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Is Bath & Body Works' Pumpkin Spiced Success Pandemic-Proof?

Bath & Body Works, whose hand sanitisers and soaps are in high demand, is more important than ever as L Brands tries to pick up the pieces after the failed Victoria’s Secret deal amid a global pandemic.
Bath & Body Works | Source: Shutterstock
By
  • Cheryl Wischhover

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NEW YORK, United States — Diehard fans in the Bath & Body Works subreddit exchanged tips in early March about which stores were still selling hand sanitiser, comparing stocking schedules and counting on store employees to provide insider information. One potential customer was willing to drive several towns over to snag some, writing: "At this point, I don't care how far."

Sanitisers, which come in scents like "French lavender" and "peach bellini," only made up about 5 percent of Bath & Body Works’ sales prior to the coronavirus pandemic. But they’ve quickly become one of the chain’s hottest categories, alongside the usual mix of candles and body lotion.

Hand sanitiser is only the latest in a string of hits for Bath & Body Works, which has grown steadily over the last decade, often by double digits, topping $5 billion last year. Though stores in shopping malls are the main sales driver, e-commerce revenue surged 30 percent last year. On May 20, L Brands said Bath & Body Works' sales fell 18 percent to $713 million in the first quarter as the pandemic forced the brand's 1,600 stores to shut, with online sales surging 85 percent to about 40 percent of the total.

The chain's fortunes are tied to L Brands' other asset, Victoria's Secret, which has seen its sales and cultural cachet decline even faster than Bath & Body Works' star has risen. L Brands had agreed last year to sell a majority stake in the beleaguered lingerie retailer to Sycamore Partners and use the proceeds to pay down debt, making room on the balance sheet to support the soap-and-sanitiser chain's growth. But the deal fell apart in early May. L Brands says it will find a way to operate its two brands as standalone entities.

Is this a sugar high or is it lasting change?

Bath & Body Works should benefit from consumers’ new focus on cleanliness, though it remains to be seen whether they’ll visit the chain’s stores, more than half of which are in malls (a handful of stores that have reopened are seeing business similar to before the pandemic, the company said). L Brands said Thursday it will close 50 locations in anticipation of declining business at some shopping centres. The company is producing more hand sanitiser to meet elevated demand and sees it as a potential source of growth.

But that product alone won’t be enough to keep up the momentum, analysts say.

“Is this a sugar high or is it lasting change?” said Sucharita Kodali, a retail analyst at Forrester.

Kodali calls the retailer’s reliance on physical stores to drive sales “problematic.”

Beauty retailers will need to figure out the crucial tester issue, but this is going to be particularly difficult for Bath & Body Works, which is built around the experience of smelling dozens of lotions or candles before settling on a berry waffle cone or passionfruit & banana flower. That process loses some of its charm during a pandemic.

Before Covid-19, in-store promotional activity helped to lure in mall customers, leading to impulse purchasing, especially in higher-margin categories like candles, according to a survey by Jefferies, an investment bank. The bank’s analysts also note that because stores are small and individual item prices are relatively low, the brand is “reliant upon high transactional volume … meaning they are among those most at risk from social distancing requirements.”

L Brands said Bath & Body Works has been testing re-opening scenarios in 23 stores in Ohio. It has experimented with limiting shoppers to 10 to 20 percent of a store’s capacity. Testers and sinks are unavailable, and registers are behind plexiglass. The company is also promoting stores as a place to pick up online orders.

Andrew Meslow, the chain’s chief executive, said Thursday that the stores were seeing sales performance similar to before the lockdowns. He added that it’s early days, and the retailer will likely need to resort to steeper discounts to clear spring merchandise.

To reduce its reliance on stores, Kodali said Bath & Body Works could offer a subscription sample box, sending regular shipments of new fragrances and products to the brand’s loyal customer base, who may then be inspired to purchase full size.

Jefferies said in a recent note that the chain’s best days may be behind it, and found that web traffic on its candles had decreased. After an initial spike in March, spending at Bath & Body Works’ website dropped at or below that of the total health and beauty sector at large, according to Earnest Research, which analyses credit card purchases.

There’s still hand sanitisers, of course. Bath & Body Works has long been one of the only beauty companies to manufacture hand sanitisers as part of its assortment, offering it in scents like "pumpkin cupcake" and "black cherry merlot" to differentiate its offerings from Purell’s more utilitarian product. Customers can purchase whimsical holders to sling them on bags.

Bath & Body Works is still struggling to keep up with demand. On Thursday, only a single novelty holder was available for purchase online. The market is also getting more crowded. Beauty brands like Herbivore, It Works and Oars and Alps have started selling their own sanitisers, complete with chic packaging. Bath & Body Works has plans to release new sizes and versions soon.

“What was a $100 million business last year probably could be two to three times that size going forward — meaningful but not the majority,” Meslow told investors Thursday.

Bath & Body Works has other cards to play. Some of its highest-margin products are sold under another label, White Barn, where three-wick candles retail for $24.50. Home fragrance sales are also booming during lockdowns, with the category surging 116 percent online in March, according to NPD Group.

Still, as a direct retailer with its own store and e-commerce channels, Bath & Body Works has the freedom to adapt to a rapidly changing market, assuming it isn’t weighed down by Victoria’s Secret.

“Retailers of own brands are going to be more interesting than retailers of third party brands, at least from a margin perspective,” said Rich Gersten, founder of True Beauty Capital, a new firm focusing on small and emerging beauty businesses. “Given its price point and product assortment, it should do well in a post-Covid world.”

THIS WEEK IN BEAUTY

No more talc baby powder for the US and Canada. After years of lawsuits challenging the safety of talc, Johnson & Johnson announced it was pulling its baby powder from shelves in North America.

Sephora is re-opening. Starting this week, the multi-brand beauty giant is opening 70 stores across 13 states, without testers, with social distancing guidelines in place and with each store having an appointed "hygiene leader."

So is Drybar. The blowdry emporiums have opened in several states, requiring mandatory face coverings and temperature checks, and sans the chain's free beverages.

Men are buying more beauty products while on lockdown. Grooming brands report increased sales of skin care and hair care.

Beauty retailers are figuring out how to sell products in person without testers. High-tech sampling systems, combined with digital technology and engaged consultants, could be the future.

Wealthy clients are asking a plastic surgeon to do surgery and Botox on the DL. Offering private planes, quadruple fees and even offers to sign NDAs, some people are desperate for aesthetic services.

People are crossing state lines for a haircut. As salons start to open, they're seeing huge demand as people drive hundreds of miles to get a service.

Jeffree Star's newest palette is called … "Cremated." For obvious reasons, it's been getting some backlash.

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