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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.

page 5 of 5

The creeping recession in the U.S. and uncertainty about economic growth in Western Europe forced many consumers to start looking to trade down instead of trade up. However, this trend will be offset by consumers in booming emerging markets, where economies have become less dependent of the U.S. in recent years. Double digit growth is happening across all premium cosmetic sectors in Eastern Europe and a majority of sectors in Latin America and Asia Pacific, excluding Japan.

Demand for Natural/Organic Continues to Rise

According to Euromonitor’s estimations, products with natural claims account for 10–12% of the global cosmetics and toiletries market. Demand continues to boom as consumers become more concerned about their health and increasing exposure to chemicals during their daily beauty routines. The spread of retail concepts such as Whole Foods Market, The Organic Pharmacy in the U.K. and Wal-Mart’s Natural and Organic Bodycare Oasis have also helped lift the profile of natural and organic products.

However, the lack of global and regional standards for natural cosmetics and toiletries products still confuses customers. There were a number of industry attempts to create standards for natural products, such as CosmeBio in France, but these labels, so far, have a limited use in terms of geography and manufacturers. However, Euromonitor International expects internationally harmonized standards for naturals some time in the future, with strong growth expected as a result.

Looking Forward

Euromonitor International forecasts average annual growth of 3%, to reach global sales of more than $337 billion in 2007 prices by 2012. Skin care and sun care will remain the most dynamic sectors, expanding at 5% a year on average. While Latin America will achieve the highest growth in 2007–2012, Asia Pacific will provide the biggest contribution in absolute terms. Eastern Europe will be a third market by growth rate and fourth by absolute growth.

Strong growth in emerging markets will further benefit local companies, as well as create opportunities for multinationals, which will be seeking ways to offset sluggish growth in Western Europe and North America. The industry may see more acquisitions in Eastern Europe and Asia Pacific, despite a possible drop in cash flow for Western manufacturers.

Non-store retail will continue to expand in all areas—direct sales, home shopping and Internet—across all regions. The recession in the U.S. may create additional supply of sales representatives for direct selling companies, as people will be looking for additional ways to earn money. Because many consumers will be looking for cheaper alternatives to cut their beauty expenses, direct sellers will prove to be a good solution and have the most to gain from the recession.