1. UK Personal Care & Household Goods Market Landscape

The increasing population and consumer spending have led to an exhilarating growth of the consumer goods and personal care market. The industry has developed and launched innovative products that have catered to human needs and desires. The industry has expanded rapidly, and the emerging markets have supported the swift growth of the sector.

In 2020 the revenue in the beauty & personal care market is expected to be USD 483.3 billion, and the revenue is likely to grow at a CAGR of 5.0% between 2020 and 2025, as per Statista. The household goods can broadly be classified under electronic appliances, furniture goods, hardware and audio & music. The global household appliance market had a market value of USD 307.6 billion in 2019, and the market size is expected to grow at a CAGR of around 8.9% by 2023. The global furniture market was valued at USD 609.7 billion in 2019, and the market size is expected to grow at around 5.4% between 2020 and 2026.

The personal care market in the UK has been resilient as the concern for looks and hygiene improved with an increasing population. The revenue of the UK's beauty and personal care market is expected to be around USD 14.55 billion in 2020, and it is anticipated to grow at a CAGR of 4.4% between 2020 and 2025. The revenue of household appliances would amount to USD 8.8 billion in 2020, and revenue is expected to grow at around 4.3% annually between 2020 and 2025.

UK Retail Sales and Personal Care & Household Goods Market

In October 2020, grocery sales in the UK accelerated by 6.9% YoY, and the sales were up by around 7.2% in the final week of the month after the British Government imposed fresh lockdown in various cities. In September 2020, retail sales volume increased by 1.5% month on month, and it recorded growth for the fifth consecutive month. The retail sales volumes were up by 5.5% as compared with February's pre-pandemic level. The online sales as a portion of total retail sales have contributed immensely.

In Q3 2020, the retail sales volume was up by around 17.4% quarter on quarter. The household goods witnessed growth following home improvement activities and the household goods stores sales increased above February levels, and it was up by around 11.0% in September 2020 from the February level.

As life was somewhat back to normal in Q3 2020, there was a slight uptick in the consumer spending on the beauty and personal care products, and the sales increased by 11% quarter on quarter in Q3 2020.

The data depicts the measure of growth. The value of household goods retail sales were £3,660 million in September 2020. Household final consumption expenditure for the UK that includes all spends on goods and services by the members of the UK household declined by 1.3% in 2019.

Based on the Office for National Statistics data, the value of sales of household goods (non-seasonally adjusted) were £3,685 million in September 2020. Furniture lighting market contributed £1,529 million, electrical households added £725 million, paint & hardware sales value was £1,348 million, and audio, music & video had a sales value of £83 million. The sales of personal care products were worth around £5,593 million in Q2 2020.

Online Sales Supported Business during Lockdown

As the consumers were restricted to stay at home during the lockdown, they moved to online channels for purchase of goods. A rising number of people have purchased personal care products and household goods online. The consumers continue to spend a large portion of their spending through online channels to mitigate the risk of virus spread.

Key Catalysts for Personal Care & Household Goods Market

• Increasing Middle-Class Population: The earning middle-class population is a critical driver for the growth of any sector. The demographic shifts and consumption pattern would shift inexorably, and it would support the market.
• Rising Consumer Spending: The consumer spending is growing, and people are spending more money on products such as personal care, do it yourself products, and it would provide enormous rewards for products that best anticipate the new opportunities.
• Digital Penetration: The artificial intelligence, robotics and internet of things (IoT) have changed the dimension of life and business. Digital channels have brought opportunities to the target market, deeper penetration to customer engagement and supported sales. With access to a large amount of data and intelligent analytics, the landscape is transforming.
• Attention to Wellness & Hygiene: The concern over health has gained strength, and the pandemic has put it at the utmost priority. Consumers will spend more on products that ensure better hygiene. The products that will support physical and mental health will drive consumer spending.

Key Trends in the Personal Care & Household Goods Market

• Shift to Value and Private Labels: The rise of the value-oriented consumer segment has been continuously growing, and it is among the principal forces that are affecting the personal care and household goods market.
• Innovative Packaging to Curtail Environmental Impact: The personal care and household goods use a large number of materials for packaging and manufacturing of goods. Packaging of products is also experiencing a shift, and materials that are reusable and also have minimal hazardous impact on the environment are in the bright spot.
• Personal Care Products Made from Natural Ingredients: The beauty care products have a large number of chemical ingredients, which have a long term effect on skin and body. The products made from the natural material that has more organic extract will be in crucial trend. The ammonia-free products are also gaining increasing ground.

Risk Exposure to Personal Care & Household Goods Market

• Increasing Unemployment Rate: The unemployment rate is increasing since the onset of the pandemic. The employment rate has risen from 3.8% in February 2020 to 4.8% in September 2020. The rising unemployment will restrict consumer spending.
• Raw Material Availability: The pricing and availability of raw material impact the products and their prices. Lack of continued availability of input materials can negatively impact manufacturing.
• Changing Consumer Preferences: The market fundamentals are changing, and consumer needs are always shifting. The businesses need to innovate as the ground remains very competitive, and it fails to capture the changing consumer trends; it will lose business.
• Supply Chain Disruption: The sector depends on purchasing materials, efficient manufacturing and time distribution of products, any physical disruption or trade restrictions will impact the operations of the business.

