The worldwide C&T market last year certainly saw several economic ups and downs with bad news and losses mixing with positive results and successes. Perhaps this was only to be expected as just three months earlier the markets had faced the largest bankruptcy ever in US history. The failure of the Lehman Brothers bank caused the largest economic drop in a single day since the days following the World Trade Centre attacks on 9/11. Repercussions were felt in all sectors of the economy, including the cosmetics industry, and recession took over credit crunch as the most used buzz word in all sectors of the economy. It was only natural that this industry be affected, along with practically every other.
The question was whether consumers, women in particular, would sacrifice their beauty products in hard times. What appeared more evident throughout the ensuing months was that consumers were cutting back on actual cosmetic treatments more than on the products themselves.
This rang true for the Regis Corporation, which was badly affected by the financial downturn. The hair care giant, whose brand concepts include Supercuts and Sassoon Salon, was hit hard by consumer cutbacks and the company blamed reduced revenues on the deconsolidation of its European franchise salon operations.
The lipstick effect
Meanwhile the much touted lipstick effect was at the centre of a lot of discussion. It is often perceived that in the face of an economic crisis, sales of lipstick go up and many manufacturers were hoping this would be the case during this recent crisis.
But as research from Mintel shows, this didn’t happen in 2009. Last year women were choosing other basic cosmetics over lipsticks as they started to place necessity items over luxury products. The research, conducted in France, the UK and the US, aimed to monitor how consumers were reacting to beauty purchasing in the face of economic concern. It found that only a very small number of consumers were actually purchasing lipsticks. Just 3% of women said they purchased a lipstick to feel better these days and in fact lipstick came at the top of a list of cosmetics that women would actually spend less on or stop using entirely, according to the research.
Mintel’s findings also highlighted the fact that the beauty industry as a whole was weathering the storm admirably, with six out of ten women surveyed reporting that they had not changed their beauty buying habits.
Ups and downs
Last year, companies stayed positive and put out their best weapons to survive and even impress those who thought they would crack under the strain. For example, the popularity of Johnson & Johnson skin care lines such as Neutrogena and Clean & Clear grew. At the end of 2008 the company posted sales up by 4.3% on 2007 to total $63.7bn, a strong performance that was also due to an increase in international sales.
Disappointing news came instead from some of the other big players, with L’Oréal announcing that it was going to cut 500 employees in the US last year. That meant 4.5% of its total workforce in the US being lost with the official reason given being that the French multinational needed to “streamline its activities”. L’Oréal had already closed its production plant in South Wales the previous summer making 200 staff redundant so the latest news was unpopular to say the least.
But businesses kept on putting on a brave face in the face of the financial unease. P&G was very ambitious, planning further expansion overseas. In January the Cincinnati-based multinational announced that the 20 new manufacturing plants that were due to open in the coming four years were going to be outside of its established markets and in developing markets instead, an indicator that business is booming.
Mineral make-up pioneer brand Bare Escentuals announced the opening of its first boutique in the UK, in London’s Covent Garden. This is also the first standalone boutique for the company outside the US which is surely a sign that business is good.
Unilever posted encouraging Q2 results in June 2009, bucking the credit crunch. In August 2009 the multinational posted volume growth of 2% while underlying sales grew by 4.1%, a much better margin than previously forecast.
Throughout 2009 results remained mixed for the big players – the Estée Lauder Group cautiously lowered its expectations for the fiscal quarter ending 30 June 2009.
In more worrying news, French giant Chanel had to cut about 200 jobs amid fears that major research work taking place at its laboratory at Pantin, as well as investment projects on the group’s production sites, might be threatened as a result of the crisis. Meanwhile, US hair company Helen of Troy blamed its poor performance on consumer austerity triggered by market instability, a volatile stock market and an increase in unemployment rates.
Procter & Gamble reported a mix bag of results for the fiscal year ending 30 June 2009. The consumer goods giant’s net sales decreased by 3% to $79.9bn, with organic sales – excluding the impact of acquisitions, divestitures and foreign exchange – up 2%.
