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Women are scrimping on clothes, but splurging on this

Customers browse make-up at a Sephora shop-in-shop at a J.C. Penney store in Brooklyn. (Victor J. Blue/Bloomberg)
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It’s been a bleak time in many corners of the American mall: Apparel executives have lamented that women are bored of skinny jeans. Gadget retailers are feeling the sting of the lack of a new, must-have smartphone. And even at the food court, some mainstays are struggling to stay relevant as we opt for healthier diets.

But there’s at least one shopping category that’s sitting pretty: The upscale beauty business.

Sephora and Ulta have each posted a string of blockbuster sales results. Estee Lauder, the company that owns its eponymous cosmetics line as well as brands such as Clinique and MAC, recently raised its sales forecast as it says it is sees greater demand for its products. And nontraditional beauty players such as Anthropologie and H&M have announced plans to devote more store space to these items.  

The popularity of luxe cosmetics appears to be fueled by several factors, including a steady stream of new makeup trends and the growing purchasing power of a millennial shopper who thinks differently about her beauty regimen.

The prestige beauty category which includes makeup, fragrances and skin care products that tend to be fancier than what you find at the drugstore saw a 7 percent increase in sales last year, according to market research firm NPD Group. The makeup subcategory was particularly strong, with sales of those products surging a robust 13 percent.

Theresa Yee, senior beauty editor at trend forecasting firm WGSN, said cosmetic sales have benefited from what she calls the “Kim Kardashian effect.”  The reality TV star and social media queen has used her Instagram account to draw attention to new makeup techniques: First was “contouring,” a way to shade the face to bring out one’s cheekbones or other features, and then came “strobing,” a technique for getting skin especially glowy.

NPD found that contouring and highlighting products were a key driver of the strong growth of makeup sales in 2015.

“We live in that selfie-ready age,” said Karen Grant, beauty industry analyst at NPD. “And makeup, we’re seeing, is allowing people to feel more confident.”

Experts said other makeup trends, too, have been catalyzing sales: BB creams and CC creams, which have long been a staple in South Korea but only have hit stores stateside in the past few years, are selling strong. And as thicker eyebrows have become en vogue, so have products such as brow-enhancing serum and eyebrow mousse.

In another era, shoppers might have shied away from such niche items because they didn’t quite know how to use them. But these days, they are fodder for a glut of YouTube how-to videos and Pinterest tutorials.

“Now you feel empowered,” Grant said, when you know you can go home and get step-by-step video instructions on how to use your new purchase.

At District-based beauty chain Bluemercury, co-founder and chief operating officer Barry Beck says that innovative products have provided as essential lift to sales for the fast-growing company.

In fact, Beck says that 55 percent of the top-selling items at Bluemercury in 2015 were items that didn’t exist even five years ago. That’s why the retailer launched 3,000 new products in its stores last year. The vast majority of them, Beck says, weren’t a hit, but it’s part of a constant effort to provide novelty for the customer.

Today’s beauty shopper “is more sophisticated, more demanding, than she ever has been before,” Beck said. 

The strong spending in beauty comes as a heightened focus on wellness has shoppers shelling out for things like a $34 indoor cycling class or a $10 carry-out salad. Experts say that a willingness to buy pricey skincare products, in particular, may be part of that mind-set. For example, products with a natural or clinical orientation now comprise the largest share of prestige skincare sales.

“People are becoming more aware that what they put on their skin seeps into their skin. There’s definitely been a rise in demand for natural products,” said Eleanor Dwyer, a research associate at Euromonitor who studies the beauty industry.

The strength in cosmetics is somewhat counterintuitive when you consider how women are opting to spend their money on apparel. The shining stars of the clothing industry lately have been fast-fashion players such as Forever 21 and off-price chains such as T.J. Maxx, which cater to value-conscious shoppers.

And yet, Estee Lauder said its new Re-Nutriv Ultimate Diamond eye cream which comes with a $250 price tag was a key driver of the company’s skincare sales in the most recent quarter. So why are women willing to shell out for cosmetics, but not clothes?

“I think people are tired of being frugal, but they don’t have tons of excess money,” Dwyer said. “So premium beauty brands offer an entry point,” she added, a way to get a slice of Yves Saint Laurent or Chanel without a four-figure price tag.

It seems customers aren’t particularly looking for deals when it comes to their beauty purchases. In a study of 22,000 global consumers released this month by consulting giant McKinsey & Co., researchers examined trade-up and trade-down rates, or the extent to which consumers moved toward or away from premium products across a variety of categories. The trade-up rate in 2015 was the highest in cosmetics, with 20 percent of global shoppers and 16 percent of North American shoppers opting for more luxe products.

The relative strength of the beauty business has led many big names in retail to try to get a bigger piece of it. JCPenney, for example, has created Sephora shop-in-shops at 518 of its locations. These Sephora outposts have been such a major driver of sales at the department store that JCPenney plans to accelerate its rollout of additional locations. Kohl’s has redesigned the beauty area in 900 of its stores and added to it fresh brands, a move aimed at further driving sales in a category that executives have said is performing “significantly better” than the rest of the store.  

And you can expect still more retailers to try to get in on the action. An executive at American Eagle Outfitters, for example, said recently “beauty is an idea we’re getting behind” at its chain of Aerie lingerie stores. Jennifer Foyle, Aerie’s global brand president, said she has made some “strategic hires” to start figuring out how to crack the beauty business.

Bluemercury, which was acquired by Macy’s just over a year ago for $210 million, has big plans for expansion amid this recent beauty boom. The retailer, plans to grow to 150 locations over the next 24 months and believes there’s opportunity for 500 or perhaps even 1,000 outposts over the long haul.  In order to contend with much larger rival Sephora and upscale department stores, Bluemercury is betting that customer service will be key.

“Our beauty experts in our stores need to be human Googles for products,” Beck said. 

Meanwhile, mass beauty products, such as those sold in drugstores, have not seen quite the robust growth that has been seen at the high end of the business. According to market research firm Euromonitor, the market for mass beauty products grew 2.2 percent last year.

And yet, even at lower price points, there’s optimism about the beauty business: Dollar General, for example, has said it will expand its array of beauty products in 2016 because it believes it will help drive store traffic.

There’s action, too, in the in-between category known in industry jargon as “mass-tige.”  L’Oreal is starting to open brick-and-mortar locations of its NYX Cosmetics concept, which carries $7 lipsticks and $20 foundations. Last year, Target acquired the Sonia Kashuk cosmetics brand it has long sold exclusively. The retailer hopes having the brand under its wing will aid its broader effort to develop a more distinctive beauty offering.

Still, while the momentum in beauty is broad, it’s not universal. Elizabeth Arden, for example, has seen flat or declining North American sales recently and has seen its stock plunge nearly 50 percent in the last year. The company has struggled as a product it is heavily invested in, celebrity-branded fragrances, hit a rough patch. And while Estee Lauder saw solid sales growth in its niche beauty lines such as La Mer, it posted relatively weak sales in its flagship Estee Lauder brand fragrance and skincare products.

“The types of products that are winning are sometimes from brands that are doing one or two products really, really well,” Grant said.