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Back to the February 2007 Issue
The Indian economy is on a high growth drive, which means that purchasing power and willingness to spend are on the rise. It also means big changes are coming to retail there. According to a recent Merrill Lynch and Capgemini’s Asia-Pacific Wealth Report, there are more millionaires coming from the emerging markets than from the developed nations. The country’s population of high-net-worth individuals (HNI) is increasing, and the report shows an increase of nearly 20% in 2005 over the previous year. India reportedly has the youngest HNI population in the Asia-Pacific region.
In fact, more Indian women in age group 25 to 45 are also in the HNI category. With increasing globalization, the young Indian woman has realized the importance of always looking good. All this has translated into a demand for high-quality and high-end skin care and color cosmetics. This awareness has been developing throughout the past five to six years, and industry experts believe that 2006 was the year when the Indian skin care and cosmetics market attained a certain level of maturity.
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Talking about the market, Didier Villanueva, MD, L’Oréal India, says, “The Indian middle class is growing rapidly and so is its demand for the best quality products. Today they want to use the international brands whether they are mass market or premium.”
Agreeing with Villanueva, Hemanshu Kotecha, MD, Baccarose, one of the leading distributors of international brands, says that the Indian beauty product buyers are highly aware of all the international launches. “We are surprised by the swiftness with which we get demands for products launched in more developed markets such as the U.S. or Europe.”
Both skin care and color cosmetics have seen steady growth throughout the past five years. Color cosmetics have been growing at a steady rate of more than 30% annually during this time. According to the latest Euromonitor report on the Indian cosmetics and toiletries market, the color cosmetics market stands at $113.4 million and skin care at $346.9 million.
Toni Parisi, head of marketing, Middle East and Indian subcontinent, fine fragrances and cosmetics, Procter & Gamble, which launched its MAX Factor cosmetics in the country, feels that there is an increasing aspiration among the upper- and middle-class women for globally well-known products. Seeing the increasing buying power in the young crowd, L’Oréal India, which is one of the area’s leading brands, specifically targets young consumers with focused promos and events. According to Binita Cooper, general manager, L’Oréal Luxury Division, the women with disposable income have started to spend on themselves and they are as discerning customers as the women in more aware and mature markets.
In India today, the increasing number of women in age group 22 to 45 are becoming independent, have disposable income and the decision-making power to buy what they want. This emerging category has caught the attention of leading global luxury brands, with most in the process of either setting up or expanding their presence in the market.
Influx of Global Brands
From market research reports, it is quite evident that the cosmetics and toiletries industry in the developed markets has reached maturity and is showing sluggish growth, while countries such as India, with its growing economy, offer a great growth potential to large cosmetics multinationals.
Thus the Indian color cosmetics and skin care market throughout the past two years has seen increased activity, fueling a growth of 20% last year, according to a recent study by the Confederation of Indian Industry. The market saw the entry of several brands, including MAC Cosmetics, Chanel, Givenchy, Versace, Red Earth, Body Shop, Christian Breton, ArtDeco and MAX Factor.
According to industry experts, 2005 and 2006 were the years of color and skin care for the market, when most leading players either entered directly or through distributors, or repositioned their marketing strategy to meet the demands. There has been an international entry at every consumer segment, but, surprisingly, the high-end cosmetic retail segment saw maximum activity.
In the premium segment, Chanel was a prime mover, entering the market in 2005 directly through a subsidiary instead of a distributor. Similarly, Estée Lauder set up its India office and brought in MAC Cosmetics for the professional and serious makeup users. Brands such as Givenchy and Versace set their sights on the Indian market through distributors. L’Oréal Luxury Division was launched in the country in January 2006. The company has started marketing Ralph Lauren and Cacharel brands.
Cooper said L’Oréal’s Luxury Division entered India this year after a long research phase and upon seeing a satisfactory level of consumer awareness. It is still working out the right retail strategy to make an impact and bring in its other brands including Lancôme, Shu Uemera, and Biotherm. Meanwhile, distributors for brands like YSL Beaute, Shiseido, Kenzo, Elizabeth Arden and Clarins developed unique promotional events to refresh the brands image among the target consumer segments.
In the high-end market, players such as MAX Factor, Body Shop, ArtDeco and Red Earth have set up shop in the country. But most of these companies have entered the market through leading distributors such as Baccarose, Quest Retail, MKP Distributors and AP Distributors, respectively.
During the launch of Body Shop’s store in Delhi, Dame Anita Roddick, company founder, said that while it entered India relatively late, its plans to have 50 stores in the next three years are ambitious.
