the beauty book

REBUILD: BEAUTY’S NEW CALL TO ACTION

RETHINK:CONNECTING INSIGHTS, INNOVATION, AND VALUE

january 2010www.npd.com

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Welcome to the fourth edition of the B Book.

We find ourselves in one of the most interest-

ing, although challenging, times, particularly

for the beauty industry. The tried-and-true

solutions aren’t having the same impact

with consumers, driving growth as we have

previously experienced. Collectively we are on a quest to

rebuild the foundations of the business by reinvigorating

the relevance and value of beauty to the consumer.

At this year’s HOP, we explore the current scenario and

offer strategies to adapt to the new realities that we find

ourselves in today. NPD’s latest tools help provide our

clients with the ability to do this: The Beauty Cross

Channel Monitor taps POS data from both IRI and NPD,

delivering insights into the volatile prestige and mass arena.

Retail tracking for the fine department store sub-channel

focuses on the nuances of the specialty market. Our

Market View Current Conditions Report and Store Level

capabilities help companies analyze business performance,

pricing strategies, and product assortment at a more

granular level, in order to make better informed strategic

and tactical moves in the marketplace. And we remain

committed to listening to your needs for relevant consumer-

based topical reports and expanded consumer insights.

In this year’s B Book you’ll find the kinds of insights and

analyses you’ve come to rely on from NPD, but in a different

package. Look for Karen Grant’s comments on the state

of the industry, Claude Charbit’s perspective on NPD’s

global expansion, and more detail on our new Market

View tools to sharpen your view of the marketplace and

give you a competitive edge.

As anyone who has ever re-modeled a kitchen or bathroom

will attest, rebuilding on any scale is not easy. It takes

time, energy, and resources – but the end result can be

stunning and, well, amazing. My team and I look forward to

working with you as we undertake the challenges ahead,

seeking to understand how the changes in the marketplace

are affecting consumers' attitudes and behaviors and

redefining the value proposition to meet their needs.

Diane NicholsonPresident, BeautyThe NPD Group

Best wishes,

GREETINGS

Many thanks to the sponsors who have helpedmake this year’s event successful.

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Claude CharbitGlobal President, Beauty

Diane NicholsonPresident, Beauty

Karen GrantSenior Global Industry Analyst and Vice President, Beauty

Lori MonacoVice President, Client and Business Development

Elise MarshallSenior Account Manager, Business Development

ContributorsJulie Stewart, Vice President, Custom ServicesSusan Crescenti, Executive Director, Marketing

Joanne McNaboe, Senior Category Specialist, SkincareDenise Squicciarini, Senior Manager, Custom Research

Nicole Wollack, Specialist, Product Management

Client Development TeamSusan O’Donnell, DirectorJudy Sone, Senior Account ManagerCarolyn Glassberg, Account ManagerChristine Banno, Associate Account ManagerLindsay Beyert, Associate Account Manager

OfficesHeadquarters, 900 West Shore Road, Port Washington, NY 11050, 516.625.0700

New York City, 250 Park Avenue South, 7th Floor, New York, NY 10003, 866.444.1411Milan, Viale Edoardo Jenner, 53, 20159 Milano, Italy, 39.02.855.006.1

Paris, Tour Franklin - 29ème étage, 100/101 Terrasse Boieldieu, La Défense 8, 92042 Paris La Défense CEDEX, France 01.41.97.25.00Beijing, Room 616, Building B, NanXinCang Business World, Jia 22, Dong Si Shi Tiao, DongCheng, Beijing, China, 100007, 86.10.6409.6603

Madrid, Sucursal en España, C/Pedro Teixeira 8 - 1st Floor, Madrid, 28020, Spain, 34.91.4.119.445

To subscribe to NPD’s email newsletter, NPD Insights, visit www.npdinsights.com.For information about NPD products and services, contact Charles Camaroto at 866-444-1411 (contactnpd@npd.com).

