INDUSTRY PROFILE

Cosmetics, Beauty Supply & Perfume Stores

11.26.2012
NAICS CODES: 446120 SIC CODES: 5999

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Industry Overview
Companies in this industry primarily sell cosmetics, beauty supplies and toiletries, and perfume. Major US companies include Sally Beauty Supply, Ulta, Sephora, and divisions of Limited Brands (Bath & Body Works) and LOreal (The Body Shop International). The cosmetic, beauty supply, and perfume store (beauty store) industry includes about 13,000 stores with combined annual revenue of about $11 billion and is expected to grow at a moderate rate in the next two years. Growth drivers include consumer spending and a strong economy. Companies specializing in professional beauty products may restrict sales to salons and salon professionals, due to manufacturer policies. Salons may resell products to the public or use products for customer treatments.

Competitive Landscape
Demographics, consumer spending, and fashion trends drive demand. The profitability of individual stores depends on the ability to generate store traffic and effective merchandising. Large companies can offer a wide selection of products, and have advantages in purchasing, distribution, and marketing. Small companies can compete effectively by selling specialty products, providing superior customer service, or serving a local market. The industry is concentrated: the top 50 companies have about 75 percent of industry revenue. Major competitors include department stores, mass merchandisers, drug stores, TV shopping networks, Internet retailers, distributors, supermarkets, manufacturers, and salons. In addition, some beauty stores compete with dermatologists and plastic surgeons in the high-end market for cosmetics and skin care.

Products, Operations & Technology

Cosmetics, face cream, and perfume make up about 75 percent of industry sales, while 20 percent come from hygienic products such as deodorant, hair, and shaving products. About 4 percent of industry sales are from small electric and personal care appliances. The hair care category includes shampoo, conditioner, and color. Makeup categories include eyes, lips, and face (foundations and concealers). Facial care includes moisturizers, cleansers, and exfoliators. Some beauty stores sell personal care appliances, such as hair dryers and curling irons. Companies may provide salon services, including hair styling, manicures, pedicures, or facials.

Product Segmentation by Revenue - Census Bureau

While open-line stores sell to both traditional retail customers and salon professionals, professional customers typically receive a special discount. Full-service stores sell only to salons and salon professionals, and carry professional use only products for resale and use in salons. Beauty retailers offering services may rent booth

space to salon professionals. Beauty stores include national and regional chains, franchises, and independent retailers. Many independent retailers have a single location ranging between 1,000 and 2,500 square feet, according to Beauty Store Business. Beauty superstores can range between 5,000 and 10,000 square feet. Typical locations include strip malls, indoor shopping malls, and floor space within larger retailers. Companies consider demographics, neighboring tenants, store visibility, and traffic accessibility when selecting locations. A retailer such as Ulta, which offers both beauty products and salon services, generates about $400 per square foot. Most companies arrange store layouts by product category. Strategic product placement encourages cross-selling. New products and promotional items at the front of the store, and testers for sampling, promote impulse buying. Some companies, particularly those with strong ethnic customer bases, use localized merchandising strategies to match market demographics. Major inventory categories include hair care, skin care, cosmetics (makeup), and fragrance. Inventory mix varies depending on a companys target market. Prestige brands, such as Este Lauder, Lancme, and Clinique, are premium-priced products traditionally found in department stores. Mass market brands, such as LOreal, Revlon, and Clairol, tend to be lower priced, and found in mass merchandisers and drugstores. Beauty stores may carry private-label products or controlled label products (products for which a company has exclusive distribution rights). Professional or salon-only brands include Matrix, Redken, and Paul Mitchell. The majority of beauty stores buy directly from manufacturers or manufacturer representatives, although some companies use distributors. To meet manufacturer requirements to sell salon-only products, a retailer may install a single stylist chair anywhere in the store. Agreements with suppliers may have minimum purchase requirements, particularly for relationships involving exclusive distribution rights. Some manufacturers accept product returns according to strict guidelines. Beauty supply buyers typically attend trade shows to identify the latest trends and select merchandise. Computer systems and scanners track point of sale (POS) data and inventory movement, and may replenish merchandise automatically. Analysis of store sales data helps buyers make purchasing decisions. Some companies use radio frequency technology for security. In addition, computer systems can track and analyze information from customer databases to help companies develop targeted marketing programs.

