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The Future of Beauty
By: Leslie Benson and Jeff Falk
Posted: October 9, 2008, from the October 2008 issue of GCI Magazine.
page 4 of 8
With the acquisition, CVS expects to achieve significant cost synergies of $100 million in 2009 and up to $150 million in 2010. In total, CVS will acquire Longs’ more than 500 retail drug stores throughout California, Nevada and Arizona, as well as its Rx America subsidiary. Longs’ stores in Hawaii, however, will continue to carry the Longs banner. In summation, the deal will put CVS in control of more than 6,800 total drug stores in 41 U.S. states.
In addition to drug store expansion, professional beauty retail channels such as Sally Beauty Supply may also grow in the next five years, based on recent profits. In August 2008, Sally Beauty Holdings, Inc. announced consolidated net sales of $676.8 million for the fiscal 2008 third quarter, an increase of 6.6% since 2007. Sally Beauty Supply opened 62 new stores during the third quarter in 2008, increasing its total to 2,801 stores in North America. The company, along with its Beauty Systems Group, sells and distributes through more than 3,500 stores internationally across North America, Europe and Asia.
However, on the whole, Euromonitor predicts that with consumers switching from prestige brands to less expensive masstige brands, the U.S. beauty market will decline by $1 billion by 2012. Countries such as Brazil, Russia, India and China will not, on the other hand, feel as much burn from economic downturn, thanks to their emerging middle class markets.
Global Middle Class Markets
Accenture, a global management consulting company, reports in last year’s The Rise of the Multi-Polar World report that, “by 2010, China and India together will contain 123 million middle-class households—more than the total number of households in the U.S.” Euromonitor forecasts China to grow by $10 billion by 2012 in the cosmetics and toiletries market.3 In China, salons top the beauty sales channels with 1.5 million locations, compared to the .3 million salons in the U.S., according to Diagonal Reports, a research company based in Ireland. And “at current growth rates, it is estimated that the Chinese beauty market will overtake France, currently Europe’s biggest cosmetics market, by 2012, in value terms.”8 India, on the other hand, will see a surplus of new shopping malls offering retail options, as the number of malls there increases to 600 in 2010, according to the Federation of Indian Chambers of Commerce and Industry (FICCI) and Ernst and Young.9
On par with China’s growth, Euromonitor predicts Russia to also show increased profits—$12 billion by 2012—an increase of 4% from 2008.3 Japan will remain among the top five countries powering the beauty industry, Euromonitor adds, although it represents a pre-established market, rather than an emerging one.