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Annual State of the Industry: BRIC: It’s Mighty, Mighty

By: Alexander Kirillov
Posted: June 9, 2008, from the June 2008 issue of GCI Magazine.

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Non-store retailing remained the fastest-growing channel, driven by strong expansion in Internet and door-to-door sales. In 2007, the channel grossed $39 billion, 9% growth over 2006. Direct sales, a huge contributor to the channel, amounted to $30 billion in 2007. This sector is followed by home shopping, which includes TV shopping, direct mail, catalogs and Internet—contributing approximately $4 billion each.

The Internet channel demonstrated the fastest growth among non-store retail channels, expanding by 13% in 2007. Direct sales, at 9%, also grew strongly in 2007. While growth in Internet retailing is coming mostly from developed countries, direct sales are growing strongly in emerging markets, and companies such as Avon, Oriflame and Natura strongly benefited from the channel’s growth—especially in Latin America, Asia Pacific and Eastern Europe.

Supermarket Expansions Benefits Emerging Markets

Supermarkets/hypermarkets continued to be the fastest-growing store-based channel for cosmetics and toiletries worldwide, accounting for 28% of global beauty sales. The sales of cosmetics and toiletries products through the channel grew 7% from 2007. The key drivers include fast expansion of supermarkets/hypermarkets chains in Latin America, Eastern Europe and Asia Pacific, strong growth in private labels in Western Europe and strong growth in hypermarkets sales in North America. Perfumeries and pharmacies/drugstores also performed well in 2007, with both posting sales of cosmetics and toiletries of more than $30 billion—an approximate growth of 7% over 2006.

Perfumeries, represented by specialists outlets such as Sephora and Marionnaud, grew across all regions due to increasing consumer interest in specialist and niche brands. Sales through pharmacies and drugstores were particularly strong in Eastern Europe and Latin America, where retail format is relatively new and expanding rapidly.

Premiumization Remains Important Trend

Premium brands sales amounted to $67 billion, or 23% of the global market in 2007. The bulk of premium brands were concentrated in the skin care, hair care, color cosmetics and fragrances sectors, and the strong demand for premium cosmetics was driven by improved worldwide wealth. In strongly developed markets, consumers have access to the most necessary commodities, and they are happy to splurge on cosmetic products. The rise of niche brands, especially in Western Europe and North America, also contributed to strong performance of premium brands.