Sales & Marketing

Typical customers include women age 25 to 55, salon professionals, and salons. Many stores are targeting Generation Y, born between 1977 and 1994, as a growing demographic that is expected to have more to spend as it enters the workforce. Younger shoppers are more comfortable with the specialty beauty format, as well. For example, 55 percent of women 18 to 24 shop at specialty beauty stores, compared to 40 percent for all women aged 18 to 40. Ethnic products aimed at Hispanic and African-American women are gaining ground. Marketing and promotional vehicles include instore flyers and displays; newspaper, print, and TV advertising; and direct mail. Manufacturer-provided samples, testers, and gifts with purchase promotions are especially helpful with more expensive goods. A distinctive store environment and instore demonstrations help companies create unique shopping experiences. Word-of-mouth is important to develop a customer base. Some beauty stores have loyalty programs encouraging volume purchases. Customer service can be particularly important for stores specializing in high-end beauty products. Experienced sales associates typically recommend products to match a customers physical characteristics, such as hair color or skin type. For beauty retailers with instore salons, a popular hair stylist or aesthetician can help create a loyal customer following. Companies may have Internet sites listing store information and offering products for retail sale. Store websites may offer special discounts for online or instore purchases. Websites may also allow customers to participate in loyalty programs and redeem rewards. Beauty stores may provide special discounts for salon professionals. The average customer sale ranges between $30 and $75 for stores and online sales averages, for companies with a strong Internet presence, may be even higher.

Finance & Regulation

Sales may be seasonal, depending on merchandise and customer mix. Revenue for companies specializing in fragrances peaks during the winter holidays, Mother's Day, and Valentine's Day because perfume is a popular gift item. Stores with a strong makeup business may experience third quarter peaks, driven by new fall fashions. High in-stock positions are important, and inventory can be up to 90 days sales. Receivables are generally low, but can be slightly higher for stores with a strong salon business. Gross margins range between 30 and 40 percent. Privatelabel beauty products generally have higher gross margins than branded versions.

The industry is labor-intensive: average annual revenue per worker is about $104,000. Lease payments may include insurance, utilities, taxes, repair, and maintenance. Some leases have early termination options and may include terms for remodeling and buildouts. Franchise agreements may include an initial franchise fee, royalty payments, and contributions toward advertising/marketing expenses. Government agencies, including the FDA and the Consumer Products Safety Commission, regulate the composition, packaging, labeling, and safety of beauty supplies. Some beauty products, such as anti-dandruff shampoos and moisturizers with sunscreen, can be classified as both a cosmetic and a drug and must comply with regulations for both categories. Regulatory scrutiny over beauty products is increasing as manufacturers introduce more products claiming anti-aging benefits. Most salon professionals require a state-issued license to perform services.

International Insights
Most imported beauty products come from France and Canada. US imports of beauty products grew during the last decade, with the exception of a dip in 2009 during the recession.

Change in Dollar Value of US Trade - US International Trade Commission

Imports of perfume, makeup, and other toiletries to the US come primarily from France, Canada, China, Italy, and Mexico. Major export markets for US perfume, makeup, and other toiletries include Canada, Australia, Mexico, and Japan. NAIC 32562 PERFUMES, MAKEUPS AND OTHER TOILETRIES

Regional Highlights
The states with the highest beauty store sales are also the most populous: California, Texas, New York, and Florida. These also have the highest number of beauty stores.

Human Resources
Beauty retailers, especially high-end stores selling expensive skin care or makeup systems, may employ sales staff with cosmetology backgrounds. Stores with salons require licensed professionals for various services, including haircuts, nail care, or facials. Some companies use commissions as incentives for sales associates to promote high margin products. Other companies avoid commissions to differentiate themselves from department store sales forces. Industry wages are moderately below the US average. A beauty store may have two or three full-time employees, including a salon manager and general manager, and a dozen or more part-time employees, including sales associates and salon professionals. Companies may add part-time workers during peak periods, such as the winter holidays. The industry injury rate is significantly below

the national average.