Europe exceeds expectations
A number of companies lost sales in North America but held firm in Europe in the past year. For instance Beiersdorf’s C&T activities were affected by the recession with sales hit especially in the US, but the overall drop it experienced was only a fairly minimal 2.5% overall.
Companies such as Germany’s Douglas Group could not complain either as it reported a fruitful 2008 with a 4.6% increase in sales to t3.1bn. The 445 perfumeries that it owns in the country increased sales by 4% to over €916m.
Strong sales were also reported by another German company, Henkel, which declared increased sales by 8.1% to €14.13bn in its 2008 Annual Report. Its cosmetics and toiletries business, including the Schwarzkopf, Fa and Dial brands, totalled €3.01bn in 2008, a rise of 1.5%.
Consumer purchasing trends soon became clear, with many buyers trading down and choosing either low priced beauty items or spending more on one quality item rather than buying several.
In Europe the C&T sector proved to be a resilient one on the whole. However when the effects of the downturn really started to hit home, data from TNS Worldpanel showed that certain categories within the C&T industry were beginning to feel the pinch. What has been noticeable is that these losses were often very small and had been forecast and therefore not a surprise. This indicates that while consumers had inevitably tightened their purse strings when it came to beauty, they had continued to part with their money for offers and promotions that savvy marketers created in order to tempt them.
A natural progression
While the C&T market was feeling the pinch, new trends were also evolving, often in line with a new type of consumer who is very aware of environmental and health issues.
While the 1980s and 1990s had been years of excess and overblown consumerism, the new millennium largely represented the return to simplicity. Even in the luxury sector, consumers were demanding effective products rather than pricey, niche treatments and this often meant the return to natural. The term ‘austerity chic’ became the buzzword of 2009 and Italian fashion guru Moschino used the occasion to launch a Cheap and Chic scent diffusion range.
Despite the hard times, the organic C&T market was deemed strong enough to avoid the major effects of the recession. According to The Soil Association while consumers were abandoning organic food purchases as a result of the recession this was not the case for organic cosmetic products. The Soil Association’s 2009 Organic Market Report found that 2008 was a year of rapid
growth for certified organic products, with UK sales reaching £27m, an increase of a huge 69% on 2007.
But according to Naturorganics, a report by marketmonitor.com, major organic and natural brands were losing out to niche newcomers somewhat, as consumer demand for new ethical products grew. While L’Oréal’s The Body Shop and Kiehl’s brands and Estée Lauder’s Aveda and Origins brands still dominated the sector in terms of advertising, their editorial coverage has been shrinking because of the newer brands emerging and making their presence felt.
Certification matters
In July the much-awaited Cosmos standard was published in a move towards harmonisation of minimum requirements for organic and natural cosmetics. Such issues had started to become very important, as consumers were feeling the need for clarity and transparency when it came to natural and organic products.
Meanwhile two major fragrance creators, CPL Aroma and Symrise, announced that they were making progress in the creation of organic aromas, with Symrise gaining USDA Organic Certification from the National Organic Program (NOP) in the US.
The UK meanwhile was at the forefront of the certification of Fairtrade cosmetic products. The first five British companies to sport the Fairtrade Foundation mark on their packaging were Boots, Lush, Neal’s Yard Remedies and two new companies – Bubble&Balm and Essential Care. Harriet Lamb, the executive director of the Fairtrade Foundation, said at the time: “This trend is soon going to take off worldwide, with farmers who grow natural ingredients in developing countries able to get better trade deals due to the Fairtrade scheme.”
In 2009 the popularity of botanical products also soared, driven by the popularity of natural products with consumers. According to a report by Kline & Company that covered the US and Europe, botanical consumption was increasing at a rate of 8%, much faster than the consumption of other speciality actives. The report stated that if a synthetic product and a botanical one are offering the same efficiency, the botanical active will be the formulator’s first choice.
The growing interest in high quality and safe products also brought about the rising demand worldwide for halal cosmetics. Driven by the most affluent Muslim consumers, sales of halal-certified cosmetics soared throughout 2009. Estimates for the global halal market stood at $547bn according to the Malaysian Industrial Development Authority and at $2.1trillion as reported by most media.
