The margin glow-up: why retailers love beauty

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In the recent trading update from Woolworths that deals with the 52 weeks to 29 June 2025, we find a retail group that posted comparable store growth in the Fashion, Beauty and Home segment of 5.1% – not amazing, but not bad. However, within that, it’s Beauty that is living up to its name – with a stunning 14.7% growth rate. That’s rather interesting.

Then, if you look at The Foschini Group’s (TFG’s) trading update for the 13 weeks to 28 June 2025, we find an even more impressive performance. Within TFG Africa’s growth of 5.2% (pretty similar to Woolworths), the Beauty category was up by a whopping 24.5%. It now contributes 3.2% of TFG Africa’s sales, up from 2.7% in the previous period. TFG notes in their management commentary that they achieved “further market share gains in line with the group’s strategy” in the Beauty business. Again, that’s rather interesting.

Beauty is clearly more than just in the eye of the beholder. It’s big business, with fashion retailers fighting to get a bigger slice of the pie.

It’s not just within the listed space, of course, as you may have noticed that Edgars has evolved under the ownership of Retailability towards smaller format stores that include a dedicated fragrance and cosmetics offering. This means that, in relative terms, far more of Edgars’ trading space than before is dedicated to beauty.

But why?

Retail is about optimisation

To understand why Beauty is an appealing category for retailers, we need to understand the levers that retailers pull in order to achieve better financial performance.

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The first one is easy: gross margin. The rule of thumb in retail is that more discretionary categories have higher gross margin, while staples carry a lower gross margin. Simply, retailers make more from selling cosmetics and fragrances than they do from selling bread and milk. And best of all, those cosmetics have a much longer shelf life in compared with food. But then, why don’t grocery stores just put in a beauty aisle? Well, more on that to come.

In the context of apparel, the margin mix effect is less pronounced. Full-price clothing sales do tend to carry a gross margin of around 60%, with end-of-season sales to clear stock bringing that margin down to the 50s, and often the 40s on a blended basis if the retailer was overstocked for a particular season. This means that on products like shampoo, for example, sales won’t be margin accretive compared to clothing, because within the health and beauty context, shampoo is relatively basic. But with cosmetics, margins can be better than the overall mix in the clothing business. This is one of the reasons why in an apparel store, you’re not really going to find shampoo, but you will find upmarket lipstick and perfume.

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Now, you may be tempted to say that this is just common sense, right? Nobody is going to buy shampoo at their favourite local clothing store. But then why do people buy small appliances at Clicks? And why have grocery retailers tried so hard to build out health and beauty sections that feel like you’ve just stepped out of a grocery store and into a Clicks or Dis-Chem, even though you’ve only walked a few metres?

Believe me, if retailers could get consumers to always behave in a way that maximises margin, they would.

Sometimes, they get it right – like with Clicks’ aforementioned very clever and highly lucrative positioning in small appliances, a very margin-accretive part of their business. It’s not logical at all that you would buy a toaster or air fryer at the same place you collect your monthly meds, yet here we are.

For grocery stores, they are very unlikely to persuade you to add expensive fragrances to your bread and milk – but they can at least get you to buy shampoo. And believe me, they will try. Hard.

In larger stores where there’s space to fill, you’ll be sure to find some cosmetics on offer. If there’s a general merchandise section trying to sell you a TV on a whim, I assure you that fragrances won’t be far behind, never mind shampoo.

But it’s a difficult game, as beauty and fragrances tend to require a completely different store format that has better lighting, lower shelves, and merchandising that requires plenty of attention to detail with expensive items, rather than just packing boxes of fruit on a shelf. This is why it’s difficult for grocers to really tap into the beauty category. It’s exactly why Clicks was able to grow into the giant that it is today, with Dis-Chem fighting hard for market share in that space.

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Having demonstrated that everyone would sell cosmetics and fragrances if they could practically get it right, we now go back to clothing retailers – where this is actually happening.

The store formats lend themselves well to beauty, as everything in a clothing store is about how you look and how it makes you feel. Beauty is a natural fit.

But if it’s not always margin-accretive in clothing retail in terms of gross margin, then what is the appeal?

Trading density: the route to maximising operating margin

Imagine you own a retail store and there are two different products that you could choose to sell. They carry identical gross margins. What would be your next consideration when deciding which one to stock? Would space play a role?

Trading density is a crucial metric in retail. It measures sales per square metre. Rental is also charged per square metre, so the combination of high trading density and lucrative gross margin is the holy grail in retail. This is the path to maximising operating margin.

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Now imagine a clothing rack, along with all the different sizes and colours you need to stock. To have a full assortment, you really do need a lot of space. In cosmetics, you can achieve a similar level of choice in a much smaller space. Although the range needs to be kept fresh, there’s no world in which cosmetics become obsolete as quickly as fashionable clothing. Even leaving aside personal tastes, the weather ensures that clothing retailers need to clear their range each season. This creates far more variability in margin and sales for clothing, whereas a beauty range is far more predictable.

This is precisely why Edgars can get away with downsized stores that focus on pushing sales in cosmetics and fragrances, rather than having additional clothing racks that tend to run at much lower trading densities.

Brand positioning

Here’s another good reason why clothing retailers love beauty: they can use it to reinforce brand positioning. If you’re buying premium clothing, then seeing it displayed alongside equally premium beauty products is sensible. It would be dilutive to the shopping experience if a cheap lipstick were placed next to an expensive dress, wouldn’t it? Similarly, you can’t expect to sell high-end beauty products if you display them next to basic T-shirts and socks.

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For Woolworths, where the premium positioning of the overall group is key to fending off competitors and getting their margins up, beauty is a logical place of focus. It’s good to see them finding success in this category, as the Fashion, Beauty and Home business does need a boost. At TFG, which has a wide range of store banners from middle- to higher-income models, beauty is an area where they need to win.

As final proof of how the beauty range needs to be coherent with the clothing strategy at these retailers, Mr Price has a beauty offering that is focused on being affordable. They do this through a private-label brand – an in-house brand over which they have full control in terms of how it looks and what it costs – typical of a value strategy in retail. That makes a whole lot of sense in the context of the broader offering.

Beauty, like most retail categories, is a battleground of competition.

But unlike many other categories, it’s a battle that is worth winning. That’s why you see clothing retailers fighting it out against your typical pharmacy-led players like Clicks and Dis-Chem, and certainly your grocery stores to the greatest extent possible. Just visit a Checkers FreshX store or one of the big hypermarkets, and you’ll see for yourself how much effort gets put into creating a lovely health and beauty section.

Analysing retail is about understanding all the underlying product categories that roll up into the final set of numbers.

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