Skin clinics: Cannibal or boost to skincare retail?

Skincare is growing 2.3 per cent year on year in Australia and is currently worth $4.2 billion – or what the entire global industry was worth in US dollars in 1991, according to a 2018 Orbis Research report. Last week’s Inside Retail Weekly report on the stellar growth of local skincare brand Sand and Sky is just the latest example of a fragmenting, premiumising and expanding skincare market.

Symptomatic of the growth in skincare, skin clinics are growing exponentially. But are they boosting skincare retail or merely creating channel shift?

The need to look better – and younger

Anti-ageing in general, and in skincare in particular, is driven by the Baby Boomer generation but increasingly extending downward in age, and is particularly prevalent in Australia, given the harsh climate. Australia punches above its weight with successful locally made skincare brands such as Alpha-H’s Liquid Gold.

A look at marketplace reporting app Shelftrend’s eBay data indicates that not only is Australia’s proportion of anti-ageing skincare products at 34 per cent of total skincare listings higher than those of the UK or US, Australia sells more blemish control. Last month there were 183 anti-ageing skincare eBay listings in Australia, followed by 63 listings for acne and blemish control, 62 for masks and peels, and 60 for moisturisers.

There has been a global boom in the number of skincare products available, increasingly with specific or single ingredients such as retinol or hyaluronic acid or formats such as micellar waters, masks and serums. Unsurprisingly, the number of products a consumer uses in their skincare routine is also expanding, with the rising popularity of 10-step Korean skincare routines that include multiple formats such as masks, ampoules and essences. Australian skin clinic and skincare brand Rationale has a six-step regimen designed for individual customers subsequent to a DNA test, and it’s not cheap, with three months’ worth costing over $900.

With consumer bathroom cabinets groaning under the weight of a forest of products, and amplified bragging (humble, backdoor or otherwise) about the effort gone into achieving one’s flawless skin combined with the social media driven need to look perfect 24/7, it’s no surprise that bathroom cabinet “shelfie” photos have become rife.

The rise of specific- and single-ingredient products is seeing a concomitant upswing in local, niche, premium and cult products and brands, sometimes at the expense of the traditional major manufacturers. In a case of “if you can’t beat ’em, join ’em”, Estée Lauder bought a minority stake in cult brand The Ordinary’s parent company Deciem in 2017.

Last month, Shelftrend eBay data indicates that niche brands Leonardi and Dr Pen respectively commanded 7.7 per cent and 7.3 per cent of anti-ageing skincare sales, versus L’Oréal’s 2 per cent. The median price for Dr Pen products is $87 per unit. Of the top 15 moisturisers sold on eBay Australia, perhaps only Clinique and Shiseido would be known to casual observers. The remainder are niche and premium, with Dermalogica commanding a $79 median unit price.

Beauty salons and spa chains such as endota spa continue to pop up and evolve, and with them premium- and ultra-premium-priced retail products. Along with the permissibility of communicating the effort required in one’s skin upkeep, it is becoming socially acceptable to spend hundreds, if not thousands, on skin maintenance.

Enter the skin clinics.

Skin clinics do laser-lunch

No longer a little-discussed province of the wealthy, the permissibility, affordability, accessibility and convenience of cosmetic procedure assistance to maintain one’s skin has seen skin clinics mushroom. Time-friendly “laser lunchtime treatments” are clinic growth drivers, and a number of the skin clinic chains are growing at 50+ per cent year on year. In October 2018, Australian expenditure on minimal and non-invasive procedures was estimated to have reached $1 billion, according to franchisebusiness.com.au.

Laser Clinics is the largest skin clinic operator in Australia, currently numbering around 120 locations and recently launching in NZ. Purchased by private equity behemoth KKR in 2017 for more than $600 million, its 2018 sales of $190 million were up 70 per cent versus the prior year. Like most skin clinic chains it employs a franchise model, with an initial franchisee investment of approximately $350,000 in return for a ready-made clinic with a “guaranteed” $100,000 remuneration package for the clinic’s managing director. Laser Clinics sell the Skinstitut brand at retail (also one of the top eBay sellers) at a sub-$50 price point, with bundle deals for multiple items.

Clear Skincare Clinics was likewise attractive to investors and sold for $127 million in 2018 to Priceline franchisor Australian Pharmaceutical Industries when it had 44 clinics. In an example of channel blur, Priceline ranges Clear Skincare products.

Australian Skin Clinics has been a franchise since 2011 and has been absorbing Ella Rouge outlets. Numbering around 60 outlets, its retail product ranges include Ultraceuticals, Balense and its own brand.

The recent relaxing of laser hair removal laws in WA has seen an influx of skin clinics, in particular Silk. Silk Laser Clinics number nearly 50 outlets nationally and feature two to three medical-grade laser machines per store, meaning the capital expenditure required to open a clinic is $800K+. Half of the clinics are therefore company owned, with the rest joint ventures. Silk’s high-volume strategy saw it sell a 67 per cent stake to Advent Partners in 2018, subsequent to Advent’s outright acquisition of single-laser-machine, smaller footprint operation The Laser Lounge. Silk retails its own branded products.

Retail gets a boost

What of the role of retail in skin clinics then, in an environment where cosmetic services start at $50 and can top out in the thousands over a period of months? The closest analogy may be retail in hair salons, where typically under 10 per cent of a salon’s revenue is derived from selling products to complement core services.

It could be argued that the skincare clinic franchises are boosting skin clinics overall, and thus retail sales.

Given the growth of skincare overall, it appears skin clinic services are assisting in the augmentation of skincare retail sales, as the whole pie grows. They are becoming just another part of a consumer’s increasingly complex and time-consuming skincare regimen.

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