“Since June 2005 when Body Shop entered the country, we have found tremendous response from those who are familiar with the philosophy and products of Body Shop,” says Arun Bhardwaj, MD, Quest Retail Pvt Ltd., the Indian franchisee for Body Shop.
The big global brands in the Indian market are not only setting up shop but also looking beyond expansion strategy. This is leading the big retail companies to restructure some of their growth plans to attract more beauty companies into their shops.
There is an obvious excitement in the Indian retail sector. Reliance and Aditya Birla Group, big business houses, are entering the retail sector, while existing names such as Shopper’s Stop, Lifestyle, Pyramid and Pantaloon are restructuring their business strategies to foster growth in the Indian cosmetics and toiletries market.
Besides expanding the floor area of their shop-in-shop concept, the retail companies are also tying up with the big beauty brands to promote stand-alone branded beauty stores. For instance, Shoppers Stop, one of the leading names in the retail sector, has set up the stand-alone store for MAC Cosmetics in Mumbai. According to Alexis Szabo, regional director for the Middle East, India, Africa and Turkey, MAC Cosmetics, the company has a backstage partnership with retailer Shoppers Stop, as the right space is very important. MAC plans to open a second boutique in Mumbai followed by Delhi and Bangalore. The company plans to have five stand-alone stores in India in the next three years.
According to sources, Shoppers Stop is in the process of re-evaluating its strategy to ensure the best blend of beauty brands and how they can be showcased to consumers to translate footfalls into actual transactions. While expanding its area for department stores, the company also is collaborating with major beauty brands to develop stand-alone stores for them. It is now ready to create brand stores for Clinique and Lancôme when the companies decide to enter the market. Despite the steep import duties on cosmetics, up to 110% on luxury brands, Shoppers Stop is positioning itself strategically to push brands such as MAC, Clarins, Shiseido, YSL and Elizabeth Arden in the Indian market. It is known from sources that the company is already seeing a return on its investments on the luxury brands.
In fact existing luxury brands such as YSL Beauté, which has been refreshing its push in the area, is keen on strengthening its position as a prestige brand and aims to be available in all the growing locations across the country. Meanwhile, latest entrant Givenchy is aiming at 50 shop-in-shop outlets and at least two brand stores here in the first year of its presence in the market. It will retail through major retailers such as Lifestyle, Shoppers Stop and Pantaloons across the country.
With several malls coming up in Hyderabad, Chennai and Kolkata, as well as in Delhi and Mumbai, sales of luxury cosmetic brands are expected to double in the next year. Currently 10% of total retail sales are from the luxury cosmetics brands here.
Focus on New Markets
Until now the major luxury brands have focused on Delhi and Mumbai since these two cities have the maximum purchasing power. But of late, Bangalore, Chennai and Kolkata also have emerged as potential markets with economic growth in these areas. Interestingly, 2006 also saw the emergence of what are called the tier II cities as launch destinations of some luxury brands.
While Chanel opened its first boutique in Delhi and Ralph Lauren came to Mumbai, skin care brand Lancaster Cosmetics and Christian Breton launched their products first in Hyderabad and Ahmedabad respectively. Christian Breton, founder of the eponymous brand, said that Ahmedabad was selected for the India launch because of the city’s emerging status as a metropolitan city with people having purchasing power and a desire to improve their lifestyle. Other cities that hold great potential for the global brands are Chandigarh, which has a growing cosmopolitan population, and Jaipur, where the purchasing power is growing rapidly, according to recent market studies.
Poised for Growth
The influx of the many global cosmetic brands in India throughout the past year shows that the cosmetic retail market is ready to leap into the next phase of growth. The brands now have started investing heavily on promotions and advertising, and they are willing to wait a while to get their return.
Nevertheless, the high rate of import duty is also encouraging the illegal distribution channel here. While there is an increased awareness and willingness to buy, many consumers are still very price-conscious, which means extra efforts on the part of these global luxury brands to promote their products is necessary. Seeing this, some premium brands such as Estée Lauder, Clinique and Lancôme are taking their time to study the situation.
“We have done research that shows which market is ready, but we are taking our time because we want to target the market with the right set of products. We want to give our consumers the right shopping experience and make the right brand statement,” says Paul Slavin, brand manager for Middle East, India and Africa, Clinique.
This is the time when the Indian market is growing and consumers are looking for newer shopping experiences and products. It is the perfect time for any global cosmetics and skin care company to make a splash.