Public RelationsDora Brunette, 516.382.6190

Lucy Boccadifuoco, 516.625.6103

6%6%

7%7%$ Share of

Prestige

Beauty

% Population

4%4%

7%7%

$ Share of

PrestigeBeauty

11%11%

12%12%

$ Share ofPrestigeBeauty

% Population

4%4%

6%6%

$ Share ofPrestigeBeauty

% Population 20%20%19%19%

$ Share ofPrestigeBeauty% Population

11%11%

16%16%

$ Share ofPrestigeBeauty

17%17%

13%13%

4%4%5%5%

$ Share ofPrestigeBeauty% Population

% Population

% Population

$ Share of

PrestigeBeauty

% Population

Consumers face more choices than ever, yet their spending

decisions are much more considered. At the same time,

retailers are evolving in ways that can make it harder for a

brand to stand out from its competition. The need to do

more with less is a continuing theme, but one that offers the

opportunity to reinvent, innovate, and focus our resources.

Going beyond the national view of NPD’s Beauty Trends®

POS data can help manufacturers and our retail partners

manage and deploy precious resources. Every market has

different triggers that drive category and brand dynamics. We

know that no two doors or consumers behave alike. Analyzing

business performance, pricing strategies, and product as-

sortment at a more granular level can help you make better

informed strategic and tactical moves in the marketplace.

Store Level capabilities for the beauty industry have arrived –

now you can dig deeper to answer your business questions.

With the newMarket View Current Conditions Report, which

presents detailed, Store Level data, you’ll have the more

granular view of product and brand sales performance that

you need for developing fact-based distribution strategies.

Our Store Level information addresses business questions

like these:

� Can NPD help me quantify and track how my change in

spending or shift in dollars for fragrances influences my

own business and competition? Should I add incremental

staff or support dollars to a specific sales territory, and

what kind of impact might I expect?

� How do I compare to my competition in just the doors

I am selling in?

� In which market might a new product launch be most

productive for mascara or a new foundation?

� Can you help me understand which are the most

important markets/DMAs for skincare and how my

brands compare?

� Is there greater sensitivity to my promotions in certain

regions or markets?

� What effect will changing price on certain items have

on my sales? Does this differ by region?

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REINVENT, INNOVATE, AND FOCUSYOUR RESOURCES

4 www.npd.com

Lori Monaco

by Lori Monaco

If all markets, sales territories, and regions performed

the same, our jobs would be easy. Understanding what the

dollar sales potential is by expanding a brand’s penetration

in specific geographies will help maximize revenue.

Knowing whichmarkets will get you there fastest is valuable.

Understanding whether you have maximized within a

category, segment, or sub-segment can help you refine

strategies and tactics.

In this example, we see that Brand A’s skincare market

share on a national level is 14%. But as we go more

deeply into the data, we learn that this brand’s skincare

market share and ranking differ by region – the East

North Central, Pacific, and New England regions are

below the average. If Brand A could achieve its national

market share in these regions it would achieve an incremental

$16.75M annually for this segment.

Dollars per store selling shows you how your brand is

doing relative to competition based on the universe of

stores each brand is selling in. This is an effective way to

measure how productive your brand is relative to competition

or across geographies and how this has changed over

time. Brand F becomes the number-two ranked U.S.

makeup brand on a dollars per store selling basis!

Interestingly, Brand A is only distributed in 25 percent of

the U.S., while Brands B and C are in about 80 percent

distribution, suggesting that Brand A is in more valuable

makeup doors.

To learn more about NPD’s Store Level capabilities and

the new Market View Current Conditions Report, please

contact your account manager or Charles Camaroto at

866-444-1411 (contactnpd@npd.com).

Dollar Sales vs. Dollar/Store Selling Ranking

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25%

79% 82%

Brand A Brand B Brand C

RegionalBrand Share

12.016.415.115.613.612.215.117.815.4

Region

East North CentralEast South Central

Middle AtlanticMountain

New EnglandPacific

South AtlanticWest North CentralWest South Central

ShareGap2.00.00.00.00.41.80.00.00.0

Value of 1Share Point

$676M$291M

$1,029M$393M$285M

$1,514M$1,203M$280M$697M

OpportunityGap

$1,352M$0$0$0

$114M$2,725M

$0$0$0

$4,192M

$16,765M

Opportunity AnalysisNational Brand A Skincare Share: 14%

Pacific region is the most important skincare market

Source: The NPD Group/Market View Current Conditions Report

Distribution (% Store Selling)

Source: The NPD Group/Market View Current Conditions Report

Ranked on $/Store SellingSource: The NPD Group/Market View Current Conditions Report

