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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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Brazil could be more vulnerable than China to a European recession. Indeed, the country’s president Dilma Rousseff has been warning of tougher times ahead. And the latest figures seem to bear this out, with the economy contracting marginally in the third quarter. However, Brazil has a strong banking sector, substantial international reserves and, crucially, consumers that are fundamentally spenders rather than savers.

All things considered, exposure to China, Brazil and other first-tier emerging markets should continue to yield a positive rather than a negative influence on the balance sheets of beauty companies in 2012. Growth might well be weaker than in 2011, but strong BRIC positions will continue to be a central factor in how well a company performs globally.

Emerging market growth is not all about the BRICs, however. In 2011, those four countries fueled collectively some 54% of incremental beauty growth in the emerging markets, but that still left second- and third-tier emerging markets accounting for an incremental growth value of some $8 billion. Of those, key growth markets included Mexico, Argentina, Indonesia, Thailand and Turkey, according to data from Euromonitor International.

Going forward, beauty companies ought to look at strengthening their positions across a broad range of second-tier emerging markets, not least to dilute some of their growth dependency on the BRICs. Some of these second-tier emerging markets carry significant investment risk. But, as the global economy tilts toward a potentially protracted downturn, risk is central to strategic planning if companies with a global outlook are to keep their bottom lines healthy.

Rob Walker, senior fast-moving consumer goods analyst, Euromonitor International.