Premium skin and personal care lines are helping both luxury goods makers and traditional consumer goods conglomerates boost sales as shoppers ditch traditional brands for more upmarket options.
And there is no doubt why: the global skin care market is expected to be worth $121 billion in 2016, according to market research firm Statista and cosmetics and personal care revenues in Europe are expected to approach $80 billion. Statista estimates skin care is the largest segment of that cash pile with a market volume of $18.5 billion.
L'Oreal (LRLCY) is the most recent company to report exceptional growth in the space, with the Paris-based luxury group seeing 9.3% growth in its top-performing 'L'Oreal Luxe' division, whose brands include Kiehl's, Urban Decay and Lancome, in the third quarter. The company also saw growth in the 'Active Cosmetics' division, with brands including La Roche-Posay pushing like-for-like sales up 6.5%.
L'Oreal shares gained more than 5% in early trading, but pared gains to €164.35 amid a wider European sell-off later in the session.
"L'Oreal Luxe has a particularly strong 3Q'16 ... driven by strong market share gains in the U.S. and in China where the company is outperforming the high single digit market growth," Liberum analysts said in a note to clients Friday, noting that the growth was not due to any one-off impact from new launches.
French luxury house LVMH (LVMUY) saw its perfume and cosmetics division record a 10% advance in like-for-like sales Q3, making it the highest growing segment the group. Its 8% growth in the nine months to October also outperformed rivals.
"Parfums Christian Dior continued its strong performance, gaining market share in all countries," the company said in its most recent earnings update in October. The company's cosmetic brands - Benefit, Make Up For Ever, Fresh and Kat Von D - also delivered strong performance.
LVMH shares were down 1.1% Friday but have risen 7.5% in the past three months.
However, it is not just luxury houses that are trying to capture this market. Anglo-Dutch consumer goods giant Unilever (UL) has made a bet on premium skin care and it seems to be paying off: personal care division sales grew 3.1%, according to its mid-October Q3 earnings report.
Unilever CFO Graeme Pitkethly said during a conference call that the company was focusing on more a "more premium price position." Unilever premium brands include Ren, Dermalogica and Dove DermaSpa.
Dove DermaSpa, an extension of the Dove range, is sold at a premium price in regular consumer markets.
However, the company is also focusing on the "prestige skin care" market through acquisition. Unilever bought U.S.-based Dermalogica in 2015 and earlier in that year it bought U.K.-based Ren Skincare. "These brands go through different channels but share consumer understanding and science with personal care," Pitkethly said. "It is still early days but growth in prestige is in line with other brands."
Investors will hope the new lines clear up some of the blotches in the company's share price, which as fallen 7.1% since the beginning of July.