Brand A Total Opportunity Three Months

Brand A Annualized Opporunity

U.S. DollarRank

16237

Makeup

Brand ABrand FBrand BBrand CBrand G

U.S. $/Store Selling

$32,208$22,004$15,479$14,837$12,177

$/StoreSelling Rank

12345

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STATE OF THEINDUSTRY 2009by Karen GrantSenior Global Industry Analyst and Vice President, Beauty

Karen Grant

6 www.npd.com

What did we gain in 2009? As we entered the year, we

knew it would be a challenging one. Little did we know just

how difficult it would be. Every major economic indicator

sputtered, and prestige beauty was not immune. Heading

into the holiday period, all prestige categories were posting

declines at record levels. Consumers were shopping less

– less frequently and for less product. That was and is

the reality of our time. Yet while this reality is sobering,

it is in no way a time for despair or to pause.

In the 2009 results and manifestations

of consumer choice, there is clear, loud,

and unmistakable direction

to help us understand

what we must learn and

what is our call to action.

Beyond the economy,

prestige beauty –

and, in fact, the entire

beauty industry, across

channels – is at a moment

in time when consumers are

re-evaluating the relevance and

purpose of beauty in their lives. Before the economic

downturn, NPD began to report a trend of fewer women

using beauty products. That trend has continued. In just

the past year, an additional estimated 2.3 million women,

ages 18 to 64, did not use beauty products. For years,

the focus of this trend has been on the fragrance category.

Now, this trend is in evidence across all three major

categories: fragrance, makeup, and skincare. This shift

away from beauty is absolutely the most important factor

the beauty industry must address.

Where do we begin? As we “seek first to understand,”

we see that consumers are telling us the role of beauty

must be more than something to attract a mate, play

dress up, or fix a problem. Beauty is most relevant to

our consumers when it makes them feel better about

themselves, more confident in their lives, more attractive,

and positive. The products we offer are merely the vehicles

to get them to that destination. The innovation and service

we offer is the bridge that builds their trust and relationship

with us. And the value we represent, and can thereby

ask them to spend with us, is fundamentally based on

the meaning we contribute to their lives. Today, it is vital

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that we distinguish ourselves on these fronts or we give

consumers the incentive to choose value based primarily

on savings and price.

How do we begin? Look at what is working. Then, instead

of copying, adapt and translate those insights into our

individual brands, categories, and retail environments.

� In fragrance during the course of the year, growth was at

both ends of the price spectrum. At either end, the points

of difference were the appeals of novelty, functionality,

specialty, and aspiration. Sales of premium-priced fra-

grances above $100 were positive going into the holiday

period, while the overall category posted double-digit

declines. At the other end of the price spectrum,

smaller size women’s fragrances, one ounce and

under, grew both in share of market and sales volume.

� In makeup, capitalizing on increased consumer interest

in having a more natural look, new products that com-

plemented this trend experienced outstanding success.

While the makeup category entered the holiday period

in decline, new foundation and concealer products

sales rose more than 30 percent, and new eyeliner and

multipurpose eye products sales more than tripled. In

color, where brands supported these categories with

new novelty items, captivating packaging, and/or limited

editions, some top brands doubled new product sales

in even the challenging lip category.

� In skincare, going where the consumer needs are was

a successful tactic, even while the overall category

struggled. A focus on the key skin concern of aging,

as well as more specialized issues such as acne and

redness, helped sets gain in both dollar and unit

sales. As fewer consumers say they are shopping for

beauty items in salons and spas, a focus on hair care –

protection and treatment products – helped prestige

hair sales rise. And among new products offered by

top brands, there were leaders who posted gains in

excess of 30 to 50 percent.

Now as we head into 2010, the reality is that business

will still be challenging. The other absolute reality is that

we know consumers do still love beauty. Like any great

love affair, if we want them to fall in love and stay in love

with us, we will have to continue to “bring our best game.”

In addition to a focus on product, we have to look at every

way we can be in our consumers’ consideration set and

be at the top of their minds. We have to be where they

are spending their time. We have to talk to them where

they will listen. Our consumers will try, they will stay, they

will buy – where they see the value. It is our call to action

to bring them our very best.