Industry Employment Growth Bureau of Labor Statistics

Industry Growth Rating

Demand: Tied to consumer income, demographics, and fashion Need store traffic and good merchandising Risk: Consumers buy cheaper products when economy downturns

Quarterly Industry Update

11.26.2012
Trend: Men, Boomers Contribute to Moderate Growth Forecast - Sales in the US cosmetic, beauty supply, and perfume retailer industry could grow by 5 percent in 2013 compared to 2012, according to the latest industry forecast for First Research from INFORUM. The growth rate is expected to be moderate as consumers gain confidence in spending as the economy recovers. The cosmetics industry expects growth to come in part from more men's products, anti-aging products, customized products, and a more targeted approach to selling more products to Hispanic and other ethnic groups that are growing in the US. Industry Impact - More consumers making discretionary purchases should help drive sales of cosmetics, beauty supplies, and perfume in the coming year as the economy continues to improve.

Industry Indicators
US consumer spending on nondurable goods, an indicator of cosmetic, beauty supply, and perfume sales, rose 2.8 percent in October 2012 compared to the same month in 2011. US personal income, which drives how much consumers might spend on cosmetics, beauty supplies, and perfume, rose 3.1 percent in October 2012 compared to the same month in 2011. US retail sales for health and personal care stores, a potential measure of cosmetics, beauty supply, and perfume demand, increased 1.2 percent in the first eleven months of 2012 compared to the same period in 2011.

Industry Forecast
US personal consumption expenditures at health and personal care stores, including cosmetics, beauty, and perfume store sales, are forecast to grow at an annual compounded rate of 3 percent between 2012 and 2016. Data Published: September 2012 Consumer Spending Growth on Beauty and Health Volatile

First Research forecasts are based on INFORUM forecasts that are licensed from the Interindustry Economic Research Fund, Inc. (IERF) in College Park, MD. INFORUM's "interindustry-macro" approach to modeling the economy captures the links between industries and the aggregate economy. Forecast FAQs

Industry Drivers
Changes in the economic environment that may positively or negatively affect industry growth. Data provided by First Research analysts and reviewed annually

Consumer Spending Change in overall level of consumer spending on goods and services

Critical Issues
Competition from Alternative Retailers - Beauty stores face a wide range of competitors across all price segments, including department stores, drugstores, mass merchandisers, TV shopping networks, and Internet retailers. Department stores are the top channel for beauty products, driven by dominance in the prestige market. By stocking a wide range of products, mass merchandisers benefit from heavy customer traffic. Both TV shopping networks and Internet retailers have had strong growth in beauty products sales. Dependence on Consumer Spending - Sales of beauty products, particularly high-end, are susceptible to decreased consumer spending. Consumers consider many beauty products luxuries, and segments of the industry are vulnerable to economic downturns. Consumers may reduce discretionary purchases and may switch to less expensive beauty products during tough economic times.

Business Challenges
Supplier Concentration - Large multinational companies dominate the beauty products manufacturing industry and typically favor big retailers. Major manufacturers, such as LOreal, Este Lauder, and Procter & Gamble, control a wide array of brands across multiple market segments, and continue to grow by acquiring smaller brands and distributors. Large retailers often receive favorable treatment through volume discounts and priority access to new products. Continued consolidation at the top of the beauty industry reduces the negotiating power of small retailers. Forecasting Demand Trends - Many companies struggle to manage inventory because beauty product life cycles can be difficult to forecast. Trends and fads drive sales for many beauty products, and consumer preferences and fashion trends can be unpredictable. For example, a celebrity endorsement can create sudden demand for a particular product in a short period, but as the celebrity fades from the limelight, sales for associated products can diminish. Product Liability - Most beauty products contain chemicals and retailers can be liable for any product liability claims. Contaminants, misbranded products, or inadequate usage instructions or warnings all expose companies to risk. Recalls can cause negative publicity, damage credibility, and result in financial losses. Companies with private-label products are especially vulnerable, since they bear additional risk as a manufacturer.