Benchmark Index Performance

Based on 1-year performance, the household goods sector performed better than FTSE-100 and FTSE All-Share. The FTSE All-Share Household Goods index generated (5.08%) return, which was better than FTSE-100 (-14.12%) return and FTSE All-Share (-12.44%) return.

Fig 7: One Year Index Performance

Source: Refinitiv, chart created by Kalkine Group)

SWOT Analysis

Personal & Household Goods Outlook

The consumer spending and confidence has been mixed so far in 2020. The consumer confidence improved in the third quarter of 2020 when the economy re-opened after lockdown. The opening of stores and restaurants boosted the mood of the consumers. The consumers have braced up for the second phase of lockdown and covid-19 wave. The restrictions on public gathering and closures of stores and restaurants would lower consumer spending in the fourth quarter of 2020. As per the Deloitte report, the consumer discretionary net spending would decline by 15% in Q4 2020. The net essential expenditure is expected to remain unchanged.

There have been large consumer shifts as consumers have moved to online channels, and with a continued need for hygiene products. Consumer spending has been lower than the normal scenario, with more focus on saving. Amid all this, the revenue of the beauty & personal care market globally is likely to grow at a CAGR of 5.0% between 2020 and 2025. The UK market is expected to be around USD 14.55 billion in 2020, and it is anticipated to grow at a CAGR of 4.4% between 2020 and 2025.

As the winter is approaching and people spend more time indoors, the demand for household goods, mainly the DIY (do it yourself) products would witness encouraging demand. However, the recent lockdown would affect the manufacturing and deliveries of personal care and household goods. Many businesses had to shut down the stores as per the new lockdown guidelines, and they will be highly dependent on online sales during this period. The revenue of household appliances is expected to grow at around 4.3% annually between 2020 and 2025.

2. Investment Analysis and Stocks Under Discussion (RB., TPT, ULVR, DFS)

After gaining insights into the personal care & household goods sector, we would look at the business model of four players listed on the London Stock Exchange.

A. Reckitt Benckiser Group PLC (LON: RB.)

(Recommendation: Buy, Potential Upside: 8.65%, Market Capitalization: GBP 49.23 billion)

Reckitt Benckiser Group PLC is a UK based multinational consumer goods company. The Company produces health, hygiene and nutritional products. Some of the key brands of the Group include Dettol, Air Wick, Hapric and Mortein, and these products are available in around 200 countries. Reckitt Benckiser is included in the FTSE-100 index.

Valuation Methodology

Our illustrative valuation model suggests that the stock has the upside potential of ~8.65% over the closing price of GBX 6,938.00 (as on 10 November 2020).

B. Topps Tiles PLC (LON: TPT)

(Recommendation: Speculative Buy, Potential Upside: 21.96%, Market Capitalization: GBP 84.42 million)

Topps Tiles PLC is a UK based tile specialist company. The Company has close to 362 retail stores in the UK and targets both retail and commercial business. The primary market of the Company is a residential repair, maintenance and improvement. Topps Tiles is listed on the FTSE All-Share index.

Valuation Methodology 

Our illustrative valuation model suggests that the stock has the upside potential of ~21.96% over the closing price of GBX 44.20 (as on 10 November 2020).

C. Unilever PLC (LON: ULVR)

(Recommendation: Hold, Potential Upside: 9.46%, Market Capitalization: GBP 117.43 billion)

Unilever PLC is a global company that is engaged in the business of nutritious foods, household care essentials, personal care products. The Company has more than 400 brands that are sold in more than 190 countries. Some of the signature brands of the Company include Lifebuoy, Lux, Knorr, Lipton, Ben & Jerry's and Domestos. Unilever is included in the FTSE-100 index.

Valuation Methodology

Our illustrative valuation model suggests that the stock has the upside potential of ~9.46% over the closing price of GBX 4,681.00 (as on 10 November 2020).

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

D. DFS Furniture PLC (LON: DFS)

(Recommendation: Hold, Potential Upside: 7.50%, Market Capitalization: GBP 518.40 million)

DFS Furniture is a sofa retail specialist in the UK. The Company has three brands that include DFS, Dwell and Sofology. The Company design, manufactures, retail, and carries out after services of the sofa. The Company has five factories in the UK, and it has a network of showrooms in the UK, Ireland and parts of Europe.

Valuation Methodology

Our illustrative valuation model suggests that the stock has the upside potential of ~7.50% over the closing price of GBX 215.00 (as on 10 November 2020).

*All forecasted data and peer information have been taken from Refinitiv, Thomson Reuters.

*The "Buy/Speculative Buy" recommendation is also valid for the current price as covered in the report as on 11 November 2020.

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