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Are the Emerging Markets a Safe Haven for Beauty?

By: Rob Walker, Euromonitor International
Posted: March 2, 2012, from the March 2012 issue of GCI Magazine.

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That emerging market growth translated into an incremental retail value of $46 billion compared to $7 billion in developed markets. It would be fair to say that in the post-Lehman Brothers global operating environment, consumers in emerging markets have thrown the beauty industry a lifeline of new business.

Exposure to China and Brazil Key

The exposure of leading multinational beauty companies to emerging markets varies widely, ranging from 74% of global retail sales in the case of Avon to 30% in the case of L’Oréal, according to data from Euromonitor International. The key question is which of these players will be most insulated from a possible global economic slowdown.

L’Oréal’s comparatively weak exposure to emerging markets has been, arguably, its biggest strategic weakness since 2008. But, with the emerging markets looking more vulnerable to contagion than four years ago, could L’Oréal’s lower exposure be viewed as a strategic strength in 2012?

The most unpredictable emerging market regions are the Middle East and Africa, but none of the leading players are heavily positioned there and ought to be able to absorb any short- to medium-term sales slowdown. By far the most significant exposure is in Latin America and emerging Asia, fueled by Brazil and China—the two fastest-growing beauty and personal care markets in the world since 2008, based on incremental value. Were demand in either of those markets to slow significantly, there would be negative reverberations for a raft of companies—notably Unilever, Avon and Colgate-Palmolive.

Spreading Emerging Market Risk Will Be Increasingly Important

In the third quarter of 2011, China’s economy grew year-on-year by 9.1%, down from 9.5% in the second quarter but still a powerhouse performance. And even if economic growth continues to slow in 2012, pushed down by slower export demand from Europe, it would need to fall a long way before having any major downside impact on domestic demand, which is booming in the coastal regions and spreading inland too.