In the 2009 results and manifestations of consumer choice,there is clear, loud, and unmistakable direction to help us

understand what we must learn and what is our call to action.

How did NPD’s prestige beauty service meet the needs ofclients in Europe in the past year? Despite global economicdifficulties, we have not slowed our efforts to improve onour approach to meet clients’ needs, and indeed, we aredoing so by using a two-pronged approach: by enhancingand upgrading our services in the countries where weoperate now, and by expanding our tracking into newcountries. For example, in Italy, we enhanced our POSsample to all 1,400 retail stores, compared to the 900stores in 2008. This provided an accurate and more robustview of the marketplace.

We also have expanded our tracking to include Spain. Toovercome challenges related to our work in Spain, webuilt a step-by-step plan to build coverage. We launchedour retail tracking service in Spain with two years of backdata, exceeding our clients’ expectations.

What is the future vision for NPD’s global prestige beauty?In 2009, we started to look at new countries for expansion.The most important decision was to enter the U.K.,which resulted in a focused effort and reflected inputfrom our clients. Using a leader panel of key retailers,including Boots, Debenhams, and Harrods, we willdeliver retail tracking data in January 2010.

What was the highlight last year? It was last year's successfulcompletion of a full assessment of our service in China. Theongoing commitment to a high degree of collaboration withour clients resulted in a relaunch of the service in January2010, following a successful user conference in Shanghaiattended by the major prestige beauty brands. Many follow-up meetings took place with the objective of translatingsuch interest into cooperation.

In Europe, we are committed to delivering more in-depthanalyses and insights into the key reasons consumersare not buying. We are considering consumer tracking tocomplete the picture. In addition, we are working with ourU.S. colleagues to bring to the European market someconsumer-based services that have been valuable toclients in the U.S. These may include topical reports forthe beauty industry, FragranceTrack, and Skincare Track.

Our global expansion continues on a country-by-countrybasis. While we share our clients’ ambitions to have retailtracking in place in all 15 countries in which NPD operates,amore prudent strategic business expansion plan is requiredto ensure our collective success. We are thrilled that our

clients view us as the benchmark for information in thisindustry. Our goal is to maintain this status

and credibility no matter where weoperate around the globe.

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Interview with Claude CharbitGOING GLOBALClaude Charbit oversees NPD’s products and services for the prestige beauty market. His career has included leadership

roles with ACNielsen, the EURORSCG French Advertising Group, and more recently, IRI. He joined NPD in 2003.ClaudeCharbit

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WORLD OF BEAUTY

Point-of-Sale (POS) Tracking ServicesBeauty Cross Channel MonitorBeautyTrends®

BeautyTrends® National Chain

Fragrance POS Tracking ServiceWeekly Fragrance

Fine Department Store Sub-ChannelMarket View Current Conditions Report

Consumer Tracking ServicesFragranceTrack®

Proprietary Research CapabilitiesAd Hoc StudiesBlind Scent TestingAdvanced Store Level Analytics

Topical ReportsWomen’s Skincare In-DepthConsumer Report (Special Focus:Facial Skincare)

Makeup In-Depth Consumer Report

Snapshot Report: Beauty Consumers’Reaction to the Economy

Insight into the Youth BeautyMarket Report

Emerging Channels SeriesSpecialty StoresInternet ChannelHome Shopping

BeautyTrends U.S.Department Store ParticipantsBelkBloomingdale’sBon-TonBoscov’sDillard’sLord & TaylorMacy’sNordstromParisianPeeblesSaks Fifth AvenueSephora

BeautyTrends NationalChain ParticipantsJCPenneyKohl’sSearsStage Stores

BeautyTrends France ParticipantsBeauty SuccessDouglasGaleries LafayetteMarionnaud ParfumeriesNocibéPassion BeautéPrintempsSephora+ Traditional Independents

BeautyTrends Italy ParticipantsBeauty PointBeauty StarcoinDelle PianeDouglasGarboGocciaGruppo EthosLa GardeniaLa RinascenteLimoniMarionnaud ParfumeriesOlympia BeautéPieffeProfumerie PinalliSephoraUnix Profumerie+ Traditional Independents

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Hierarchy of 80+ Categories Allows Detailed Analysis