Business Trends
Offering Salon Services - Beauty stores combining retail and true salon services are becoming more popular. Historically, some companies have installed a single hair stylist chair in the back of a store to meet the minimum requirements for selling salon-only products. Beauty superstores offering huge selections of merchandise and a full array of salon services have plans to expand. Advent of Hybrid Mass/Prestige Brands - To capitalize on growth in the high-end beauty segment, yet still appeal to the average consumer, some retailers are creating or carrying products that bridge the prestige and mass markets. Masstige products are high-quality products, sometimes with a professional endorsement, at mass market prices. Targets Sonia Kashuk brand, Ultas private-label cosmetics, and Cristophe Beverly Hills hair care line are examples of masstige products. Increased Availability of Professional Products - A growing number of retail outlets are carrying professional beauty products previously sold through limited distribution channels. Driven by competitive pressure, some manufacturers are ending exclusive distribution relationships with specific retailers in favor of non-exclusive rights, increasing the distribution of some professional products through new retail venues. In addition, some distributors are ignoring manufacturer restrictions regarding salon-only products, and selling to retail-only operations.

Industry Opportunities
Strong Consumer Demographics - Favorable demographics should allow beauty stores to leverage growing demand for beauty products suited for aging consumers. As the baby boomer generation matures, sales for hair color, hair loss, and anti-aging skin care products should grow. In addition, older customers have more disposable income, and can better afford prestige brands. Additionally, Generation Y is gaining in earning power. The population between 45 and 64 is projected to increase 4 percent between 2010 and 2020; those between 25 and 44 is expected to grow nearly 10 percent. Targeted Plans for Different Ethnic Groups - The ethnic market is becoming more important to beauty retailers, but companies need to recognize the differences in purchase habits among different groups to effectively target each customer segment. For example, African American women are more likely to use bath and fragrance products and less likely to use makeup or skin care products, according to NPD Group. Hispanic and Asian customers are more likely to use skin care products. Hispanic women are also far more likely to use makeup. Mens Products - Companies can capitalize on the growing market for mens beauty care, as male baby boomers age and become more conscious of their appearance. Simple and multi-purposed facial and body treatments have driven growth, as multi-step regimens are harder to sell to men. Mens prestige skin care is a small, emerging market. Differentiated Ingredients - Consumers continue to look for beauty products with special ingredients that provide unique benefits. Cosmeceuticals combine cosmetic and pharmaceutical benefits, and may contain patented ingredients or have dermatologist endorsements. Cosmeceutical sales are expected to grow faster than the overall

cosmetics and toiletries market, according to Scientia Advisors. Product Customization - Companies can take advantage of growing consumer interest in customizing beauty care to suit individual preferences. The customization process provides a unique retail experience and end product, encouraging repeat business. Bath Junkie franchises allow customers to select fragrances and colors to create personalized bath and body products. Three Custom Color Specialists provides color consultations and customblended cosmetics through high-end beauty stores, salons, and spas.

Executive Insight

Chief Executive Officer - CEO

Differentiating from Alternative Retailers The majority of beauty product sales are through department stores, mass merchandisers, drug stores, and direct sellers (including TV shopping networks). In addition, companies face competition from the Internet, one of the fastest-growing channels for beauty products. To differentiate from alternative retailers, beauty stores may offer specialty merchandise or services, provide a unique shopping experience, or serve markets overlooked by competitors. Private-label products, and salon or color consultation services, can drive traffic and give beauty retailers a competitive instore advantage Developing Strategy in a Trend-Driven Environment Driven by trends in fashion, popular culture, and celebrity lifestyles, the beauty industry changes rapidly. Merchandising strategy evolves constantly, as manufacturers introduce and promote numerous new products with increasingly shorter life cycles. Inability to anticipate, assess, or react quickly to changes in consumer demand can detrimentally affect sales and profitability.

