A Frothy Market for Bath Products

BusinessWeek Online

By Pallavi Gogoi

Published:  June 26, 2006

Target and Gap see strong growth in bath and beauty products. With so many stressed-out consumers out there, who doesn't need to relax?

As Americans work more and vacation less, they're increasingly looking for quick fixes for their stress. That's good news for retailers such as Target (TGT) and Gap (GPS), and manufacturers like L'Oreal (LORLY), which see bath, beauty, and at-home spa products as a surefire formula for growth.

Struggling retailer Gap has hired Annette McEvoy to help relaunch its personal-care collection. McEvoy made her reputation as one of the founding executives of the immensely successful Bath & Body Works store concept for Limited Brands (LTD), which also owns the Victoria's Secret and Express apparel chains.

McEvoy says that personal care has been a small division at Gap, but will become much larger than it is today when it unveils its revamped lineup next year. "Gap has a much wider target than Limited—men, women, kids, and babies. We're going to develop something equally original that will reflect Gap's lifestyle image of freshness and honesty," says McEvoy, who was appointed vice-president of personal care at Gap Body last month. McEvoy wouldn't divulge any details about her plans.

RETAIL FORAY. Gap's move came just two months after French cosmetics giant L'Oreal agreed to pay $1.1 billion for the Body Shop (BDSPY), Britain's natural beauty products retailer. The purchase signals a shift for L'Oreal away from strictly manufacturing the products to retailing and managing hundreds of shops globally. Also in March, discount store chain Target introduced its own bath and body line, with 20 new items ranging from high-end spa products to a personal-care line for men.

Retailers are hoping to capitalize on changing lifestyle and demographic trends. "Data shows that we work more and have less vacation time than [people in] other countries. Clearly, we need to treat ourselves to a little relaxation," says Lynn Dornblaser, an analyst at consumer research firm Mintel International (see BusinessWeek.com, 6/22/06, "Revlon's CEO on the Hot Seat").

More people are buying goods and services that used to be designed only for the upscale market. What's more, retailers like Target are offering the "do-it-yourself" spa experience to harried consumers who don't have the time—or money—for the full spa treatment. "Ten years ago, most Americans hadn't even heard of a spa outside of a small group of higher-income consumers," says Tom Vierhile, director of Product Scan Online a division of researcher Datamonitor. "Today, you can get spa products everywhere."

ANTI-AGING INTEREST. Changing demographics also have helped fuel the growth in the upscale personal care sector. Datamonitor's research shows that aging boomers feel at least 10 to 15 years younger than their chronological age and seek products that make them look as young as they feel. Sales of anti-aging face products have grown by 23% in the past year. Many bath and body lines claim to have anti-aging benefits and boast of such things as protein-laden moisturizers, gentle exfoliators, and skin-care recipes from around the globe (see BusinessWeek.com, 3/20/06 "Selling the Promise of Youth").

For instance, Bath & Body Works, which 10 years ago offered mostly perfumed body and hand washes, has aggressively moved to high-end beauty products with such upscale skin-care lines as Bigelow and Patricia Wexler. Today, Bath & Body Works is one of Limited Brands' biggest divisions, with $2.1 billion of sales and 1,600 stores nationwide.

The market also is one where the barriers to entry are fairly low since it is quite fragmented with many players, and there isn't a single player who controls close to 50% of the business. "There's no clear brand leader like a Coke (KO) or a Pepsi (PEP), so it's easy to start a new brand," says Datamonitor's Vierhile.

GERM CONCERNS. At the same time, consumer habits are changing, driving growth for products that are about convenience. Take cleaning wipes for the hand or face, for example. In the past year, there has been a 28.5% growth for these products, according to Datamonitor. Research also shows that almost all Americans shower rather than take baths and are choosing body wash over soap to cleanse themselves. Little surprise, then, that body wash sales have climbed some 20% over the past two years while sales of soap bars has declined by 12% (see BusinessWeek.com, 05/24/06 "Metrosexuals: A Well-Groomed Market?").

Also, many consumers consider soaps unsanitary and they are inclined to buy more than one body wash. "We've found more instances of people using multiple body washes with different fragrances whereas most people using soap have only one bar in the shower," says Irma Zandl, principal at trends research firm Zandl Group.

Of course, retailers also like this category because the margins are higher. The halo of luxury and relaxation makes it easier to charge more for a cleanser than they can for a simple bar of soap. "These products offer a higher level of experience. So clearly they cost slightly more and provide better margins," says Andrew Strauss, executive vice-president at Sterling Brands, a brand consultancy. That could offer stress relief for manufacturers and retailers as well.

Gogoi is a reporter for BusinessWeek Online