the top of the beauty industry reduces the negotiating power of small retailers.

Forecasting Demand Trends - Many companies struggle to manage inventory because beauty product life cyclescan be difficult to forecast. Trends and fads drive sales for many beauty products, and consumer preferences and

fashion trends can be unpredictable. For example, a celebrity endorsement can create sudden demand for aparticular product in a short period, but as the celebrity fades from the limelight, sales for associated products candiminish.

Product Liability - Most beauty products contain chemicals and retailers can be liable for any product liabi lity claims.Contaminants, misbranded products, or inadequate usage instructions or warnings all expose companies to risk.Recalls can cause negative publicity, damage credibility, and result in financial losses. Companies with private-labelproducts are especially vulnerable, since they bear additional risk as a manufacturer.

Business Challenges

Offering Salon Services - Beauty stores combining retail and true salon services are becoming more popular.Historically, some companies have installed a single hair stylist chair in the back of a store to meet the minimumrequirements for selling salon-only products. Beauty superstores offering huge selections of merchandise and a fullarray of salon services have plans to expand.

Advent of Hybrid Mass/Prestige Brands - To capitalize on growth in the high-end beauty segment, yet still appeal tothe average consumer, some retailers are creating or carrying products that bridge the prestige and mass markets.Masstige products are high-quality products, sometimes with a professional endorsement, at mass market prices.Targets Sonia Kashuk brand, Ultas private-label cosmetics, and Cristophe Beverly Hi lls hair care line are examplesof masstige products.

Increased Availability of Professional Products - A growing number of retail outlets are carrying professional beautyproducts previously sold through limited distribution channels. Driven by competitive pressure, some manufacturersare ending exclusive distribution relationships with specific retailers in favor of non-exclusive rights, increasing thedistribution of some professional products through new retail venues. In addition, some distributors are ignoring

manufacturer restrictions regarding salon-only products, and selling to retail-only operations.

Business Trends

Strong Consumer Demographics - Favorable demographics should allow beauty stores to leverage growingdemand for beauty products suited for aging consumers. As the baby boomer generation matures, sales for haircolor, hair loss, and anti-aging skin care products should grow. In addition, older customers have more disposableincome, and can better afford prestige brands. Additionally, Generation Y is gaining in earning power. The populationbetween 45 and 64 is projected to increase 4 percent between 2010 and 2020; those between 25 and 44 isexpected to grow nearly 10 percent.

Targeted Plans for Different Ethnic Groups - The ethnic market is becoming more important to beauty retailers, butcompanies need to recognize the differences in purchase habits among different groups to effectively target eachcustomer segment. For example, African American women are more likely to use bath and fragrance products andless likely to use makeup or skin care products, according to NPD Group. Hispanic and Asian customers are morelikely to use skin care products. Hispanic women are also far more likely to use makeup.

Mens Products - Companies can capitalize on the growing market for mens beauty care, as male baby boomersage and become more conscious of their appearance. Simple and multi-purposed facial and body treatments havedriven growth, as multi-step regimens are harder to sell to men. Mens prestige skin care is a small, emergingmarket.

Differentiated Ingredients - Consumers continue to look for beauty products with special ingredients that provideunique benefits. Cosmeceuticals combine cosmetic and pharmaceutical benefits, and may contain patentedingredients or have dermatologist endorsements. Cosmeceutical sales are expected to grow faster than the overall

Industry Opportunities


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cosmetics and toiletries market, according to Scientia Advisors.

Product Customization - Companies can take advantage of growing consumer interest in customizing beauty careto suit individual preferences. The customization process provides a unique retail experience and end product,encouraging repeat business. Bath Junkie franchises allow customers to select fragrances and colors to createpersonalized bath and body products. Three Custom Color Specialists provides color consultations and custom-blended cosmetics through high-end beauty stores, salons, and spas.

Differentiating from Alternative RetailersThe majority of beauty product sales are through department stores, mass merchandisers, drug stores, and directsellers (including TV shopping networks). In addition, companies face competition from the Internet, one of thefastest-growing channels for beauty products. To differentiate from alternative retailers, beauty stores may offerspecialty merchandise or services, provide a unique shopping experience, or serve markets overlooked bycompetitors. Private-label products, and salon or color consultation services, can drive traffic and give beautyretailers a competitive instore advantage

Developing Strategy in a Trend-Driven EnvironmentDriven by trends in fashion, popular culture, and celebrity lifestyles, the beauty industry changes rapidly.Merchandising strategy evolves constantly, as manufacturers introduce and promote numerous new products withincreasingly shorter life cycles. Inability to anticipate, assess, or react quickly to changes in consumer demand candetrimentally affect sales and profitability.