In line with the above ethical mindset, 2009 also saw two important animal testing bans come into force. Originally decided in 2003 for the Cosmetics Directive (76/768/ECC), the bans aim at ensuring the safety of ingredients used in cosmetic products.
The first ban prohibits testing on animals to assess the safety of ingredients, while the second ban prohibits the sale of cosmetic products that contain ingredients tested on animals.
The second ban will be absolutely enforced by 2013 to allow manufacturers time to adjust their working practices to fit in with the legislation.
Worldwide, the sights of the C&T industry remained focused on animal testing. Key regulatory agents signed an international agreement to work together to significantly reduce the number of animals used in
experiments worldwide. The Japanese Centre for the Validation of Alternative Methods, the European Centre for the Validation of Alternative Methods (ECVAM), the US national Technology Program and Canada’s Environmental Health Science and Research Bureau all initialled a memorandum of co-operation. The new memorandum will see them work together to develop harmonised recommendations on regulatory issues.
Sector focus
Looking at the different segments in the past year throughout France, Germany, Italy, Spain and the UK it seems the most successful ones stood out clearly as colour cosmetics, facial skin care, deodorants and men’s lines.
Colour cosmetics had a dynamic year, with all Big 5 countries reporting an increase in value terms and proving that no financial strains could dampen consumer appetite for innovative, and above all colourful products.
In France the sector saw a rise of 3% to an estimated t3bn. Facial cosmetics accounted for the largest market share at 36%, with eye make-up next in line at 33%. The lip sector was the only one to decline in value with sales slipping by 2% in 2008. In France there was no evidence that the recession had hampered launch activity. However value remained the key to sales, and additional benefits such as moisturising, anti-ageing and enhanced performance, largely influenced by the skin care sector, were a major draw. But looking at the wider effects of the recession, French consumer habits were affected, with a number of women reporting that they had cut back on cosmetic purchases and that they would maintain current levels of spending even once the economy improved.
In Germany the colour cosmetics sector grew slowly but surely, totalling €555.57m in the first six months of 2009. Here the eye category took up a 37.3% share of the market and facial make-up followed with a 34.9% share. Meanwhile, nail products had the best year in Italy and ranked top of the category putting on 6.8% to total €323.21m, while in Spain all sub-sectors posted positive growth with the exception of lipsticks which declined a surprising 4% in value and 3.5% in volume terms. In the UK sales increased by a massive 8.4% with facial products accounting for 44.4%. Eye products were next with a 38.6% market share.
Facial skin care remained buoyant across all countries in the Big 5 where consumers kept investing in their skin care routine, with anti-ageing being on top of their requests.
Deodorants remained a positive sector for all the Big 5 too, with France showing growth of a staggering 10.1% in 2007 to total €647.8m. Another sector that didn’t disappoint was men’s lines where good results were seen in all Big 5 countries with France and the UK driving the sector in particular. In the UK, male deodorants held an impressive 34.5% market share, followed next by the stalwart razor blades at 27.2%. Skin care sales leapt by a huge 33.6% in 2008 taking its market share from 9.7% in 2007 to 11.9% overall.
Less fortunate was the hair care sector that reported mixed results – France and Spain made losses while Germany, the UK and Italy all made gains. Germany’s gain was the most impressive at 6.2% while France, traditionally a stalwart of the hair care category, slipped by a worrying 3.2%.
According to data from IRI Germany, the German hair care market, including hair care products and colourants, totalled €1.16bn in 2008, a rise of 6.2% in value terms.
In the UK, the lion’s share of the UK hair care market was held by shampoos at 32.5% while conditioners took second place with 22.5%. The rest of the category was taken up by hair colourants, styling aids and women’s hairsprays.
In Italy, against all expectations, the hair care market grew by 1.4% in 2008 and the segment totalled €955.66m. The major driver in the Italian market was that of colourant products, with easy-to-use and time saving products being the real attraction for Italian consumers who have always taken a keen interest in their hair.
