By Quentin Fottrell
If American consumers seem to be carrying less stress in their shoulders, it could be because spending is growing faster at spas than stores.
People are buying more stuff, retail sales data released Tuesday shows. Spending rose 4.2% on the year during last week, according to the International Council of Shopping Centers-Goldman’s weekly measure of major retail chains. But they’re buying even more backrubs and beauty treatments and products, according to data from Sageworks, a financial information company. The net profit margin on personal care services – spas, salons, weight-loss clubs – grew to 9% in 2011, more than double the rate before and during the 2008 recession, with sales up nearly 5% last year. “Consumers appear to be going to the salon more often and spending more when they do,” says Sageworks analyst Greg Mulholland. “They’re more comfortable spending money on themselves.”
Sales of beauty products are also rising, experts say. The so-called prestige beauty products sold primarily by department stores saw an 11% spike to $9.5 billion last year, according to a study released last month by the NPD Group, a market researcher. All the top brands of skincare, fragrance and skincare sales exceeded pre-recession levels. Though many consumers remain antsy, sales of high-end beauty products are bucking broader trends, according to Karen Grant, vice president at the NPD Group. “In the 15 years that NPD has been tracking the prestige beauty industry, we have never seen growth like this,” she says. The high-end products account for almost a third of the total $33 billion cosmetics and beauty product market, according to the Commerce Department.
The beauty industry also accounts for much of the recent increase in service spending, analysts say. Services grew 1.2% in March, up from 0.4% the previous month, government data released last week shows. “During the recession women spent more on their kids but not on themselves,” says independent retail analyst Jeff Green. “Strangely, they do appear to be getting more massages and weekly manicures.” Massage Envy, a salon with 772 outlets across the country, added 134 franchises to its chain from January to April, a 60% jump on the 84 outlets added during 2011. “We had a record-setting number of franchises agreements in April alone,” says Lori Merrall, the group’s national director of franchise sales. Three quarters of those new stores were opened by existing franchises, she says, reflecting an increase in demand.
That said, some wonder whether this kind of discretionary spending can last given rising gas prices, stagnant personal income and the still uncertain economic outlook. Peter Schiff, CEO of brokerage firm Euro Pacific Capital in New York, says economic activity is already too heavily dependent on consumption. Robert Brusca, chief economist at Fact & Opinion Economics, says personal consumption growth rate of 3% or more is unlikely to be sustainable throughout 2012, which doesn’t bode well for retail sales. But Brusca says spending on beauty salons and other services helps to sustain employment. “People typically spend for two reasons,” he says. “They’re either very confident or, if they get into debt, very desperate. This is a sign of the consumer becoming more confident.”