Chief Financial Officer - CFO

Managing Seasonal Sales Seasonality can significantly impact sales for key beauty product categories. Fragrance and gift set revenue typically peaks during the winter holidays, Mother's Day, and Valentine's Day. Fall apparel trends can drive makeup sales. By stocking products in less seasonal categories, such as hair and skin care, companies can help smooth sales. In addition, product promotions and instore events help drive traffic during non-peak periods. Minimizing Excess Inventory Inventory management can be a challenge, given the trend-driven nature of the beauty industry. Short product life cycles and rapidly changing consumer demand can cause excess inventory. Companies may take advantage of return policies for certain manufacturers. In addition, periodic clearance sales and price promotions can help clear out excess inventory.

Chief Information Officer - CIO

Integrating Information Systems Beauty stores manage vast inventories, including hundreds of brands and thousands of individual stock keeping units. Maintaining high in-stock positions are critical in the competitive beauty retailing industry. Companies may use computerized information systems linking point-of-sale (POS) data to inventory to monitor product movement efficiently. Some integrated systems have the capability to automatically replenish merchandise when inventory levels are low. Managing Customer Information Companies struggle to develop and maintain a strong customer base due to intense competition. By collecting and analyzing customer demographic and purchase data, beauty stores can develop incentive programs for both regular and new customers. Database analysis helps companies identify high volume or lapsed customers. In addition, mining data can help beauty stores identify customer groups most likely to buy a new product.

Human Resources - HR

Recruiting Salon Professionals A bad salon experience can damage a beauty stores reputation and affect related retail sales. Companies providing salon services rely on licensed professionals, such as hair stylists and aestheticians, to help build a loyal clientle and recommend products. Beauty retailers may develop relationships with local cosmetology schools to find qualified salon workers. A company may rent booth space to experienced professionals. Training Sales Associates Beauty products come in a variety of colors, shades, scents, and forms, and creating the correct combination for an individual customer can be difficult. Sales associates need to understand the benefits of every product line, and how to match products to a customers physical characteristics. Companies may offer ongoing training courses to keep sales staff current with new products, trends, and demonstration techniques.

VP Sales/Marketing - Sales
Creating a Distinctive Shopping Experience Beauty products often satisfy an emotional need, and sales may involve more than a simple transaction. Companies may use unique dcor, offer product demonstrations, or hold special events around the latest new products to generate excitement and create a memorable shopping experience. In addition, providing unique salon treatments or offering customized products helps beauty stores differentiate versus alternative retailers. Targeting Customer Segments Different customer groups have vastly different beauty needs. How African-, Asian-, and Hispanic-Americans use skin care, cosmetics, and fragrances can vary greatly. Retailers may develop store-specific merchandising plans depending on local demographics. Beauty stores may stock hair care products formulated for African Americans or cosmetics developed for Asian Americans to specifically target ethnic groups. Increased interest in beauty products from men uniquely challenges many companies that have catered exclusively to women.

Executive Conversation Starters

Chief Executive Officer - CEO

How does the company address competition from a wide variety of retailers? Beauty stores may offer specialty merchandise (such as private-label products); unique services (such as spa treatments or color consultations); provide a unique shopping experience; or serve markets overlooked by competitors. How do trends and fads affect the companys business? Inability to anticipate, assess, or react quickly to changes in consumer demand can have detrimentally affect sales and profitability.

Chief Financial Officer - CFO

How does the company reduce dependence on seasonal sales? Companies may stock products in less seasonal categories (such as hair and skin care) or offer product promotions and instore events to help drive traffic during non-peak periods. How does the company deal with excess inventory? Companies may take advantage of return policies for certain manufacturers or hold periodic clearance sales and price promotions to clear out excess inventory.

Chief Information Officer - CIO

How does the company use technology to manage inventory movement? Companies may use computerized information systems linking POS to inventory to monitor product movement efficiently. Some integrated systems have the capability to automatically replenish merchandise. How does the company maximize the use of customer data?