One sector that saw a mixed performance was body care. France, Germany and Spain all had a drop in sales while Italy had almost static results. The UK was the exception to the rule here, reporting very high growth rates. TNS Worldpanel reported that in 2008 UK body care sales stood at £330.56m in value terms, a rise of 6.9%, while volume figures were up by 4.4% to total 20.56m units. The results were even more impressive since during the same period in 2007 the body care sector reported a drop of 3.2%.
The worst performing segment by far was that of hair styling as every country saw losses in this area. The recession definitely made its mark on this sector as things were even worse than in 2007, which was disappointing in itself. Unlike its counterpart hair care, hair styling seemed to fall into the category of items that had been deemed of low importance, therefore sliding down consumer’s priorities.
Spa fortunes
The women’s fragrance market had mixed fortunes, with Italy showing just small growth and Germany being practically a non-mover. However the UK, Spain and France saw significant growth.
With regards to the spa segment, consumers showed a healthy interest in the category. Spain however, which counts heavily on its tourism industry to attract visitors to its hotel spa trade, was hit hard by the recession simply because less people were taking holidays over there. In turn medi (medical) spas offering cosmetic treatments such as botox and facial fillers, were on the rise. Increasingly competitive markets made it challenging for manufacturers to survive while day spas gained popularity, as consumers could no longer afford long spa weekends because of financial constraints.
Legal implications
Last year was also a year that saw some legal battles going on in the C&T market and new legislation coming into effect.
After many years of consultations, the somewhat confusing Cosmetics Directive was eventually streamlined into a clearer, more defined single regulation, applicable to all member states. The underlying philosophy of the original directive remains unchanged with its key aims being be safety, being able to demonstrate and give adequate information – but it’s been consolidated to allow for a more comprehensive and legible regulation for all countries involved. The main objectives of the regulation are to favour further EU harmonisation and provide an unrivalled level of protection for human health.
Meanwhile, the ‘eBay vs L’Oréal’ court battle began in April with L’Oréal starting action against the online site eBay at London’s High Court. The French cosmetics behemoth was already going through legal proceedings against the online auction house in France, Belgium, Germany and Spain. L’Oréal had accused eBay of selling goods that are either fake or sourced from outside the European Economic Area. By June, courts both in France and the UK ruled in favour of eBay in two separate cases. The online seller also planned to launch a Verified Rights Owner (VeRO) programme to persuade companies to work alongside it to tackle the issue of counterfeit products online. However, the problems weren’t over for the online auction site and it was fined t1.7m in November 2009 for allegedly selling counterfeit LVMH perfumes illegally online, including Dior, Givenchy and Kenzo brands.
Counterfeiting was also being taken seriously by the newly launched European Observatory on Counterfeiting and Piracy, established to fight intellectual property criminals faking items such as cosmetics. The new institution, set up in May last year, was created to collect data on counterfeit goods, raise awareness and circulate views on enforcing intellectual property rights between businesses and national authorities.
However, good news came from the European Commission in August 2009. A study released showed that the number of counterfeit personal care products seized by EU customs fell by a quarter in 2008 compared to 2007. But many fake cosmetics, personal soaps and perfumes were still discovered – 4.58m items. This made up 4.32% of total fake items seized, according to Brussels. China remained the key source of these counterfeits, with 54.8% of fake personal care items seized coming from that country.
As well as counterfeiting, nanoparticles also proved increasingly controversial in 2009. The European Parliament made the first demand for a comprehensive reform of the EU REACH chemical control system in June, saying it should be changed to take nanomaterials into account.
These tiny particles are frequently integrated into personal care products and MEPs have grown concerned about their potential impact on the environment and on health. In a detailed resolution, the parliament called for all nanomaterials to be considered new substances under REACH, even if they are simply just small particles of chemicals and elements already pre-registered under the system.