Managing Seasonal SalesSeasonality can significantly impact sales for key beauty product categories. Fragrance and gift set revenue typicallypeaks during the winter holidays, Mother's Day, and Valentine's Day. Fall apparel trends can drive makeup sales. Bystocking products in less seasonal categories, such as hair and skin care, companies can help smooth sales. In

addition, product promotions and instore events help drive traffic during non-peak periods.

Minimizing Excess InventoryInventory management can be a challenge, given the trend-driven nature of the beauty industry. Short product lifecycles and rapidly changing consumer demand can cause excess inventory. Companies may take advantage ofreturn policies for certain manufacturers. In addition, periodic clearance sales and price promotions can help clearout excess inventory.

Integrating Information SystemsBeauty stores manage vast inventories, including hundreds of brands and thousands of individual stock keepingunits. Maintaining high in-stock positions are critical in the competitive beauty retailing industry. Companies may use

computerized information systems linking point-of-sale (POS) data to inventory to monitor product movementefficiently. Some integrated systems have the capability to automatically replenish merchandise when inventorylevels are low.

Managing Customer InformationCompanies struggle to develop and maintain a strong customer base due to intense competition. By collecting andanalyzing customer demographic and purchase data, beauty stores can develop incentive programs for both regularand new customers. Database analysis helps companies identify high volume or lapsed customers. In addition,mining data can help beauty stores identify customer groups most likely to buy a new product.

Executive Insight

Chief Executive Officer - CEO

Chief Financial Officer - CFO

Chief Information Officer - CIO

Human Resources - HR


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Recruiting Salon ProfessionalsA bad salon experience can damage a beauty stores reputation and affect related retail sales. Companies providingsalon services rely on licensed professionals, such as hair stylists and aestheticians, to help build a loyal clientleand recommend products. Beauty retailers may develop relationships with local cosmetology schools to findqualified salon workers. A company may rent booth space to experienced professionals.

Training Sales AssociatesBeauty products come in a variety of colors, shades, scents, and forms, and creating the correct combination for anindividual customer can be difficul t. Sales associates need to understand the benefi ts of every product line, and howto match products to a customers physical characteristics. Companies may offer ongoing training courses to keepsales staff current with new products, trends, and demonstration techniques.

Creating a Distinctive Shopping ExperienceBeauty products often satisfy an emotional need, and sales may involve more than a simple transaction. Companiesmay use unique dcor, offer product demonstrations, or hold special events around the latest new products togenerate excitement and create a memorable shopping experience. In addition, providing unique salon treatmentsor offering customized products helps beauty stores differentiate versus alternative retailers.

Targeting Customer SegmentsDifferent customer groups have vastly different beauty needs. How African-, Asian-, and Hispanic-Americans useskin care, cosmetics, and fragrances can vary greatly. Retailers may develop store-specific merchandising plansdepending on local demographics. Beauty stores may stock hair care products formulated for African Americans or

cosmetics developed for Asian Americans to specifically target ethnic groups. Increased interest in beauty productsfrom men uniquely challenges many companies that have catered exclusively to women.

VP Sales/Marketing - Sales

How does the company address competition from a wide variety of retailers?

Beauty stores may offer specialty merchandise (such as private-label products); unique services (such as spatreatments or color consultations); provide a unique shopping experience; or serve markets overlooked bycompetitors.

How do trends and fads affect the companys business?Inability to anticipate, assess, or react quickly to changes in consumer demand can have detrimentally affect salesand profitability.

How does the company reduce dependence on seasonal sales?Companies may stock products in less seasonal categories (such as hair and skin care) or offer productpromotions and instore events to help drive traffic during non-peak periods.

How does the company deal with excess inventory?Companies may take advantage of return policies for certain manufacturers or hold periodic clearance sales andprice promotions to clear out excess inventory.

How does the company use technology to manage inventory movement?Companies may use computerized information systems linking POS to inventory to monitor product movementefficiently. Some integrated systems have the capability to automatically replenish merchandise.