By collecting and analyzing customer demographic and purchase data, beauty stores can develop incentive programs for both regular and new customers.

Human Resources - HR
How does the company recruit salon professionals? Beauty retailers may develop relationships with local cosmetology schools or rent booth space to experienced professionals. What types of sales training programs does the company offer? Companies may offer ongoing training courses to keep sales staff current with new products, trends, and demonstration techniques.

VP Sales/Marketing - Sales
What type of customer experience does the company aim to deliver? Companies may use unique dcor, offer product demonstrations, or hold special events around the latest new product introductions to generate excitement and create a memorable shopping experience. What types of target-specific marketing programs does the company have? Retailers may develop store-specific merchandising plans depending on local demographics. Beauty stores may stock products formulated to specifically target ethnic groups.

Call Prep Questions

Conversation Starters
What is the companys most significant competitive threat? Beauty stores face a wide range of competitors across all price segments, including department stores, drugstores, mass merchandisers, TV shopping networks, and Internet retailers. How vulnerable is the companys product mix to changes in consumer spending? Sales of beauty products, particularly high-end, are susceptible to decreased consumer spending. How does the company maximize relationships with large suppliers? Large multinational companies dominate the beauty products manufacturing industry and typically favor big retailers. How is the company capitalizing on the growing population of older consumers? Favorable demographics should allow beauty stores to leverage growing demand for beauty products suited for aging consumers. How important is the ethnic market to the company? The ethnic market is becoming more important to beauty retailers, but companies need to recognize the differences in purchase habits among different groups to effectively target each customer segment. What opportunities does the company see in the mens beauty care market? Companies can capitalize on the growing market for mens beauty care, as male baby boomers age and become more conscious of their appearance.

Quarterly Industry Update

What is the industry's outlook for growth in 2013? The US cosmetic, beauty supply, and perfume retail industry could grow by 5 percent in 2013 compared to 2012, according to the latest industry forecast for First Research from INFORUM.

Operations, Products, and Facilities

What are the drawbacks of operating as an open-line or full-service retailer? Open-line stores sell to both traditional retail customers and salon professionals. Full-service stores sell only to salons and salon professionals and carry professional-use only products for resale and use in salons. What does the company consider when developing a merchandising strategy? Inventory mix varies depending on a companys target market. Major inventory categories include hair care; skin care; cosmetics (makeup); and fragrance. Who are the companys main suppliers? The majority of beauty stores buy directly from manufacturers or manufacturer representatives, although some use distributors. What types of purchasing terms does the company have with suppliers? Suppliers may have minimum purchase requirements, particularly for relationships involving exclusive distribution rights. Some manufacturers accept product returns according to strict guidelines. What are the companys most important product categories? Major products sold in beauty stores include hair and shaving, deodorant, hand care, makeup, facial care, and fragrance products. What brands does the company carry? Beauty retailers may carry prestige brands (Este Lauder, Lancme, Clinique); mass market brands (LOreal, Revlon, Clairol); private-label products; controlled label products (products for which a company has exclusive distribution rights); or professional or salon-only brands (Matrix, Redken, Paul Mitchell). How does/would the company fulfill requirements to sell salon-only products? To qualify as a salon and be able to sell salon-only products, a retailer may install a single stylist chair. If the company offers salon services, how important are these to the companys business? Companies may provide salon services, including hair styling, manicures, pedicures, or facials.

Customers, Marketing, Pricing, Competition

Who is the companys typical customer? Typical customers include women 25 to 55, salon professionals, and salons. Demographics differ depending on product segment. What are the companys most effective marketing and promotional vehicles? Vehicles include instore flyers and displays; customer e-mails; newspaper, print, and TV advertising; and direct mail. What kind of marketing support does the company receive from manufacturers? Manufacturer-provided samples, testers, and gifts with purchase promotions are especially helpful with more expensive goods. How does the company develop customer loyalty? Word-of-mouth is important to develop a customer base. Some beauty stores have loyalty programs encouraging volume purchases. How does the company evaluate customer service? Customer service can be particularly important for stores specializing in high-end beauty products. Experienced sales associates recommend products to match a customers physical characteristics, such as hair color or skin type. What role does the Internet play in the companys marketing plan? Companies may have Internet sites listing store information and offering products for retail sale. Store websites may offer special discounts for online or instore purchases. What types of programs does the company have for salon professionals? Beauty stores may provide special discounts for salon professionals.