The risk of potentially unsafe nanoparticles making their way over the Atlantic to the EU in cosmetic products was found to be unlikely to happen through standard channels but the risk was recognised as high when it came to internet sales, according to Colipa. Director of science and research at Colipa, Gerald Renner, warned last year that importers should follow the same rules as EU manufacturers and a US company has to have somebody in Europe for them responsible for ensuring this happens.
Still on the regulatory side, the European Court of Justice (ECJ) provided greater clarity on trademark laws over the degree to which brand owners can challenge cheaper rivals in their use of comparative advertising, following results of a judgement involving L’Oréal and Belgian perfume manufacturer Bellure.
The ECJ ruled in favour of cosmetics giant L’Oréal after the French C&T group claimed Bellure had an unfair advantage after it infringed a number of L’Oréal trademarks by distributing a list of scents that compared its fragrances to those of L’Oréal products including Lancôme’s Trésor. Previous cases involving similar disputes have focused on confusion of origin and the dilution of a brand’s mark. However this latest ruling demonstrated that confusion of origin does not need to be shown in order for there to be an unfair advantage.
In September, the European Commission released a report highlighting US trade barriers that impede EU cosmetics exports to the US. Brussels and Washington discussed outstanding tariffs and red tape problems through a Translatantic Economic Council, but a new Commission-published US Barriers to Trade and Investment report for 2008 stressed that the barriers hindered trade. With cosmetics, Brussels complained notably about the continued failure to agree on one International Nomenclature of Cosmetics Ingredients (INCI) name in EU and US regulations.
Again from Europe, and from Germany in particular, came new guidance, this time for allergy sufferers to help them choose acceptable cosmetic products. Launched by the country’s asthma and allergy federation, the DAAB, it was supported by the German cosmetics industry association (IKW) and the Ministry for Consumer Affairs (BVM). The guidance will enable allergy patients to compare the contents of cosmetics listed in the so-called International Nomenclature of Cosmetic Ingredients (INCI) to identify potentially allergenic agents relevant to their particular conditions.
Meanwhile issues were raised for manufacturers of lipsticks. The Food and Drug Administration (FDA) found lead levels in lipstick much higher than those found in a study conducted in 2007. While the 2007 study named L’Oréal, Maybelline and Cover Girl (Revlon) as brands with consistently higher lead levels, in 2008 the FDA refused to name them. However it concluded that earlier methods of testing were very likely to have underestimated the levels of lead found in lipsticks. The FDA has no standard for the amount of lead allowed in lipstick products, however studies suggest that there is no safe lead exposure level for pregnant women, which remains an issue to be addressed.
An eventful year
By last month, this particularly challenging year for C&T markets was still showing mixed results. However optimistic rumours have started to emerge that the recession is drawing to something of a close and this appears to be the case when looking at some multinationals’ recent moves.
L’Oréal inaugurated its first green energy production unit at its Libramont site in the south of Belgium towards the end of last year. The site employs around 450 workers and produces colouring kits for hair care products sold on the European market. The new biomethanisation unit will enable the site to produce its total electricity requirements and 80% of its heating requirements.
The end of 2009 brought another crop of results displaying mixed fortunes. L’Oréal retained its confidence in the financial market with third quarter 2009 figures showing a minor dip of only 0.7% in sales to t4.2bn. Sales in the first nine months of this year went up by 0.7% to t13bn. Groups sales in terms of comparable year-on-year conditions were up 0.8%, above forecasts, while sales dropped in North America but remained strong in Asia and Latin America.
Meanwhile, Henkel announced recovery from a difficult start to its fiscal year as it revealed its Q3 results. Although sales were down by 7.3%, operating profit was up by t191m to t290m. Another German favourite, Beiersdorf’s business growth came largely from cosmetics with sales up in both its domestic markets and the emerging markets of China, Brazil and the rest of Latin America. The company said it expects to generate a margin of around 11% for the coming year as a whole.
It appears that manufacturers have been weathering the credit storm by being determined, bold and by continuing launch activity to draw in consumers. While emerging markets provided profits in place of a US slump in some cases, it seems that once the economic recovery becomes a reality, the C&T market will really have a chance to right itself and move on.