Health And Beauty Set To Be Uk Fastest Growing Retail Sector In 2008

Current pressures on consumer spending will not prevent the health and beauty sector from reaching its highest growth rate for a decade in 2008. The increasing interest in such products shown by male consumers represents a widening of the market, and although large supermarket chains still dominate in terms of market share, specialty retailers with niche focus are growing in stature.

Despite pressures on consumer spending in 2008, the health and beauty sector will see its highest growth rate in a decade, fuelled by a greater number of male shoppers, price inflation, and female consumers' desire for innovative and effective products. In 2007, consumer expenditure on health and beauty products rose by 4.7% to GBP15.6 billion. Such strong performance continues a trend whereby the sector has outperformed total UK retail in every year since 2003. 2008 looks set to be even stronger, with health and beauty becoming the UK's fastest growing retail sector.

In 2008 retail growth will slow as consumers' disposable income is squeezed by higher mortgage costs, utility bills and transport prices. Combined with a slowdown in the housing market and lower consumer confidence, the current economic climate is causing consumers to defer expenditure on big ticket items and home improvement projects. All of these factors are forecast to leave total retail growth at just 2.8% for the year.

Nevertheless, Verdict Research forecasts that the health and beauty market's growth will increase, aided by people trading up to more expensive products in categories such as skincare. Indeed, with many consumers holding back from big ticket expenditures, there is room in the consumer purse for a greater proportion of smaller luxury purchases. As many premium beauty products claim improved benefits, yet are still relatively low cost, they are easier purchases for consumers to justify, and are well placed to grow in 2008 and beyond.

In uncertain times people are still willing to spend money on making themselves look good and feel good. Furthermore, when customers hold back from buying expensive items, there is more scope for spending on smaller indulgences. Health and beauty products are ideal small-scale purchases, with even premium brands relatively accessible.

Men are also investing more in their appearance, creating another driver of market growth. Total sales of men's toiletries are forecast to grow by 7.7% in 2008 as wider availability and a better selection of brands and products encourage more men to try out new products.

Price inflation is another important factor following a year of rising raw material, manufacturing and transportation costs. Verdict Research expects these higher costs to be partly passed on to consumers in the majority of beauty categories, with inflation peaking in 2008 across the market as a whole. However, higher prices will not prevent people from buying health and beauty items. Many of these products are seen as essential so the majority of consumers will be spending more this year on health and beauty, even if they are not interested in more advanced products.

Product innovation and consumers' willingness to trade up to more expensive products with more advanced benefits have fuelled the boom in premium-focused niche operators. It is true that grocers and larger specialists have increased their exposure to the market, but in most cases they lack the store environments, branding and service to offer true authority, and to build loyalty. This has left a gap in the market for smaller players.

Having successfully built a clear proposition, exploiting opportunities through product innovation and premium positioning, specialty shops such as Space NK and Molton Brown have been expanding their presence, and have now built sizeable operations. Others, such as Lush and Neal's Yard, have been enjoying the sharp increase in demand for natural and organic products, and have raised consumer awareness of their ethical stance. Meanwhile, Passion for Perfume and The Fragrance Shop are exploiting growth in the branded fragrance market, attracting customers through a price-focused proposition.

The big four supermarket chains, Tesco, Asda, Sainsbury and Morrison, have continued to make gains, particularly Tesco. In fact, of all the major health and beauty retailers, Tesco saw the biggest market share gain in 2007, increasing its share by 0.3 percentage points to 18.3%. Between them, the big four alone had health and beauty sales of GBP6.3 billion in 2007, accounting for 40.6% of the market.

In 2008, Verdict Research expects the big four to have a combined share of 40.8% of the market, up from just 31.7% in 2003. Sales should be buoyed by space expansion and growing authority in health-related products and services. Although these figures exclude NHS receipts from the health and beauty market, the growing number of in-store pharmacies will provide a boost to over-the-counter medicine sales and attract footfall.