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Color’s Emerging Strategy Urges Trade Up

Briony Davies, Euromonitor International

Women the world over view color cosmetics as a staple of their beauty regimen—products can radically enhance external appearance in a matter of minutes without requiring any long-term procedures that cause pain and undo expense. Subsequently, the sector is usually one of the first to take off in emerging markets, meaning that a company’s strategy has to focus on encouraging consumers to trade up to value-added products that can command premium prices to achieve year-on-year growth. Economic conditions can determine the success or failure of such an approach, as was apparent in 2004. In spite of a flurry of product innovations, contractions in the economies of both the United States and Japan (the two largest markets in the world for color cosmetics) curtailed global growth. In contrast, 2005 marked a reverse in fortunes with an increase in sales in fixed exchange terms for both markets of 1.8% and 3.6% respectively. This resulted in color cosmetics growing at almost double the 2003–2004 rate in 2004–2005.

Emerging Markets Outperform

Although Western Europe managed to overtake North America in terms of market size for the first time in 2005, it alone presents insufficient opportunity for manufacturers with intentions of global domination. Forecast average annual growth of 2.5% through 2010 is diminutive in comparison to those of Latin America, Eastern Europe and even Asia Pacific, which is due to be buoyed by China and India.

Development since 2000 in both Latin America and Eastern Europe is underpinned by the increasing spending power of working women (which has a knock-on effect on sales of premium and upper-mass products), economic recovery in the large markets of Brazil and Russia, and the influx of women’s magazines that disseminate Western fashion trends—which heavily influence purchases of color cosmetics.

Sales also were influenced positively by the success of direct selling companies such as Avon, Mary Kay and home-grown Natura and Faberlic, which offer consumers good quality products at highly competitive prices. Avon’s creation of a stand-alone division in 2005 to focus on Central and Eastern Europe, to accompany the existing Latin American unit, further indicated the strategic importance and long-term potential that these regions offer to the leading manufacturers of color cosmetics. The trend for women to apply makeup “under the veil” indicates that Africa and the Middle East should also be a territory for future consideration.

Ukraine, China and India Inspire

Given that disposable income, although rising, remains low in the Ukraine, it is notable that color cosmetics, with double-digit growth in 2005, is the most important segment in that country, almost twice the size as the next largest sector—hair care. Use of color cosmetics quickly has become engrained in Ukrainian psyche, with girls as young as 13 using color products on a daily basis. Chinese consumers have not been as quick to come to terms with the sector, with many women opting to use makeup on special occasions only; however, its large population and rising salaries mean that huge growth (of almost 70%) is forecast through 2010. Manufacturers will have to concentrate on educating women to ensure that color cosmetics become engrained in the daily beauty regimen; the launch of women’s magazines such as Vogue in China in early 2006 will ensure that they have a vehicle to spread the world.

Although India is renowned for its use of makeup—Bollywood springs to mind—the size of the market is relatively small, as many Indian women still rely on natural, homemade products. In spite of this, growth in Indian color cosmetics over the last year was the highest in the world, with a 34% increase in sales. In 2005, Coty launched the Lancaster range in India and Estée Lauder followed suit with MAC—indicating that the area is of strategic importance to manufacturers. India has the world’s second largest population behind China, and is poised to see strong growth in disposable incomes over the next five years. Currently, premium launches seem to dominate, but with Hindustan Lever, L’Oréal India and Modi Revlon as the leading players, Coty could do well to concentrate on the mass market and develop a robust strategy for its Rimmel brand.

Makeup Finds Muse

The largest sub-sector within color cosmetics is facial makeup (foundation, concealer and blushers/bronzers/highlighters) with sales of $12.3 billion in 2005. At a global level, it is evolving at only a slightly higher rate than color cosmetics overall, however the possibilities that lie in Latin America and Eastern Europe are attractive. Western Europe, given its status as a developed market, is still displaying strong growth in this area. New product developments—such as a flood of foundations with antiaging properties, including Cover Girl from P & G and Clinique Repairwair from Estée Lauder—will drive the sector forward in mature regions. Numerous launches of foundations that claim to ‘harmonize exactly with the skin tone,’ such as L’Oréal’s Lancôme Color ID Precise Match Weightless Makeup SPF8, illustrate that manufacturers in color cosmetics are attempting to make similarly advanced claims as they do in skin care. The fashion for a sun-kissed glow without exposing the skin to the harmful effects of the sun is also ensuring growth in blushers/bronzers/highlighters in Western Europe. Even the Latin American’s have been influenced by educational campaigns that encourage skin protection at all times—leading to phenomenal growth in blushers/bronzers/highlighters.

