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The State of the Industry

By: Rob Walker, Euromonitor International
Posted: May 30, 2013, from the June 2013 issue of GCI Magazine.

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In 2012, mass cosmetics were again at the heart of the growth story, fueling over $16 billion of growth in absolute terms—compared with $4 billion for premium cosmetics. Emerging economies accounted for nine of the top 10 growth markets for mass products, spearheaded by Brazil, China, India and Argentina.

The U.S. was the only developed country in that group of top 10 growth markets, helped by a 27% surge in nail polish sales. Nail polish is now a billion dollar market in the U.S., with spending having doubled in the space of only three years. Indeed, nail polish was one of only a handful of categories in which developed markets were key to global growth last year. Strong double-digit growth was registered in Germany and France, for example. Upbeat sales in key developed and emerging markets have turned nail polish into the fastest-growing category for four years running. Sales were up 13% in 2012 compared with 6% for lipstick.

The growth trajectory of nail polish shows no sign of slowing. The probability of long-term macroeconomic instability in developed markets together with untapped growth potential in emerging markets could even see spending on nail polish overtake spending on lipstick over the next 10 years. That would have been unthinkable five years ago. The power of nail polish is rooted in its affordability as a fashion accessory. Women can show off their individuality, for example, without the need to splurge on new clothes.

The Multitasking Trend

The rise and rise of multitasking brands, such as blemish balm (BB) creams, was one of the defining trends of 2012. BB became so much of a hit that some brand owners started to attach the abbreviation to brands that were not, strictly speaking, BB creams. BB can encompass more functions than you can shake a stick at. Skin toners, moisturizers, primers, illuminators, foundation creams and sunscreens are all in the mix, and normally in one tiny package.

To build on the momentum of BB creams, the industry has ramped up development of CC (color correction) creams. They act at once as anti-agers, color correctors and UV protectors, and could become as popular as their BB forerunners. Anti-aging functionality is big business both in emerging and developed markets, and helped propel the global retail value of skin care to almost $100 billion in 2012.

Sun protection is virtually a given for the new generation of multifunctional skin and color cosmetics brands, but this has inevitably wielded a negative impact on the sun care category. Although retail sales of sun care were up 6% in 2012, buoyed by strong demand in Brazil, it was one of only two categories not to improve on its 2011 global performance.

Fragrances was the other category to show weaker growth in 2012 (versus 2011). This was due in large measure to negative cross-category competition from deodorant sprays. Young men, in particular, are using deodorant sprays as a low-price alternative to aftershave or fragrance. And some brands, such as Unilever’s Axe, even market themselves as much as a fragrance as a deodorant. In 2012, global sales of Axe broke the $2 billion mark, according to Euromonitor International.

Men’s grooming was another of the big growth stories of 2012. In Brazil, India and Argentina, the category grew by more than 20%, for example. Hair care also put in a strong performance globally. In terms of strategic development, it has taken a page out of skin care’s book, first by developing more specialized products (such as hair loss and thickening treatments) and secondly by promoting a multistep routine. For example, consumers are being encouraged to use oils, overnight treatments and hair masks in addition to shampoo and conditioner.

Balancing Developed With Emerging Market Strategy

On current trends, sales of beauty and personal care products will be higher in the emerging markets than in the developed markets as soon as 2015. This is indicative of a seismic global shift in middle-class consumption power. Indeed, the BRICs and second-tier emerging markets are virtually impossible for multinational manufacturers to ignore if they are to achieve their growth targets.

Equally, the industry needs to be mindful of relying too heavily on emerging markets to shore up growth and profitability. The success of nail polish, anti-agers, specialized hair care and multifunctional cosmetics shows that the developed markets continue to present attractive niche opportunities. These niches need to be nurtured, and new ones also need to be unlocked.

Rob Walker, senior fast-moving consumer goods analyst, Euromonitor International, can be contacted at rob.walker@research7.euromonitor.com.