The beauty industry is locked in a war on price, but recent sales results show Priceline is copping the worst of the fallout from competitive pricing schemes.
Australian Pharmaceutical Industries (API), the owner of all 466 Priceline stores and the retailer’s e-commerce offerings, has reported a 1.7 percent drop in sales for the first half of the year, as it falls victim to discounting pressure.
API’s Chief Executive, Richard Vincent told The Australian Financial Review “everybody is discounting”. This statement came after the company reported a 14.4 percent drop in sales for the month of February.
Beauty supply prices have reportedly dropped by three to four percent this year, as retailers and suppliers continually cut prices to encourage consumers to keep spending, while also remaining competitive with other retailers.
“There’s only so much money left in the wallet after you pay all your household and utility costs,” Vincent said. “The fight for a share of wallet has led to this. It’s coming through in more discretionary categories, not in health products but in skincare, hair care, and cosmetics.”
According to Vincent, big supermarket chains like Coles and Woolworths are heavily discounting well-known beauty brands, including Revlon and Maybelline’s makeup ranges, in a bid to break through a highly competitive landscape.
Priceline has also been feeling the pressure as specialty beauty retailers, Mecca and Sephora become more popular among millennial shoppers.
“Those brands have differentiated product offers, but when it comes to sharing the available money women have left to spend, if they treat themselves in Sephora and Mecca, [then] that’s going to take some of that available spend from the mass market products,” Vincent explained.
Priceline’s Fighting Back
API is working towards reversing the impact of discounting on Priceline’s bottom line by introducing a range of products that are more sought after in today’s beauty market.
As such, Vincent claims API will be introducing a selection of ‘exclusive’ brands and products into Priceline stores. Among these lines will be chemical-free cosmetics and charcoal-based scrubs and masks that will be targeted at ethically-minded women and marketed to the estimated seven million women that are part of the businesses Sister Club loyalty program.
Regaining customer loyalty and re-capturing the attention of millennial women is more important than ever for Priceline and its owners, as API’s net profit fell 8.1 percent after the pharmaceutical group spent $1.8 million on restructuring. Share prices have also fallen by 26 percent over the last 12-months.
This comes after Priceline experienced disappointing results over Christmas, with API predicting net profit was likely to fall by approximately nine percent in the first half of the year.
API has also felt the heat after pharmaceutical sales also slipped 0.3 percent due to reduced demand for Hepatitis C medicines.
Despite the tough retail market, API and investment specialists remain confident that Priceline is still a strong player in Australia’s health and beauty sector.
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