How does the company maximize the use of customer data?

Executive Conversation Starters

Chief Executive Officer - CEO

Chief Financial Officer - CFO

Chief Information Officer - CIO


10/17

By collecting and analyzing customer demographic and purchase data, beauty stores can develop incentiveprograms for both regular and new customers.

How does the company recruit salon professionals?Beauty retailers may develop relationships with local cosmetology schools or rent booth space to experiencedprofessionals.

What types of sales training programs does the company offer?Companies may offer ongoing training courses to keep sales staff current with new products, trends, anddemonstration techniques.

What type of customer experience does the company aim to deliver?Companies may use unique dcor, offer product demonstrations, or hold special events around the latest newproduct introductions to generate excitement and create a memorable shopping experience.

What types of target-specific marketing programs does the company have?Retailers may develop store-specific merchandising plans depending on local demographics. Beauty stores maystock products formulated to specifically target ethnic groups.

Human Resources - HR

VP Sales/Marketing - Sales

What is the companys most significant competitive threat?Beauty stores face a wide range of competitors across all price segments, including department stores, drugstores ,mass merchandisers, TV shopping networks, and Internet retailers.

How vulnerable is the companys product mix to changes in consumer spending?Sales of beauty products, particularly high-end, are susceptible to decreased consumer spending.

How does the company maximize relationships with large suppliers?Large multinational companies dominate the beauty products manufacturing industry and typically favor big retailers.

How is the company capitalizing on the growing population of older consumers?Favorable demographics should allow beauty stores to leverage growing demand for beauty products suited foraging consumers.

How important is the ethnic market to the company?The ethnic market is becoming more important to beauty retailers, but companies need to recognize the differencesin purchase habits among different groups to effectively target each customer segment.

What opportunities does the company see in the mens beauty care market?Companies can capitalize on the growing market for mens beauty care, as male baby boomers age and becomemore conscious of their appearance.

What is the industry's outlook for growth in 2013?The US cosmetic, beauty supply, and perfume retail industry could grow by 5 percent in 2013 compared to 2012,according to the latest industry forecast for First Research from INFORUM.

Call Prep Questions

Conversation Starters

Quarterly Industry Update

Operations, Products, and Facilities


11/17

What are the drawbacks of operating as an open-line or full-service retailer?Open-line stores sell to both traditional retail customers and salon professionals. Full-service stores sell only tosalons and salon professionals and carry professional-use only products for resale and use in salons.

What does the company consider when developing a merchandising strategy?Inventory mix varies depending on a companys target market. Major inventory categories include hair care; skin care;cosmetics (makeup); and fragrance.

Who are the companys main suppliers?The majority of beauty stores buy di rectly from manufacturers or manufacturer representatives, although some usedistributors.

What types of purchasing terms does the company have with suppliers?Suppliers may have minimum purchase requirements, particularly for relationships involving exclusive distributionrights. Some manufacturers accept product returns according to stric t guidelines.

What are the companys most important product categories?Major products sold in beauty stores include hair and shaving, deodorant, hand care, makeup, facial care, andfragrance products.

What brands does the company carry?Beauty retailers may carry prestige brands (Este Lauder, Lancme, Clin ique); mass market brands (LOreal,Revlon, Clairol); private-label products; controlled label products (products for which a company has exclusivedistribution rights); or professional or salon-only brands (Matrix, Redken, Paul Mitchell).

How does/would the company fulfill requirements to sell salon-only products?To qualify as a sa lon and be able to se ll salon-only products, a retailer may install a single stylist chair.

If the company offers salon services, how important are these to the companys business?Companies may provide salon services, including hair styling, manicures, pedicures, or facials.

Who is the companys typical customer?Typical customers include women 25 to 55, salon professionals, and salons. Demographics differ depending onproduct segment.

What are the companys most effective marketing and promotional vehicles?Vehicles include instore flyers and displays; customer e-mails; newspaper, print, and TV advertising; and direct mail.

What kind of marketing support does the company receive from manufacturers?

Manufacturer-provided samples, testers, and gifts with purchase promotions are especial ly helpful with moreexpensive goods.

How does the company develop customer loyalty?Word-of-mouth is important to develop a customer base. Some beauty stores have loyalty programs encouragingvolume purchases.

