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State of the Industry
By: Rob Walker, Euromonitor International
Posted: June 1, 2012, from the June 2012 issue of GCI Magazine.
page 2 of 3Although nail polish is still a comparatively small category, accounting for 9% of global color cosmetic sales in 2011, its growth story could be on the verge of a tipping point, particularly given the probability of long-term economic sluggishness in developed markets and the untapped opportunities presented by emerging markets. China and India have low impact retail nail care, for example. There could be more M&A activity in 2012 and 2013, following the U.S. model of bringing salon brands into main retail channels. Independent salon brands to watch include the UK’s Nails Inc, France’s Nailstation and Germany’s Art Deco. What is clear is that Western markets, not simply first-tier emerging markets, will be at the frontline of growth. And that alone makes new investment in nail polish attractive.
Growth in Prestige
Globally, retail sales of premium beauty care were up 5% in 2011, the best performance since 2007. Premium hair care was a standout category, growing by 10% in 2011 thanks to upbeat demand for brands such as John Frieda and L’Occitane, notably in Western Europe. And among the weightier premium segments, prestige fragrances were big winners, generating global growth of 6% in 2011. That was equivalent to $1.4 billion of incremental value against $1.1 billion for mass fragrances.
Concurrent with trends in nail polish, the U.S. was the key growth story in premium fragrances, fueling $582 million of incremental value compared with $184 million across Western Europe, which was dragged down by contractions in Spain, Portugal and Greece. Armani Code (L’Oréal) and Prada For Women (Puig) performed particularly well in the U.S., with sales climbing by 70% and 126%, respectively.
There was a stronger strategic focus on developing premium fragrances with an artisanal, unconventional or limited edition profile in the second half of 2011 as brands sought points of competitive differentiation. Armani Prive La Femme Bleue, for example, was limited to 1,000 bottles. This type of limited edition branding could become more visible as companies look to create a buzz around their umbrella brands.
Of the emerging markets, the most significant growth in premium beauty care was seen in China, where sales increased by 18% in 2011. Artistry (Amway), Lancôme (L’Oréal), Estée Lauder and Shiseido showed the biggest incremental value. China is now the sweet spot of premium and super-premium beauty care investment, with multinational companies falling over themselves to entice the country’s one million millionaires and burgeoning middle class.
Brazil Retains Top Spot
Brazil retained its position as the biggest beauty care spender of the emerging markets in 2011, although growth softened in line with a stuttering of the economy and inflationary pressures. Brazil is, however, still on course to leapfrog Japan as the second biggest market in the world (after the U.S.) by the time it hosts the FIFA World Cup in 2014. The leading beauty companies and retailers in Brazil will ramp up their advertising and promotional activity around the World Cup with its vast global television audience, and also around the Olympics, which will be hosted by Rio de Janeiro in 2016. As a result, both events could trigger new surges in Brazilian consumption of beauty products.
Direct sales continue to be a major distribution channel in Brazil as well, particularly in the prospering (but still fundamentally low-income) states of the northeast and central-west. This reflects the positive way Brazilians respond to the personal touch of one-to-one selling. Sales agents also typically live in the same neighborhoods as the households they sell to, which is a big advantage when it comes to building relationships with consumers.