Eye Makeup Stays Dynamic

Eye makeup, with 4.8% growth in 2005, is the most dynamic sector in color cosmetics. Double-digit growth is evident in Latin America and Eastern Europe, attributable to economic recovery and rising per capita income. Innovation in Western Europe has enabled the sub-sector to grow faster than the global market; the success of two-step products—as exemplified by the double ended mascaras launched by L’Oréal (Volume Shocking) and Revlon (Fabulash)—indicates that manufacturers have been victorious in convincing consumers to curb convenience for great results. The “masstige” positioning of these products also inject vigor into eye makeup as it allows major players traditionally considered as mass to command more premium prices.

In contrast, eye shadows in Western Europe are rising at a slower rate than the world overall. The lesson that novel ideas combined with careful marketing can re-ignite growth, as demonstrated in mascaras, could be applied to eye shadows; L’Oréal’s HIP range, which takes nanotechnology from skin care into makeup, features an eye shadow palette that is likely to be successful. The eye makeup sub-sector is growing at a particularly low rate in Asia-Pacific. Attempts at revival are being undertaken by companies such as Shisiedo, which has launched high-end products in 12 categories—including vibrant eye colors with light-enhancing components in hopes of recovery in 2006.

Lips Remain Lustrous

As per previous sub-sectors, outstanding performance in Latin America and Eastern Europe has outweighed slowdown in Western Europe and North America to enable lip products to remain the fastest growing sub-sector in color cosmetics in 2005. Although lipsticks take the lion’s share of the sector, with more than three times the sales of glosses, fashion trends for shiny pouty lips are ensuring that glosses gain ground with double the growth of sticks. The largest markets for lip products are the United States, Japan and China. However, China’s per capita spend remains low, indicating that manufacturers can further exploit this market—key to this will be challenging Chinese consumers’ perception of color cosmetics in general.

Benefits from skin care are incorporated in this sector, especially in developing markets, resulting in the emergence of lip plump products that seem set to become a product line essential. Many manufacturers have targeted aging baby boomers with their lip plump launches, touting product ability to create younger-looking lips. However, appeal of plumper lips is not just constrained to consumer fighting the signs of aging. Current fashion trends for fuller lips means that the appeal of lip plumpers extends to younger consumers trying to recreate the pout of celebrities. Lip plump products are particularly popular in glosses, although manufacturers could introduce the category into lipsticks to swell future growth projections.

Tap into Trends

Leading industry players have been made aware of key sectors and markets to tap into, however to be unaware of prevailing trends in the driving markets of the United States, the UK, France and Japan could result in disaster. The rising disposable incomes of ’tweens and teens are creating distinct segments that manufacturers are eager to exploit—the “age compression” phenomenon means that this generation favors electronic goods and color cosmetics over toys. L’Oréal’s launch of Puremakeup indicates the company’s desire to maximize the potential of this consumer group. The influence of celebrities, not restricted to this demographic, has also been exploited by Estée Lauder’s Flirt. The company signed tennis ace Serena Williams to become the latest celebrity to work on the range when she takes over the baton from actress Mila Kunis, last season’s guest creator. This is expected to help maintain strong sales for the brand through fiscal 2006, and is likely to be a strategy employed by others.

Dual Challenges Arise

The expansion of color cosmetic lines to include specific products for ethnic skin tones has been apparent over the past year. Prescriptives now offers Colorprint to suit ethnic skin tones, and MAC uses Missy Elliot, Mary J Blige and Little Kim to promote its products. In the United States, Hispanics, African-Americans and Asians accounted for around one third of the population. This is projected to increase by more than 13% to 95.6 million by 2010, while the overall U.S. population is expected to grow by just over 5% during the same period. Consequently, industry players are expecting retail sales of ethnic-specific color cosmetics to rise. However, manufacturers will need a focused distribution and advertising approach to make the greatest impact among ethnic consumers in order to overcome unique challenges that the category presents.

Private label ranges also are set to challenge color cosmetic makers’ ability to grow the market further—especially in the UK and Germany where consumers are becoming less concerned about brands and choosing quality goods at low prices. In the UK alone, three private label ranges have been launched in the last year. Manufacturers need to think about how they are going to combat the effect of low prices in this sector.

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