How does the company evaluate customer service?Customer service can be particularly important for stores specializing in high-end beauty products. Experiencedsales associates recommend products to match a customers physical characteristics, such as hair color or skintype.

What role does the Internet play in the companys marketing plan? Companies may have Internet sites listing store information and offering products for retail sale. Store websites mayoffer special discounts for online or instore purchases.

What types of programs does the company have for salon professionals?Beauty stores may provide special discounts for salon professionals.

Has the company had safety or regulatory issues with any beauty products?Government agencies, including the FDA and the Consumer Products Safety Commission, regulate thecomposition, packaging, labeling, and safety of beauty supplies.

How has government regulation affected sales of products with both cosmetic and pharmaceutical benefits?Some beauty products, such as anti-dandruff shampoos and moisturizers with sunscreen, can be classified as botha cosmetic and a drug and must comply with regulations for both categories.

Customers, Marketing, Pricing, Competition

Regulations, R&D, Imports and Exports


12/17

How has the regulatory environment changed for beauty products over the last few years?Regulatory scrutiny over beauty products is increasing as manufacturers introduce more products claiming anti-aging benefits.

How important are imported beauty products to the companys sales?Most imported beauty products come from France and Canada. US imports of beauty products have grown steadilyfor the last decade, except for a temporary dip during the recent recession.

What experience and background does the company look for in potential employees?Beauty retailers, especially high-end stores selling expensive skin care or makeup systems, may employ sales staffwith cosmetology backgrounds. Stores with salons require licensed professionals for various services, includinghaircuts, nail care, or facials.

How does the company compensate sales associates?Some companies use commissions as incentives for sales associates to promote high margin products. Othersavoid commissions to differentiate from department store sales forces.

What are the staffing requirements for a typical store?A beauty store may have two or three full-time employees, including a general sales manager and a sa lon manager,and a dozen or more part-time sales associates and salon professionals.

What are the companys peak sales periods?Revenue for companies specializing in fragrances peaks during the winter holidays, Mother's Day, and Valentine'sDay because perfume is a popular gift item. Stores with a strong makeup business may experience third quarterpeaks, driven by new fall fashions.

What inventory levels does the company need to maintain high in-stock positions?High in-stock posit ions are important, and inventory can be up to 90 days sales.

What issues does the company have with receivables?Receivables are generally low, but can be slightly higher for stores with a strong salon business.

How important are private-label products to the companys profitability?Private-label beauty products generally have higher gross margins than branded versions.

What are typical lease terms for stores?Lease payments may include insurance, utilities, taxes, repair, and maintenance. Some leases have earlytermination options and may include terms for remodeling and buildout.

What trends will have the greatest impact on the beauty care market over the next few years?Trends and fads drive sales for many beauty products.

What is the companys opinion of the increased availability of salon-only products through traditional retailchannels?Some distributors are ignoring manufacturer restrictions regarding salon-only products, and selling to retail-only

operations.

What is the companys biggest threat in the high-end beauty care market?Some beauty stores compete with dermatologists and plastic surgeons in the high-end market for cosmetics andskin care.

What is the future of beauty brands that bridge the prestige and mass markets?To capitalize on growth in the high-end beauty segment yet still appeal to the average consumer, some retailers arecreating or carrying products that bridge the prestige and mass markets, called masstige products.

What role does technology play in the companys security systems?Some companies use radio frequency technology for security.

Organization and Management

Financial Analysis

Business and Technology Strategies


13/17

Quick Ratio by Company Size

The quick ratio, also known as the acid test ratio, measures a company's ability to meet short-term obligations withliquid assets. The higher the ratio , the better; a number below 1 signals financial distress. Use the quick ratio todetermine if companies in an industry are typically able to pay off their current liabilities.

Data Period Last Update August 2012

Table Data Format Mean

Company Size All Large Medium Small

Size by Revenue Over $50M $5M - $50M Under $5M

Company Count 5198 7 88 5103

Income Statement

Net Sales 100% 100% 100% 100%

Gross Margin 37.0% 36.5% 37.8% 36.8%

Officer Compensation 2.9% 1.8% 2.7% 3.4%

Advertising & Sales 0.7% 0.7% 0.8% 0.7%

Financial Information

COMPANY BENCHMARK TRENDS

Financial industry data provided by MicroBilt Corporation collected from 32 different data sources and represents financialperformance of over 4.5 million privately held businesses and detailed industry financial benchmarks of companies in over 900industries (SIC and NAICS). More data available by subscription or single report purchase at www.microbilt.com/firstresearch.