Regulations, R&D, Imports and Exports

Has the company had safety or regulatory issues with any beauty products? Government agencies, including the FDA and the Consumer Products Safety Commission, regulate the composition, packaging, labeling, and safety of beauty supplies. How has government regulation affected sales of products with both cosmetic and pharmaceutical benefits? Some beauty products, such as anti-dandruff shampoos and moisturizers with sunscreen, can be classified as both a cosmetic and a drug and must comply with regulations for both categories.

How has the regulatory environment changed for beauty products over the last few years? Regulatory scrutiny over beauty products is increasing as manufacturers introduce more products claiming antiaging benefits. How important are imported beauty products to the companys sales? Most imported beauty products come from France and Canada. US imports of beauty products have grown steadily for the last decade, except for a temporary dip during the recent recession.

Organization and Management

What experience and background does the company look for in potential employees? Beauty retailers, especially high-end stores selling expensive skin care or makeup systems, may employ sales staff with cosmetology backgrounds. Stores with salons require licensed professionals for various services, including haircuts, nail care, or facials. How does the company compensate sales associates? Some companies use commissions as incentives for sales associates to promote high margin products. Others avoid commissions to differentiate from department store sales forces. What are the staffing requirements for a typical store? A beauty store may have two or three full-time employees, including a general sales manager and a salon manager, and a dozen or more part-time sales associates and salon professionals.

Financial Analysis
What are the companys peak sales periods? Revenue for companies specializing in fragrances peaks during the winter holidays, Mother's Day, and Valentine's Day because perfume is a popular gift item. Stores with a strong makeup business may experience third quarter peaks, driven by new fall fashions. What inventory levels does the company need to maintain high in-stock positions? High in-stock positions are important, and inventory can be up to 90 days sales. What issues does the company have with receivables? Receivables are generally low, but can be slightly higher for stores with a strong salon business. How important are private-label products to the companys profitability? Private-label beauty products generally have higher gross margins than branded versions. What are typical lease terms for stores? Lease payments may include insurance, utilities, taxes, repair, and maintenance. Some leases have early termination options and may include terms for remodeling and buildout.

Business and Technology Strategies

What trends will have the greatest impact on the beauty care market over the next few years? Trends and fads drive sales for many beauty products. What is the companys opinion of the increased availability of salon-only products through traditional retail channels? Some distributors are ignoring manufacturer restrictions regarding salon-only products, and selling to retail-only operations. What is the companys biggest threat in the high-end beauty care market? Some beauty stores compete with dermatologists and plastic surgeons in the high-end market for cosmetics and skin care. What is the future of beauty brands that bridge the prestige and mass markets? To capitalize on growth in the high-end beauty segment yet still appeal to the average consumer, some retailers are creating or carrying products that bridge the prestige and mass markets, called masstige products. What role does technology play in the companys security systems? Some companies use radio frequency technology for security.

Financial Information

COMPANY BENCHMARK TRENDS

Quick Ratio by Company Size The quick ratio, also known as the acid test ratio, measures a company's ability to meet short-term obligations with liquid assets. The higher the ratio, the better; a number below 1 signals financial distress. Use the quick ratio to determine if companies in an industry are typically able to pay off their current liabilities.

Financial industry data provided by MicroBilt Corporation collected from 32 different data sources and represents financial performance of over 4.5 million privately held businesses and detailed industry financial benchmarks of companies in over 900 industries (SIC and NAICS). More data available by subscription or single report purchase at www.microbilt.com/firstresearch.