Women’s & Men’s Skincare

Face SkincareAcne Treatment, Age Specialists,

Cleansers, Eye, Exfoliators,Lip, Toners/Clarifiers, MakeupRemover, Masks, Moisturizers,

Oil/Shine Control, Shave

Body SkincareCleansers, Exfoliators,

Firming/Cellulite, Moisturizers, Shave

Sun SkincareAfter Sun, In Sun, Self Tanners

HairShampoos, Conditioners, Hair Spray,

Hair Styling

Sets and Kits

Makeup

EyeMascara, Liner, Shadow, Brow,

Eye Applicator

FaceFoundation, Powder, Blush, Concealer,

Face Applicator

LipColor, Liner, Gloss, Lip Applicator

NailColor Enamel, Top/Base Coat, Nail Care

Gift Sets

Total Prestige Fragrances

Women’s & Men’s FragrancesJuices, Ancillary Products, Gift Sets

Men’s FragrancesJuices, Ancillary Products, Gift Sets

BeautyTrends Spain ParticipantsSephoraDouglasJulia PerfumeriaAromas PerfumeriasOriental PerfumeriasGotta Perfumerias Perfumerias deConfianzaPrimorArenal PerfumeriasAtalaya PerfumeriasPoppy ShopDe la Uz Perfumeria & CosmeticaGilgo PerfumeriasDisperfum PerfumeriasSR Perfumeries San RemoAlohaPerfumerias AvenidaAnaMarviMundo PerfumeriasJe Suis Chic PerfumeriAlberto PerfumeriasPassion BeauteElla Yel Tot PerfumeriaRegiaLirainVigilManachOyarzabal PerfumeriaBide OneraGalle

JoanneMcNaboe

The ego boost is important. Almostseven in 10 prestige shoppers(vs. 46 percent of non-prestigeshoppers) say that even in these

tough economic times, they will stillbuy beauty products because they

make them feel better about themselves.1

Anti-aging opportunity abounds.Among women who think anti-aging benefits are extremely/veryimportant, 21percent currently arenot using anti-aging moisturizers

or serums.2

Teen boys who shop most oftenin apparel specialty stores for theirfragrances said the number-onereason they shop there is because

there are no pushy/overbearingsalespeople.3

Sixty-nine percent of womenwho do not wear fragrance arelapsed users. Health issues arethe top two reasons cited for

walking away from the category.4

Seven in 10 women spent lessthan $200 on beauty productsthis past year.5

Top specialty store converters: 90percent of consumers who walkinto Bath & Body Works or Ultawill make a purchase.5

The number-one reason that womentune into home shopping networksor infomercials but do not purchaseis they are just watching to relieveboredom (45 percent).5

Safety first! Over half of makeupconsumers “look for makeupproducts that are safe to use”(top box).6

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1 A Snapshot Report On BeautyConsumers' Reactions To TheEconomy, May 2009

2 Women's Skincare In-DepthConsumer Report (Special Focus:Facial Skincare), Sept. 2009

3 Men’s Fragrance Track 2009

4 Women’s Fragrance Track 2009

5 Emerging Channels Series:Beauty Care Products (Special

Focus: TV Shopping Networks &Infomercials/Paid Programming)– Feb. 2009Emerging Channels Series:Beauty Care Products (SpecialFocus: The Internet), March 2009Emerging Channels Series: BeautyCare Products (Special Focus:Specialty Stores), April 2009

6 Makeup In-Depth ConsumerReport, April 2008

DID YOU KNOW?A Look at the U.S. Beauty Consumer

ABOUT THE NPD GROUP, INC.

The NPD Group is the leading provider of reliable and comprehensive consumer and retail information

for a wide range of industries. Today, more than 1,700 manufacturers, retailers, and service companies

rely on NPD to help them drive critical business decisions at the global, national, and local market

levels. NPD helps our clients to identify new business opportunities and guide product development,

marketing, sales, merchandising, and other functions. Information is available for the following industry

sectors: automotive, beauty, commercial technology, consumer technology, entertainment, fashion,

food and beverage, foodservice, home, office supplies, software, sports, toys, and wireless. For

more information, visit www.npd.com.

For more information, contact your NPD account manager or Charles Camaroto at 866-444-1411

(contactnpd@npd.com).