COMPANY BENCHMARK INFORMATION

NAICS: 446120


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Other Operating Expenses 31.0% 31.4% 31.8% 30.5%

Operating Expenses 34.6% 33.9% 35.2% 34.6%

Operating Income 2.3% 2.6% 2.6% 2.2%

Net Income 1.1% 1.3% 1.3% 1.0%

Balance Sheet

Cash 15.8% 13.4% 16.2% 16.5%

Accounts Receivable 20.5% 20.7% 22.1% 19.8%

Inventory 20.4% 21.3% 18.1% 21.0%

Total Current Assets 60.5% 59.7% 59.9% 60.9%

Property, Plant & Equipment 21.7% 19.8% 23.1% 21.8%

Other Non-Current Assets 17.9% 20.5% 17.0% 17.3%

Total Assets 100.0% 100.0% 100.0% 100.0%

Accounts Payable 13.8% 12.5% 13.4% 14.5%

Total Current Liabilities 29.7% 26.6% 29.0% 31.1%

Total Long Term Liabilities 25.1% 13.5% 25.8% 28.9%

Net Worth 45.2% 59.9% 45.2% 40.0%

Financial Ratios

(Click on any ratio for comprehensive definitions)

Quick Ratio 1.25 1.33 1.33 1.20

Current Ratio 2.04 2.24 2.07 1.96

Current Liabilities to Net Worth 65.7% 44.4% 64.0% 77.8%

Current Liabilities to Inventory x1.46 x1.25 x1.60 x1.48

Total Debt to Net Worth x1.21 x0.67 x1.21 x1.50

Fixed Assets to Net Worth x0.48 x0.33 x0.51 x0.54

Days Accounts Receivable 26 26 28 25

Inventory Turnover x8.96 x8.80 x9.85 x8.74

Total Assets to Sales 33.0% 32.4% 33.4% 33.0%

Working Capital to Sales 10.1% 10.7% 10.4% 9.8%

Accounts Payable to Sales 4.8% 4.2% 4.7% 5.0%

Pre-Tax Return on Sales 1.8% 2.2% 2.0% 1.7%

Pre-Tax Return on Assets 5.6% 6.7% 6.1% 5.1%

Pre-Tax Return on Net Worth 12.3% 11.2% 13.4% 12.7%

Interest Coverage x3.84 x4.58 x4.00 x3.57

EBITDA to Sales 5.5% 5.9% 5.8% 5.3%

Capital Expenditures to Sales 2.4% 2.6% 2.4% 2.4%


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Financial industry data provided by MicroBilt Corporation collected from 32 different data sources and represents financialperformance of over 4.5 million privately held businesses and detailed industry financial benchmarks of companies in over900 industries (SIC and NAICS). More data available by subscription or single report purchase atwww.microbilt.com/firstresearch.

ECONOMIC STATISTICS AND INFORMATION

Retail Annual Sales Growth - Census Bureau

Change in Consumer Prices - Bureau of Labor Statistics

Allied Beauty Association of Canada

News, events, and industry resources.Beauty Store BusinessUS industry news and trends, company profiles, annual store survey.

Canadian Cosmetic, Toiletry and Fragrance Association (CCTFA)Media, FAQ, events, and links.

Cosmetic NewsNews for manufacturers, retailers, and beauty professionals.

Cosmetics BusinessGlobal news, some reports available for purchase.

Global Cosmetic IndustryGlobal industry news, trends, and statistics.

Industry Websites


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NPD GroupStatistics, trends, and news from market research firm NPD Beauty Group.

Personal Care Products CouncilRegulatory and legal issues from trade association for personal care products.

Professional Beauty AssociationIndustry issues from trade association for the professional beauty industry.

CPSC - Consumer Products Safety Commission

CTFA - Cosmetic, Toiletry, and Fragrance Association

PBA - Professional Beauty Association

POS - point-of-sale

Glossary of Acronyms


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Reproducedwithpermissionof thecopyrightowner. Further reproductionprohibitedwithoutpermission.

cosmetics data

Documents