Consumers seem willing to dig ever deeper into their pockets for luxury items while sales of bargain basement products continue to suffer.
Prestige sector remains strong
Alberto-Culver’s luxury salon shampoo Nexxus sold briskly in the latest quarter with sales up 13.6 percent but V05, which is aimed at the lower end of the market, was down 5.7 percent, according to Information Resources (IRI) data quoted by Fitch.
The report stated: “Consumers still appear willing to splurge on prestige items in this space.
“Surprisingly, the opening price point subcategory has been down for several years and the trend continues even in this environment.”
These sales trends come at a time when volatile commodity prices are pushing up the prices of finished products.
Personal care has not been hit as hard as some other industries but commodity prices have risen so sharply over the past year that manufacturers have been forced into action.
Personal care price rises
Procter and Gamble (P&G) and Colgate are leading the charge with high single digit price hikes on a range of personal care products in the first half of the year.
Johnson and Johnson (J&J) has also announced price rises for those products most affected by high commodity prices and Alberto Culver is expected to decide whether to follow suit in the next month or so.
The impact of rising prices on sales in personal care is expected to be less dramatic than elsewhere.
Personal care is an area where consumers are generally willing to pay for innovation and there tends to be a degree of brand loyalty, said the authors of the report.
Nonetheless, manufacturers are likely to introduce further price increases in the foreseeable future as pressure on margins is not expected to ease any time soon.
While oil prices have taken a tumble since mid summer Fitch expects commodity costs to be higher than historical averages and to remain volatile.