COMPANY BENCHMARK INFORMATION

NAICS: 446120 Data Period Table Data Format Last Update August 2012 Mean

Company Size Size by Revenue Company Count

All

Large Over $50M

Medium $5M - $50M 88

Small Under $5M 5103

5198

Income Statement Net Sales Gross Margin Officer Compensation Advertising & Sales 100% 37.0% 2.9% 0.7% 100% 36.5% 1.8% 0.7% 100% 37.8% 2.7% 0.8% 100% 36.8% 3.4% 0.7%

Other Operating Expenses Operating Expenses Operating Income Net Income

31.0% 34.6% 2.3% 1.1%

31.4% 33.9% 2.6% 1.3%

31.8% 35.2% 2.6% 1.3%

30.5% 34.6% 2.2% 1.0%

Balance Sheet Cash Accounts Receivable Inventory Total Current Assets Property, Plant & Equipment Other Non-Current Assets Total Assets Accounts Payable Total Current Liabilities Total Long Term Liabilities Net Worth 15.8% 20.5% 20.4% 60.5% 21.7% 17.9% 100.0% 13.8% 29.7% 25.1% 45.2% 13.4% 20.7% 21.3% 59.7% 19.8% 20.5% 100.0% 12.5% 26.6% 13.5% 59.9% 16.2% 22.1% 18.1% 59.9% 23.1% 17.0% 100.0% 13.4% 29.0% 25.8% 45.2% 16.5% 19.8% 21.0% 60.9% 21.8% 17.3% 100.0% 14.5% 31.1% 28.9% 40.0%

Financial Ratios (Click on any ratio for comprehensive definitions) Quick Ratio Current Ratio Current Liabilities to Net Worth Current Liabilities to Inventory Total Debt to Net Worth Fixed Assets to Net Worth Days Accounts Receivable Inventory Turnover Total Assets to Sales Working Capital to Sales Accounts Payable to Sales Pre-Tax Return on Sales Pre-Tax Return on Assets Pre-Tax Return on Net Worth Interest Coverage EBITDA to Sales Capital Expenditures to Sales 1.25 2.04 65.7% x1.46 x1.21 x0.48 26 x8.96 33.0% 10.1% 4.8% 1.8% 5.6% 12.3% x3.84 5.5% 2.4% 1.33 2.24 44.4% x1.25 x0.67 x0.33 26 x8.80 32.4% 10.7% 4.2% 2.2% 6.7% 11.2% x4.58 5.9% 2.6% 1.33 2.07 64.0% x1.60 x1.21 x0.51 28 x9.85 33.4% 10.4% 4.7% 2.0% 6.1% 13.4% x4.00 5.8% 2.4% 1.20 1.96 77.8% x1.48 x1.50 x0.54 25 x8.74 33.0% 9.8% 5.0% 1.7% 5.1% 12.7% x3.57 5.3% 2.4%

Financial industry data provided by MicroBilt Corporation collected from 32 different data sources and represents financial performance of over 4.5 million privately held businesses and detailed industry financial benchmarks of companies in over 900 industries (SIC and NAICS). More data available by subscription or single report purchase at www.microbilt.com/firstresearch.

ECONOMIC STATISTICS AND INFORMATION

Retail Annual Sales Growth - Census Bureau

Change in Consumer Prices - Bureau of Labor Statistics

Industry Websites
Allied Beauty Association of Canada News, events, and industry resources. Beauty Store Business US industry news and trends, company profiles, annual store survey. Canadian Cosmetic, Toiletry and Fragrance Association (CCTFA) Media, FAQ, events, and links. Cosmetic News News for manufacturers, retailers, and beauty professionals. Cosmetics Business Global news, some reports available for purchase. Global Cosmetic Industry Global industry news, trends, and statistics.

NPD Group Statistics, trends, and news from market research firm NPD Beauty Group. Personal Care Products Council Regulatory and legal issues from trade association for personal care products. Professional Beauty Association Industry issues from trade association for the professional beauty industry.

Glossary of Acronyms
CPSC - Consumer Products Safety Commission CTFA - Cosmetic, Toiletry, and Fragrance Association PBA - Professional Beauty Association POS - point-of-sale

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