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State of the Industry: Bright Spots Remain in Down Market

By: Carrie Lennard, Euromonitor International
Posted: June 5, 2009, from the June 2009 issue of GCI Magazine.

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Thanks to the perception of hair care as an essential rather than luxury product, hair care’s growth rate dipped by only 1% in 2008, against 2007’s numbers. As in bath and shower, there was widespread discounting in mature markets, and North America actually recorded a decline of 2% as consumers traded down from premium-priced salon hair care products to less expensive brands and private label, a trend that was mirrored at a global level, and salon products was the only category to record a decline in 2008. Sales in the majority of the emerging regions were more promising. The performance of hair care in Asia and Eastern Europe was virtually identical to that of 2007, as penetration of more expensive segmented product types, such as antidandruff shampoo, continued to increase. In China, for example, the share of Head & Shoulders was up from 2007.

Antiagers Defy Trading Down Trend in Skin Care

Although widely regarded as one of the areas of cosmetics and toiletries considered as essential, and therefore more likely to be better able to weather a recession, the skin care sector still took a knock in 2008; its global rate of increase dropped to less than 6%. Consumers clearly prioritize age-prevention above all else, as nourishers/antiagers was the only skin care category not to be hit at global level. Asia was the primary regional demonstration of this prioritization, though consumers there traded down to mass brands such as Olay. In North America, premium skin care products, with the exception of nourishers/antiagers, posted a decline.

Lipstick Theory Falls Slightly Flat

A 2% slowdown in growth of color cosmetics globally, hitting 4% in 2008, indicated that the long-heralded “lipstick effect” theory—which holds that sales of color cosmetics go up during times of economic duress as consumers who cannot afford big-ticket luxuries console themselves with little treats such as lipsticks—is not as applicable in the current recession as in previous ones. On the whole, emerging markets maintained their 2007 color cosmetics expansion rates far better than developed regions—with North America, Western Europe and Asia all showing a drop. As these regions were hit by the recession earlier than the emerging markets, it is evident that sales of color cosmetics are far more closely linked to economic performance than the beauty industry had hoped. For example, Asia was impacted particularly hard due to its high dependency on manufacturing exports to Western countries High-end brands were also hit much harder than their mass counterparts. Premium color cosmetics sales were down across all regions compared to 2007—with the notable exception of Latin America, which bettered its previous results by a third to achieve growth of 12%. The global economic crisis affected consumption in many Latin American countries later than other more developed markets, and countries that have been experiencing fairly strong growth in recent years—such as Chile, Colombia and Peru—have yet to be as strongly impacted as the rest of the globe, although fourth quarter sales in these countries did dip.

BRICs Are Key for Growth

As North America is set to decline in the coming five years, the BRIC nations (Brazil, India, China and Russia) are going to be crucial for future growth in the industry—with these nations expected to be the four biggest contributors to absolute growth, according to Euromonitor International. The Chinese personal care market alone is set to expand by more than $7 billion 2008–2013, and the continued migration of the population from rural areas to large cities as well as the adoption of Western attitudes to beauty will be important for generating this growth. Baby care and skin care are the key product areas that will survive the recession better than other product areas, both with predicted 3% constant value growth 2008–2013. Consumers remain very unwilling to make sacrifices when it comes to their children, and the threat of an uncertain, youth-focused job market will perpetuate the boom in antiagers.

Carrie Lennard is a research analyst at Euromonitor International.